Deloitte launched the third volume in a series of whitepapers designed to help businesses in the Gulf Cooperation Council (GCC) understand the impact of Value Added Tax (VAT) and how their business processes will be affected according to their specific industry.

The third volume of Deloitte’s “VAT in the GCC – Insights by industry” whitepaper provides a high level overview of the impacts VAT may have on family offices; importers, exporters and free zone entities; and technology, media and telecommunications (TMT). Moreover, in the first chapter of this volume, Deloitte answers key VAT questions on timing, similarity of GCC system to the European Union (EU) model, what might be exempt or zero-rated, if VAT rate is here to stay and other key areas about the current status of the indirect tax in the Gulf.

The Deloitte whitepaper also discusses the outcome of Deloitte’s recent “VAT in the GCC pulse survey” which was held to gauge business’ attitudes towards the introduction of VAT with a comparison to insights from Malaysian businesses that have very recently been through a Goods and Services Tax (GST) implementation process.

“Family offices, importers and exporters, and the TMT industry will be impacted by VAT in various ways, so the need to ensure they are prepared for when VAT is introduced from 1 January 2018 is clear. The Deloitte whitepaper outlines potential scenarios and treatments of VAT for these businesses which may help them determine what operational and procedural changes are required. We advise businesses to review their structures and operations to ensure they will be compliant,” said Justin Whitehouse, Deloitte Middle East Indirect Tax Leader.  

VAT impact on family offices

At this stage, the GCC has not indicated how family offices will be treated for VAT purposes. Questions remain about whether family offices will be recognized as business and allowed to register for VAT, or whether the business test will be applied as a pre-requisite.

However, every family office operating in the GCC will be affected by VAT because anything purchased in the GCC is likely to be subject to VAT. In addition, family offices will inevitably be dealing with VAT registered businesses as suppliers, or advisers to the family, and they will need to ensure that the VAT is treated correctly.

“To mitigate possible difficulties with VAT, it is important the family’s office processes and procedures and expenditures are reviewed, and that family and business expenditure are separated. Not only is this good business practice, but it also minimizes the risk of excess reclaims or under-reporting of VAT,” explains Fiona Mcclafferty, Deloitte Middle East Family offices Tax specialist. 

VAT impact on importers, exporters and free zone entities

In terms of import and export activities, VAT will interact with customs duty and customs authorities at national borders. Import VAT should be payable on the customs duty inclusive value of taxable goods introduced into the GCC from outside countries. VAT reporting and invoicing requirements will likely be activated on intra GCC movements of goods between member states. Importers and exporters may continue to rely on existing processes and control.

“Take note that complexities could arise where practical arrangements do not meet VAT requirements, or result in increased compliance or cash flow costs. While uncertainty remains around the places VAT will be paid and recovered, going forward importers and exporters need to ensure they have and store clear documentation of transaction flows in the region from an operational, contractual and practical position to be VAT compliant,” explains Adrienne D’rose, Deloitte Middle East Customs leader.

In the meantime, there remains uncertainty about how VAT relief for businesses operating in free zones will occur, but free zone entities should note that ‘on-shore’ costs across the region may increase if they are not entitled to register for VAT in the location where VAT is incurred.

 Technology, Media and Telecommunications

One of the main VAT issues with TMT is knowing in which country VAT is payable. Businesses in the TMT industry need to ensure their processes and IT systems are able to capture, store and provide evidence of where their services are being consumed.

Another complicating factor is that the definitions of TMT services will be set out in each GCC member state’s regulations. This could lead to both different definitions and different VAT treatments of similar supplies between countries.

“Businesses should review transactions, their roles and parties involved in the supply of services to determine how they might fit within the expected VAT law of each of the GCC member states,” explains Doukje De Haan, TMT industry VAT expert.

Click here to access the full Deloitte whitepaper. To explore the impacts of VAT on another range of industries you can access volume 1 and volume 2 of the whitepaper series on the Deloitte website or under the “learning materials” tab of the Deloitte “VAT in the GCC guide” mobile app.

