KSA has released an update regarding an increase of Value Added Tax (VAT). The new rate of VAT is set to be increased from 5% to 15% and is due to come into effect from 1 July 2020.
This is a major rate increase and one of the fiscal actions taken by Saudi Arabia Government to alleviate the negative effects of the global pandemic COVID-19 and other macro-economic developments on public finance. The new VAT increased rate is due to apply to all supplies of services and goods that are currently subject to the VAT rate of 5%.
As a result, all KSA companies and corporate groups holding an entity within their KSA structure ought to study how the VAT rate increase will affect and have an impact on their business overall. Areas to examine carefully include the following:
The GCC VAT Framework Agreement currently consists of the 6 GCC countries / 6 member states and specifies 5% VAT rate. To date the 5% VAT rate has been rolled out and implemented by 3 countries including: the United Arab Emirates, Kingdom of Saudi Arabia, and Bahrain. Within KSA VAT Law or its Implementing Regulations it does not include or reference to the 5% VAT rate. Therefore, the GCC VAT Framework Agreement can only be amended by agreement of all the 6 GCC countries. At this time, it is unclear if the rate increase would require amending the GCC VAT Framework Agreement or if KSA will amend its current KSA VAT Law.
The United Arab Emirates Ministry of Finance has announced that it has no plans to follow the Kingdom of Saudi Arabia by increasing its current VAT rate. Younis Haji Al Khoori, undersecretary of the UAE’s Ministry of Finance has confirmed that UAE’s VAT rate is to remain the same. He further mentioned that the Ministry of Finance are studying their financial systems to ensure their readiness to manage the next stage and support all vital sectors.
The ministry is devising several programs and projects to enhance their ability to continue the development process and to put people as their top priority. This is essential to build a secure future and achieve the well-being and stability of the UAE.
This is reassuring to many and displays the UAE’s efforts to support its people. One support measure we have already witnessed is the extension for the due date for payment of VAT from 31 March 2020 until 28 May 2020, this will certainly aid the country’s economy during the current economic crisis.
As the UAE has confirmed it will not increase its current VAT rate it is uncertain which direction Bahrain will follow. The effects of an increase of VAT will be far reaching for most clients. Issues such as cashflow management, system amendments and transitional treatment of taxable transactions are all items that should be on every affected business’s agenda.
If your company needs any assistance discussing the impact of this change, the team at Creation would be happy to talk through some of the options available to minimise the disruption to company’s operations. To reserve your free consultation visit our website www.creationbc.com email [email protected] or call +971 4 878 6240.
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