New reporting requirements to combat VAT fraud
The EU has introduced, under EU Council Directive 2020/284 (“CESOP Directive”), a new requirement for payment service providers to submit details of cross-border payments to a new platform: CESOP.
Payment Service Providers (“PSPs”) in the EU will be required, as of 1 January 2024, to keep electronic records of payment data for cross-border payments and to exchange these records with a newly established central EU-database. The purpose of this new reporting obligation is to combat VAT fraud.
This will provide local tax authorities with an additional tool with which to combat VAT fraud and non-compliance, identifying payments that may relate to commercial activities and, if so, whether the recipient of funds is compliant with local tax obligations.
Who needs to report?
Where both the payer (i.e. the sender of funds) and the payee (the recipient of funds) are located in the EU, the requirement to report to the local tax authorities is with the PSP of the payee. However, where the payee is located outside of the EU, the reporting requirement falls to the PSP of the payer instead. Note that certain PSPs, such as marketplaces and e-money providers, will act as the PSP for both the payer and the payee.
Impact on Middle East businesses
Middle East PSPs with EU presence (or those that offer payment services in the Middle East), that offer in scope cross border payment services via an EU or European Economic Area (“EEA”) based entity will come into scope of the new rules. It is therefore imperative for Middle East businesses to be prepared ahead of the fast approaching CESOP reporting deadline.
PwC issued an alert that provides additional details on the implementation and impact of the newly established CESOP which can be read here.
An overview of the current indirect taxes applicable in the GCC
UAE:
VAT standard rate of 5% (reduced VAT rate 0%).
Excise Tax rates: 100% for tobacco, tobacco products, electronic smoking devices and energy drinks; and 50% on carbonated and sweetened drinks.
KSA:
VAT standard rate of 15% (reduced VAT rate 0%).
Real Estate Transaction tax (RETT) applicable at 5% (effective 4 October 2020).
Excise Tax rates: 100% for tobacco products, electronic smoking devices and energy drinks; and 50% on soft drinks and sweetened drinks.
Bahrain:
VAT standard rate of 10% (reduced VAT rate 0%).
Excise Tax rates: 100% for tobacco (and related) products and energy drinks; and 50% on soft drinks.
Oman:
VAT standard rate of 5% (reduced VAT rate 0%).
Excise Tax rates: 100% on tobacco and related products, energy drinks and special purpose goods (pork & alcohol products), 50% on carbonated drinks.
Qatar:
VAT is not yet introduced in Qatar.
Excise Tax rates: 100% for tobacco products and energy drinks and special purpose goods (pork & alcohol products); and 50% on carbonated drinks.
Kuwait:
VAT and Excise Tax are not yet introduced in Kuwait.
The United Arab Emirates (UAE)
Value Added Tax
Updated versions of VAT guides issued by the FTA
The Federal Tax Authority (“FTA”) in the UAE issued updated version of the following guides:
Input Tax Apportionment Guide (June 2023)
The update in the guide is related to the new procedures for filing applications and notifications through the Emaratax portal on the FTA’s website, as opposed to the previous procedures whereby taxpayers were required to submit the applications via email.
VAT Administrative Exceptions Guide (June 2023)
The update relates to simplification of the guide and updated descriptions of fields in Administrative Exception application as per Emaratax portal.Taxpayers are required to file for admin exceptions through their respective Emaratax portal and the guide is provided to explain when and how the application for seeking an Administrative Exception from certain compliance obligations in the VAT legislation can be submitted.
Emirates wise reporting rules for e-commerce businesses now live
The new reporting rules for e-commerce businesses went live with effect from 1 July 2023. Under these rules, resident taxpayers are required to report taxable supplies made through e-commerce in the Emirate in which the supply is received, when the total value of supplies made through e-commerce subject to this reporting requirement exceeds AED 100 million (equivalent to approx. USD 27 million) per calendar year. The detailed news alert previously issued by PwC can be read here.