Deloitte launched the third volume in a series of whitepapers designed to help businesses in the Gulf Cooperation Council (GCC) understand the impact of Value Added Tax (VAT) and how their business processes will be affected according to their specific industry.

The third volume of Deloitte’s “VAT in the GCC – Insights by industry” whitepaper provides a high level overview of the impacts VAT may have on family offices; importers, exporters and free zone entities; and technology, media and telecommunications (TMT). Moreover, in the first chapter of this volume, Deloitte answers key VAT questions on timing, similarity of GCC system to the European Union (EU) model, what might be exempt or zero-rated, if VAT rate is here to stay and other key areas about the current status of the indirect tax in the Gulf.

The Deloitte whitepaper also discusses the outcome of Deloitte’s recent “VAT in the GCC pulse survey” which was held to gauge business’ attitudes towards the introduction of VAT with a comparison to insights from Malaysian businesses that have very recently been through a Goods and Services Tax (GST) implementation process.

“Family offices, importers and exporters, and the TMT industry will be impacted by VAT in various ways, so the need to ensure they are prepared for when VAT is introduced from 1 January 2018 is clear. The Deloitte whitepaper outlines potential scenarios and treatments of VAT for these businesses which may help them determine what operational and procedural changes are required. We advise businesses to review their structures and operations to ensure they will be compliant,” said Justin Whitehouse, Deloitte Middle East Indirect Tax Leader.  

VAT impact on family offices

At this stage, the GCC has not indicated how family offices will be treated for VAT purposes. Questions remain about whether family offices will be recognized as business and allowed to register for VAT, or whether the business test will be applied as a pre-requisite.

However, every family office operating in the GCC will be affected by VAT because anything purchased in the GCC is likely to be subject to VAT. In addition, family offices will inevitably be dealing with VAT registered businesses as suppliers, or advisers to the family, and they will need to ensure that the VAT is treated correctly.

“To mitigate possible difficulties with VAT, it is important the family’s office processes and procedures and expenditures are reviewed, and that family and business expenditure are separated. Not only is this good business practice, but it also minimizes the risk of excess reclaims or under-reporting of VAT,” explains Fiona Mcclafferty, Deloitte Middle East Family offices Tax specialist. 

VAT impact on importers, exporters and free zone entities

In terms of import and export activities, VAT will interact with customs duty and customs authorities at national borders. Import VAT should be payable on the customs duty inclusive value of taxable goods introduced into the GCC from outside countries. VAT reporting and invoicing requirements will likely be activated on intra GCC movements of goods between member states. Importers and exporters may continue to rely on existing processes and control.

“Take note that complexities could arise where practical arrangements do not meet VAT requirements, or result in increased compliance or cash flow costs. While uncertainty remains around the places VAT will be paid and recovered, going forward importers and exporters need to ensure they have and store clear documentation of transaction flows in the region from an operational, contractual and practical position to be VAT compliant,” explains Adrienne D’rose, Deloitte Middle East Customs leader.

In the meantime, there remains uncertainty about how VAT relief for businesses operating in free zones will occur, but free zone entities should note that ‘on-shore’ costs across the region may increase if they are not entitled to register for VAT in the location where VAT is incurred.

 Technology, Media and Telecommunications

One of the main VAT issues with TMT is knowing in which country VAT is payable. Businesses in the TMT industry need to ensure their processes and IT systems are able to capture, store and provide evidence of where their services are being consumed.

Another complicating factor is that the definitions of TMT services will be set out in each GCC member state’s regulations. This could lead to both different definitions and different VAT treatments of similar supplies between countries.

“Businesses should review transactions, their roles and parties involved in the supply of services to determine how they might fit within the expected VAT law of each of the GCC member states,” explains Doukje De Haan, TMT industry VAT expert.

Click here to access the full Deloitte whitepaper. To explore the impacts of VAT on another range of industries you can access volume 1 and volume 2 of the whitepaper series on the Deloitte website or under the “learning materials” tab of the Deloitte “VAT in the GCC guide” mobile app.