Introduction of VAT in GCC Countries – Challenges for business

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VAT in GCC Countries

The GCC (Gulf Cooperation Council) countries have decided to instigate a value-added tax (VAT) which can prove to be a boon for the business life in the countries if they facilitate themselves according to the new system in advance. The VAT framework contract has been signed by all GCC countries and is anticipated to be implemented from 1st January, 2018. The rate of 5% will be charged on most of the goods and services as VAT.

VAT is likely to set some challenges for business in all GCC counties in the form of costs and sales, cash flow, intra GCC transactions and international trade. As of now, for the cross border trade of goods, there are various rules and regulations regarding import and export and the formalities regarding customs need to be fulfilled by businesses along with the different kind of duties to be paid. And now the introduction of the new tax will add itself on the list, which if not planned well can hurt the financial viability of businesses.

Just like that, in the intra trade between GCC countries too, businesses will have to deal with different VAT treatment for supplying goods and services as the countries are free to adopt the VAT policy according to their own domestic legislation which would result into treacherous trade if not done with due care.

Businesses will require developing the system to train their workforce about collection and payment methods of tax to the Government authorities and the analyses and scrutinize of the procurement processes need to be done by the thorough insight of the new tax. Also, operating models and legal contract and strategy should be done promptly. It’s obvious that these countries don’t have much 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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