The Kingdom of Saudi Arabia (KSA)
Value Added Tax
Rulings submission - Proposed amendment to the provisions of Article 75 of the VAT Implementing Regulations
The Zakat, Tax and Customs Authority (‘ZATCA’) had published a proposed amendment to the provisions of Article 75 of the KSA VAT Implementing Regulations whereby provisions of paragraph (5) of the aforesaid Article has been intended to be deleted.
The proposed amendment was published on the Public Consultation Platform of the National Competitiveness Center on 9 April 2023 - for public consultation.
For further information, please refer to the newsalert issued by PwC through this link.
Following consultation, the proposed amendment, together with a number of other amendments were approved and published. Additional details are provided in the update below.
Approved amendments to the VAT Implementing Regulations
The Board of Directors of ZATCA through decision number (01-04-23) dated 26/11/1444 (corresponding to 15 June 2023) have approved amendments/additions to the various provisions of the VAT Implementing Regulations.
The approved amendments/additions have been published in the official Gazette on 23 June 2023 and can be accessed here. The announcement is accessible through this link.
The effective date of the aforesaid amendments/additions is from the date of publication in the official gazette (i.e. 23 June 2023) as the announcement states.
For further information, please refer to the newsalert issued by PwC through this link.
Eligible used goods and the Profit Margin Method
On 19 May 2023, ZATCA announced the effective date for using the Profit Margin Method in relation to the supply of eligible used goods (used cars) to be from 1 July 2023 onwards. In this regards, ZATCA released the following:
Announcement on the additional requirements for invoices to be issued under Profit Margin Method. The document can be accessed here.
Guidelines on applying profit margin method in relation to the supply of eligible used cars. Currently, the document is only available in Arabic and can be accessed here.
For further information, please refer to the newsalert issued by PwC through this link.
E-invoicing
Electronic invoicing - Proposed amendments issued for public consultation
ZATCA proposed amendments to the controls, requirements, technical specifications and the procedural rules for implementing the provisions of the E-invoicing regulation, for public consultation.
A new functionality has been proposed to be included for advance payments (prepayment) and the inclusion of charges, etc. on the invoices/notes. In addition, certain updates have been proposed in relation to the business rules and changes in the obligations.
The Proposed amendments were published on the Public Consultation Platform of the National Competitiveness Center on 4 April 2023 - for public consultation.
Further information is accessible through this link
Updated electronic invoicing regulations issued by ZATCA
On 19 May 2023, ZATCA approved amendments/additions and released an updated document for controls, requirements, technical specifications and procedural rules necessary to implement the provisions of the E-Invoicing regulations in the Kingdom of Saudi Arabia (KSA).
The updated requirements for E-Invoicing implementation including controls, requirements, technical specifications and procedural rules can be access through this link.
Further information is accessible through this link.
Electronic invoicing - Integration phase - Wave 4, 5 and 6 updates
ZATCA announced the criteria for the Electronic invoicing (E-invoicing) integration phase - Wave 4, 5 & 6 participants as follows:
| Announcement date | Integration phase | Criteria | Link to news alert |
28 April 2023 |
Wave 4 |
VAT registered taxpayers that have an annual taxable revenue (taxable supplies) exceeding SAR 150 million during the calendar year 2021 or 2022, are required to integrate their E-invoicing solutions with the FATOORA platform starting from 1 November 2023. |
The official announcement can be accessed through this link. Further information is accessible through this link. |
26 May 2023 |
Wave 5 |
VAT registered taxpayers that have an annual taxable revenue (taxable supplies) exceeding SAR 100 million during the calendar year 2021 or 2022, are required to integrate their E-invoicing solutions with the FATOORA platform starting from 1 December 2023. |
The official announcement can be accessed through this link. Further information is accessible through this link. |
13 June 2023 |
Wave 6 |
VAT registered taxpayers that have an annual taxable revenue (taxable supplies) exceeding SAR 70 million during the calendar year 2021 or 2022, are required to integrate their E-invoicing solutions with the FATOORA platform starting from 1 December 2023. |
The official announcement can be accessed through this link. Further information is accessible through this link |
Economic Zones
Establishment of four new Special Economic Zones
On 14 April 2023, the Saudi government announced the establishment of four new Special Economic Zones (SEZs) across various regions of the country.
