Most Gulf firms not prepared for 2018 VAT deadline: EY survey

Half the businesses in the GCC region are yet to start preparing for the proposed introduction of value-added tax (VAT), which is scheduled to come into effect early next year, a survey by accounting firm Ernst & Young revealed.

Moreover, only 11 percent of respondents said that they have assessed the changes that are needed to their financial, operational and information technology processes, the report said.

VAT will impact all key areas of business operations, and companies will need to address contractual, financial and technology considerations in advance.

Implementation challenges include finance and administration issues – such as cash flow, VAT refunds, input tax recovery, tax payments and accounting periods, imported services – as well as information technology issues.

Companies will have to also address procurement and human resources issues, E&Y said.

Saudi Arabia’s Shura Council approved the GCC VAT framework in January this year, with officials from the kingdom’s ministry of finance indicating that a 5 percent levy will be introduced starting January 1, 2018. The tax is expected to apply to goods and services as decided in the GCC agreement.

Last month, the United Arab Emirates reaffirmed that the GCC governments were planning simultaneous adoption of VAT starting next year.

The GCC VAT framework, which calls for a standard VAT rate of 5 percent, has allowed exemption in the education, health, real estate, and transport sectors.

The member states also have the right to subject the oil sector, petroleum derivatives, and gas to a zero rate of VAT.

The export of goods to jurisdictions outside of the GCC will be subject to a zero rate of VAT, the report said, adding that member countries can also exempt financial services.

Businesses with annual revenue exceeding $100,000 or equivalent in the currency of the member state will be required to register for VAT.

Meanwhile, VAT registration will be optional for businesses with annual revenue between $50,000 and $100,000.

Write to Nadeshda Zareen at nadeshda.zareen@argaamplus.com