VAT and Indirect Tax in the GCC December 2015

1

Introduction to Indirect tax What is an indirect tax?

Sales Tax Single-stage general consumption tax

Customs & Excise duties Duties on imported goods

VAT Multi-stage general consumption tax

VAT and Indirect Tax in the GCC

Indirect Tax

Other Hotel/Tourist tax, environmental tax

An indirect tax is a tax levied on the consumption of goods and services rather than on income or profits.

2

How important are Indirect taxes? Statistics tell the story % Average share of total revenue 40 36 35 31 30 26

30

32 30

33

20

18

15 10

12 9 8

5 0

13

19 16 16 11

9

31

25

25

20

20

19

19

11

11

11 Specific consumption taxes

8

9

5

5

2010

2 0 11

27

25 24

31

31

Consumption taxes – total

24 Personal income tax 20 General consumption taxes 20 …of which VAT

17 13 8

8

10

8 6

5

6

6

1975

1985

1995

2005

Corporate income taxes Property taxes

2 1965

VAT and Indirect Tax in the GCC

Source: OECD 3

Overview of Indirect tax in the GCC Current Indirect Tax situation Bahrain: • No VAT • No Sales Tax • Customs duties (GCC) • Excise duties (GCC) • Other Saudi Arabia • No VAT • No Sales Tax • Customs duties (GCC with some higher rates) • Excise duties (GCC) • Other

Oman: • No VAT • No Sales Tax • Customs duties (GCC) • Excise duties (GCC) • Hotel/Restaurant Tax • Other

VAT and Indirect Tax in the GCC

Qatar • No VAT • No Sales Tax • Customs duties (GCC) • Excise duties (GCC) • Other

UAE: • No VAT • No Sales Tax • Customs duties (GCC) • Excise duties (GCC) • Hotel/Tourist Tax • Other

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The Tax Reform Debate What drives decision makers in the Middle East Demographics

Debt

• Planning for an education hungry, older, future state with long term illness a feature of longer lives

• Growth in the top line to balance budgets or generate surpluses • Helps to responsibly fund historic or planned deficits

Revenue stability

International pressure VAT and Indirect Tax in the GCC

•

Provide for counter cyclical spending

•

Hydrocarbon values notoriously volatile

•

Replace ineffective/inefficient fiscal measures

•

General trending towards convergence

•

Zero tax does not mean no tax burden

•

Revenue loss can be to another country 5

The Tax Reform Debate (Contd.) Revenue stability Relative share of oil and non-oil revenues of GDP (%)

Fiscal breakeven 2014/15

51

67

71.1 77.6

53

72

60

52.3 53.3

50 40

64 49

33

Saudi Arabia

United Arab Emirates

Qatar Oil

Kuwait

Non-oil

Source: IMF, Bloomberg Business Week VAT and Indirect Tax in the GCC

Oman

Bahrain

United Arab Emirates

0

Saudi Arabia

28

10

Qatar

47

Oman

20

54

Bahrain

30

Kuwait

70

46

74.3 73.3

36

80

86.1 90.7

90

101.6 107.5

119.2 116.4

100

Source: Financial times, OPEC 6

36

70

46

53

51

67

71.1 77.6

80

72 52.3 53.3

60

74.3 73.3

90

86.1 90.7

100

101.6 107.5

119.2 116.4

Where is Indirect tax heading in the Middle East Revenue stability

50 40

64

30 20

54

47

49

33

28

10

Bahrain

Non-oil

United Arab Emirates

Oman

Saudi Arabia

Oil

Kuwait

Qatar

Qatar

Oman

United Arab Emirates

Kuwait

Saudi Arabia

Bahrain

0

$102 $35

Source: Bloomberg

VAT and Indirect Tax in the GCC

$901,970M

$825,946M 9

VAT & GST Globally 150+ countries have a VAT/GST Asia 26 Europe 53 Americas 30

19 Countries In the Carribbean, Cenral & North America

11 Countries In South America

VAT and Indirect Tax in the GCC

Africa 44

Oceania 7

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Overview of Indirect tax in the GCC (Contd.) Why VAT? Cons

VAT and Indirect Tax in the GCC

Pros

9

Indirect taxes - Mechanics of VAT VAT - A simple worked example

Forester Glossary: •

Input VAT

•

Output VAT

•

VAT Return

•

VAT Exemption

•

Zero rate supplies

•

VAT liability

•

VAT refund

VAT and Indirect Tax in the GCC

AED10,000 + VAT

Tax authority

Cuts trees and sells to

Furniture manufacturer Payment of AED1,500 VAT

AED30,000 + VAT

•

Assuming a standard VAT rate of 5%

•

Private customer bears the VAT cost

Makes table and sells to

Private customer

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Indirect tax Complications “Beyond the everyday world, both counsel have explained to us, lies the world of VAT, a kind of fiscal theme park in which factual and legal realities are suspended or inverted.”

VAT and Indirect Tax in the GCC

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Status of VAT in the GCC What we know

6 Year implementation from date of total agreement

32

Food items relieved from VAT Sectors broadly relieved from VAT (healthcare and education)

VAT and Indirect Tax in the GCC

GCC Countries

Year implementation in UAE

94

2

5

% is one of the suggested rates for the GCC by the IMF

12

Summary Key points to consider • Strong likelihood of VAT implementation by at least some of the GCC countries • Reasonably standard VAT model would be expected • To be seen if a multi-country or single/dual country initial move • Businesses likely to be given plenty of advanced warning (approximately two years) • Other tax reform measures being expected from some of the GCC countries − e.g.: Kuwait has already issued some Ministerial statements regarding the potential introduction of a uniform corporate tax on both foreign and local companies.

VAT and Indirect Tax in the GCC

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Speaker bios Indirect tax contacts Deloitte – Head of Indirect Tax Stuart Halstead Director – Head of Indirect Tax Deloitte LLP UAE – Dubai Telephone: +971 (0) 45 064 700 Email: [email protected]

Deloitte Andreas Agapiou Assistant Manager – Deloitte LLP UAE – Dubai Telephone: +971 (0) 45 064 852 Email: [email protected]

VAT and Indirect Tax in the GCC

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