GCC Indirect Tax News Roundup - Quarter Two 2024

Anticipating VAT Implementation in the GCC: A Strategic Approach for Qatari Businesses

Though the exact timeline remains uncertain, it is inevitable that all GCC countries, including Qatar, will implement Value Added Tax (VAT). Businesses in Qatar that proactively prepare for VAT can minimize disruptions and seize growth opportunities in the country's evolving economic landscape.

Learning from the experience of other GCC nations, VAT has shown to significantly impact businesses both operationally and financially. Consequently, it is crucial for Qatari businesses to start assessing their procurement processes, operating models, IT systems, contracts, and legal structures in anticipation of VAT. Early preparation can help mitigate potential challenges and streamline the transition.

One of the key lessons from VAT implementation in other GCC countries is the importance of staff training on VAT regulations and compliance procedures. Ensuring that employees are educated and trained on VAT regulations is vital for maintaining compliance and operational efficiency. Additionally, many companies will need to upgrade their IT systems, which were not originally designed with taxation in mind. This disconnect between IT and finance/tax functions can pose significant challenges, as IT teams might lack the necessary data for accurate VAT returns.

Understanding and implementing VAT regulations requires substantial time and resources. Various sectors, such as oil and gas, financial services, real estate, healthcare, education, and transportation, may benefit from exemptions or special rules, which demand careful interpretation and compliance. VAT impacts supply chains by adding costs at each production and distribution stage, affecting cash flow, and imposing a compliance burden with invoicing, record-keeping, and reporting requirements.

In conclusion, adopting a strategic approach is essential for businesses. By understanding sector-specific nuances, investing in training, and upgrading systems, companies can ensure a smooth transition and capitalize on the opportunities presented by this significant regulatory change. Proactive preparation today will lead to a more resilient and adaptable business environment tomorrow.

Explore our dedicated webpage and how to effectively prepare and stay informed about VAT in Qatar here.

The United Arab Emirates (UAE)

Value Added Tax

VAT Public Clarification - Services provided by a natural person as a director on a board of directors

The Federal Tax Authority (“FTA”) has issued a Public Clarification (VATP037) on 13 May 2024, replacing the previously issued clarification by the FTA (VAT031), to provide clarity on the VAT treatment of services provided by a natural person as a director on a board of directors.

The Public Clarification has not made major changes in respect on the original contents of the replaced Public Clarification (VATP031), while confirming that the exclusion of director services from the qualification of “supply of services for UAE VAT purposes” can extend to services performed as a member of a committee derived from the same board on which the director serves.

The Public Clarification provided examples to emphasize that only the services performed in the formal capacity as director can be outside the scope of UAE VAT. Services rendered by a third-party natural person who is not a director during the meetings of a board of directors or any committee derived therefrom shall be considered as a supply of services for VAT purposes and will be taxable subject to meeting other conditions.

On the other hand, the same transitional and deregistration rules provided in the previous Public Clarification (VATP031) are applicable to the services performed as a member of a committee by a natural person in the formal capacity as director.

Further details are available in PwC’s news alert that can be accessed via this link.

VAT Public Clarification - Manpower vs Visa Facilitation Services

The Federal Tax Authority (FTA) has issued a Public Clarification (VATP038) to clarify the distinctions between manpower services and visa facilitation services for VAT purposes. This Clarification aims to guide taxpayers in determining the nature of these supplies and applying the relevant VAT valuation rules.

• Manpower Services involve the identification, recruitment, and hiring of candidates, with the supplier being responsible for employment obligations such as payment of salaries, benefits, and supervision. These services are considered a taxable supply when made in the UAE, with VAT applied to the total consideration, including all related costs.

• Visa Facilitation Services refer to administrative services to facilitate the visa process for employees hired by another entity. Key conditions for a service to qualify as visa facilitation include:

  • The supplier and recipient must be part of the same corporate group but not necessarily the same tax group.

  • The supplier should not supply manpower services.

  • The supplier is not responsible for any employee obligations beyond visa-related costs.

  • Employees must work exclusively for the recipient of visa facilitation services.

Visa facilitation services are also taxable when made in the UAE. In general, the consideration for visa facilitation services excludes employee salaries and other benefits, focusing only on administrative charges such as typing fees, medical tests, and Emirates ID issuance.

Special valuation rules shall apply for supplies between related parties and those made without consideration, based on market value or total cost incurred.

The Public Clarification (VATP038) is accessible through this link.

The Kingdom of Bahrain (Bahrain)

Value Added Tax

NBR has published the updated VAT General Guide (version 1.10)

The National Bureau for Revenue (NBR) has issued new updates in the VAT General Guide, version 1.10. This update includes important changes to Section 10.10 regarding bad debt relief and, guidelines on how to claim VAT charged on expenses related to mobile phones and vehicles, detailed in Section 15 of the VAT General Guide. 

Major changes to the Guide are as follows:

• Bad debt relief - The updated Guide clarifies the specific conditions under which businesses can claim bad debt relief, emphasizing the necessity for the debt to be more than six months overdue and written off in the company’s accounts. It specifies the required documentation to support a claim, including evidence of the supply, invoices, and efforts made to collect the debt. Additionally, it outlines the step-by-step procedure for claiming bad debt relief, ensuring compliance with the VAT law.

• Claiming VAT on expenses for mobile phones and vehicles - For mobile phones, the updated Guide provides detailed guidance on the conditions under which businesses can reclaim VAT on expenses, stressing the need for phones to be used primarily for business purposes. The rules for claiming VAT on vehicle-related expenses have also been updated, including restrictions on private use and the necessity of maintaining detailed usage logs. The importance of maintaining proper records and invoices to substantiate claims is highlighted.

The updated Guide is accessible 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 future ready. 

For a deeper discussion on various aspects listed in the publication that are applicable to your business, please get in touch.