These new SEZs aim to offer competitive incentives for businesses who will invest in such zones, most notably of which are as follows:
5% Corporate Income Tax rate for up to 20 years;
0% withholding tax on repatriation of profits from SEZ into foreign countries;
Customs duties deferral for goods inside SEZ or 0% Custom duties on capital equipment and inputs inside SEZ;
Flexible and supportive regulations around foreign talent during first 5 years;
0% VAT for all intra-SEZ goods exchanged within and between the SEZs;
Special tax treatment in line with OECD principles to avoid double taxation;
Competitive rate of utilities notably electricity;
Exemption from operational fees for employees and their families within SEZ.
The zones will have their own focused areas based on the location and circumstances of the respective zone. Separate contact lines and communication channels have been established for the investors to register their interest and to acquire further information as required.
Further information is accessible through this link.
Key tax updates
ZATCA’s policies and procedures regarding the most debatable Zakat, Tax and VAT
ZATCA has released guidelines during May 2023 highlighting ZATCA’s Policies and Procedures “P&Ps” regarding the most debatable Zakat, Tax and VAT matters along with the suggested list of documents, information, etc. that are required by ZATCA to accept favourable treatment for the Zakat / Taxpayers. The content of the guidelines is not considered an amendment to any of the provisions of the laws and regulations in force in the Kingdom.
Further, the provided P&Ps may be applicable to the cases under dispute with no final ruling issued yet
Further information is accessible through this link.
Proposed amendments to Zakat & Tax, Excise, VAT and RETT regulations
In continuation of its efforts to develop a more transparent and efficient tax environment, ZATCA has published proposed amendments to Zakat and Tax regulations, Excise law, VAT law and its Implementing Regulations, as well as Real Estate Transfer tax regulations for public consultation through Istitlaa Portal.
The public consultation closing dates are as follows:
Zakat By-Law, Income Tax By-Law, VAT Implementing Regulations, Excise Tax Implementing Regulations and Real Estate Transaction Tax Regulations - 13 June 2023
Income Tax Law, VAT Law and Excise Tax Law - 28 June 2023
Further information is accessible through this link.
The Sultanate of Oman (Oman)
Excise Tax
Expansion of the Digital Tax Stamp system to carbonated drinks, energy drinks and sweetened drinks
The Oman Tax Authority (“OTA”) has already implemented the Digital Tax Stamp system for excisable products namely cigarettes, shisha and other tobacco products. The OTA has further expanded the scheme to include carbonated drinks, energy drinks and sweetened drinks in accordance with the below timelines:
4 May 2023 (System Launch) – System became available for requesting tax stamps.
20 July 2023 (Customs Enforcement) – Prohibition on import of goods into Oman, without tax stamps.
12 October 2023 (Local Enforcement) – Prohibition on local trade of goods within Oman, without tax stamps.
Further information is accessible through this link.
Value Added Tax
Zero-rating on Electric Vehicles and their spare parts
The Oman Tax Authority has announced that it will zero-rate the supply of electric vehicles and their spare parts, in accordance with specified conditions and controls.
No formal Ministerial Decision has been issued yet for the zero-rating on electric vehicles and their spare parts. However, an announcement has been made on the Oman Tax portal.
The zero-rating on electric vehicles and their spare parts is a welcome move by the Oman Tax Authority, contributing to the sustainable practices for ESG initiatives.
Further information is accessible through this link.
New VAT guides released by OTA
The Oman Tax Authority has recently issued VAT guides on the below topics:
VAT Taxpayer Guide for Input Tax - This guide provides clarifications/ guidance on key matters relating to input tax credit, especially relating to input tax incurred by employees, blocked input tax, alternative methods for input tax apportionment, administrative practices for claiming input tax based on supplier’s tax invoices, etc. Further information is accessible through this link.
