As you may be aware, the Gulf Co-operation Council (GCC), the United Arab Emirates (UAE) and the Kingdom of Saudi Arabia (KSA) will implement a value added tax (VAT) effective from 1 January 2018.
Please note that all the below information are our best interpretation of the law regarding the VAT implementation in UAE and in KSA. You can further take a look at FAQs provided by the tax authorities:
VAT Implementation Timetable
- VAT comes into effect in KSA and the UAE from 7am 1 January 2018.
- Qatar, Kuwait, Oman and Bahrain will also introduce VAT but the implementation date is yet unknown. We anticipate this will be in Q4 2018 for the aforementioned GCC countries.
VAT Highlights (Where there are similarities with KSA and UAE)
- For KSA and UAE the international transport of goods and passengers, and ancillary services related to and provided with the same will be zero rated, i.e. the VAT rate will be 0%.
- Broadly, international transport means a journey which starts from a place in the State to a place outside the State (or vice versa).
- The domestic leg of an international journey can also qualify as “international transport”.
- The “State” is expected to be the 12 nautical mile limit, but this is unconfirmed by the Governments of both the UAE and KSA.
- For some related services the VAT rate will be 5%, e.g. relating to real estate [such as hotel charges] or some domestic journeys.
- Agents commission charged from KSA/UAE the VAT rate will mirror the VAT rate of the underlying services.
- Where there is uncertainty regarding the tax treatment, VAT should/will be charged.
KSA Specific Highlights
- The ancillary services for KSA are specifically defined as follows: Port fees or charges, including docking, mooring, landing and parking fees; charges for customs or immigration clearance relating to the transportation; air navigation services; pilotage services; supplies of crew members; loading, unloading or reloading; stowing; opening for inspection; cargo security services; preparing or amending BOLs, air or sea-waybills and certificates of shipment; packing necessary for transportation; storage services.
- The KSA ancillary services must be provided at a port or airport if they are to be zero-rated.
- KSA restricts the international transport of passengers to vehicles, vessel, aircraft that have a minimum passenger capacity of 10 persons, and these must operate by way of a voyage which runs according to a published timetable. So for example, this rules would seemingly mean that launch vessels carrying employees to oil rigs within the 12 nautical mile limit would be taxable at 5% VAT.
UAE Specific Highlights
- The ancillary services for UAE are specifically defined as follows: Shipment, packaging and securing cargo, preparation of Customs documents, container management, loading, unloading, storing and moving of Goods, or any other closely related services or services that are necessary to conduct the transportation services.
The UAE ancillary services are widely written and so should allow for zero-rating of almost all related services (excluding some real estate and domestic transport examples). These services do not necessarily need to be provided at a port or airport. There are no minimum passenger or published timetable restrictions