VAT Changing the Outlook for GCC Businesses
25 July 2018
The arrival of VAT has created substantial work for businesses in those countries in the GCC who have recently implemented the new tax. Upgrading systems and arrangements will be vital, including looking at old systems which will no longer meet the required reporting standards. VAT clauses in contracts and efforts to create VAT efficiencies throughout corporate groups will be needed – this requires companies to look closely at their frameworks, systems and contracts.
In the past, smaller businesses in the region may not have kept paper records of transactions; they will now have to set up the appropriate mechanisms to do that, to collect monies and pay taxes to the government.
There will be a need for businesses to register, implement systems, hire staff and train existing staff in a system entirely new to the region.
International businesses may find themselves at an advantage; they will likely already have systems in place to deal with tax and VAT, particularly across multiple jurisdictions. Meanwhile, local businesses may not know where to start, resulting in a very clear difference.
The implications for the way people operate are potentially significant. The introduction of VAT is about creating a more transparent business environment, albeit driven by the primary motivation of revenue generation in the UAE and Saudi.
The introduction of VAT will have an impact due to the need to document, keep records, take professional advice, consider the implications of getting things wrong from a tax perspective and organise structures to derive tax benefits. Businesses in the UAE have never had to think about how to make deals tax efficient before, meaning the introduction of VAT will be a significant change.
Some sizeable family businesses in the Middle East have informal group structures and aren’t necessarily owned in a coherent manner. For the first time, clients are now having to think about reorganising their groups and structuring them in line with the changes. There is talk that in the future certain members of the GCC may introduce corporation tax. If this happens, tax structuring will become a primary driver for the way that groups are established, mirroring more developed markets around the world.
While ostensibly the introduction of VAT is a revenue generation measure driven by low oil prices, the arrival of VAT in the Gulf is clearly the next step in the coming of age of the region’s economies.