VAT Taxpayer Guide for Promotions - The guide provides key clarifications/ guidance on various matters in terms of promotion of commercial activities, especially relating to discounts offered to customers, gifts and samples, sale of vouchers, loyalty points, etc. Further information is accessible through this link.
VAT Taxpayer Guide for Charities and Non-profit organisations - The guide provides guidance to charities/ non-profit organisations in Oman and associated suppliers on key matters relating to economic activities carried out by such entities, input tax deduction, exemptions from VAT on imports, issuance of tax invoices, etc.
Further, the OTA has released the English translation of the below VAT Guides that were initially issued in Arabic:
VAT Taxpayer Guide on Related Persons;
VAT Taxpayer Guide on Transportation;
VAT Taxpayer Guide on The Profit Margin Mechanism;
VAT Taxpayer Guide on The Reverse Charge Mechanism;
VAT Taxpayer Guide on Education;
VAT Taxpayer Guide on Transfer of Activity; and
VAT Taxpayer Guide on Healthcare.
The Kingdom of Bahrain (Bahrain)
Value Added Tax
NBR issued a ‘Change of VAT Return Filing Frequency Manual’
On 17 May 2023, the National Bureau for Revenue (“NBR”) in Bahrain updated the “Change of VAT Return Filing Frequency Manual” on their website.
The manual aims to provide an overview of the VAT procedures in the Kingdom of Bahrain in relation to the process of changing VAT filing frequency between monthly, quarterly and annual submission and the necessary guidance needed to navigate the NBR portal to apply for the change in the taxpayer’s filing frequency.
The ‘Change of VAT Return Filing Frequency Manual’ is available in both Arabic and English and can be accessed here.
Updated version of the ‘VAT General Guide’ and ‘VAT Financial Services Guide’
On 14 June 2023, The NBR updated the conditions for zero-rating the supply of investment grade gold in the VAT General Guide as well as the VAT Financial Services Guide.
The update clarifies that the supply of investment grade gold can be zero-rated if the metal purity of the gold is not less than 99%, and it is in a regular form/ shape (e.g., bars in regular shapes, metal coins). This will not apply to gold that is not in a regular form/ shape such as jewellery.
The updated ‘VAT General Guide’ is available in English and can be accessed here.
The updated ‘VAT Financial Service Guide’ is available in English and can be accessed here.
Excise Tax
NBR issued an Excise Return Filing Manual
On 16 May 2023, the NBR issued an Excise Return Filing Manual to provide taxpayers with an overview of the Excise rules and procedures in the Kingdom of Bahrain in relation to the Excise return filing process. The manual also provide guidance to help taxpayers navigate the NBR portal for Excise return filing, payments and refunds.
The ‘Excise Return Filing Manual’ is available in English and can be accessed here.
NBR issued an Excise Registration Manual
On May 2023, the NBR issued an Excise Registration Manual to provide taxpayers with the necessary guidance needed to navigate the online Excise portal and an overview of different types of applications that taxpayers can submit and steps to be followed.
The ‘Excise Registration Manual’ is available in English and can be accessed here.
The takeaway
Taxpayers are now, more than ever, required to keep up with the pace of indirect tax changes in the region and stay ahead of the curve.
For a deeper discussion on various aspects listed in the publication that are applicable to your businesses, please get in touch.
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GCC Indirect Tax News Roundup - Quarter Two 2023
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Chadi Abou Chakra
Middle East Indirect Tax Network Leader, PwC Middle East
Tel: +966 11 211 0400 Ext: 1858
Guido Lubbers
ITX Partner | TLS Middle East Consumer Markets leader, PwC Middle East
Tel: +966 54 110 0432
Gaurav Kapoor
Partner - Tax Reporting & Strategy Leader for Oman, PwC Middle East
Tel: +968 93891546
Carlos Garcia
Partner, Middle East Customs & International Trade, PwC Middle East
Tel: +971 56 682 0642
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