Accounting & Bookkeeping

Introduction of VAT in GCC Countries – Challenges for business

VAT in GCC Countries

The GCC (Gulf Cooperation Council) countries have instigated a value-added tax (VAT) which can prove to be a boon. It will be beneficial for business life in the countries if they facilitate themselves according to the new system in advance. All GCC countries have signed the VAT framework contract. We expect that it will implement from 1st January 2018. It will be charged at the rate of 5% on most of the goods and services as VAT.

The VAT is likely to set some challenges in all GCC counties in the form of costs and sales. Also, it will affect cash flow, intra GCC transactions, and international trade. But, as of now, for the cross border trade of goods, there are various rules and regulations. They are regarding businesses to fulfill import and export and the formalities regarding customs. So all these are along with the different duties these countries need to pay. And now introducing the new tax will add itself on the list, which if not planned well can hurt the financial viability of businesses.

Similarly, in the intra-trade between GCC countries too, businesses will have to deal with different VAT treatments. This will apply to the supply of goods and services. The countries are free to adopt the VAT policy according to their own domestic legislation. But it will cause a treacherous trade if not done with due care.

Businesses will require developing the system to train their workforce about the collection and payment methods of tax to the government authorities. Also, the workflow needs to do thorough analyses and scrutiny of the procurement processes of the new tax. Operating models and legal contracts and strategies should be done promptly. It’s obvious that these countries have a little hand on tax regimes. So only the staunch decision of businesses can relinquish the shock of the new tax and maintain financial stability.

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