Cooperation Council (GCC) was also in the Global Tax 50
On the website of the newly-created United Arab Emirates
federal tax authority's website, there is a hefty FAQ section.
The first frequently-asked question: What is tax?
When the six countries which make up the GCC first announced
that they would be bringing in a unified VAT on January 1 2018,
most companies took it with not so much a pinch but a handful
of salt. However, the sceptics have – in part, at
least – been proven wrong.
While introducing taxes has been talked of in the past,
enduringly low oil prices have pushed the GCC to take VAT
implementation seriously due to unworkable national budgets.
Saudi Arabia, for example, needs an oil price of around $106
per barrel to 'break even' on its budget. Oil started the year
at $55 a barrel, falling as low as $45 and rallying to the $60s
by December 2017 – put simply, the GCC needs tax
While it has been a year of draft laws and false dawns in
some jurisdictions, Saudi Arabia and the UAE (which has a
break-even price of around $73 per barrel) will introduce VAT
on January 1. But Bahrain, Kuwait, Oman and the
partially-ostracised Qatar (break-even price: around $56 per
barrel) will delay VAT implementation for six to 12 months, or
perhaps even longer.
Even if it does take another year or two for VAT to be
introduced across the GCC, this is still a massive achievement.
While India's GST implementation had its complexities due to
conflicting national and state interests, this is the first
time a group of countries has introduced a unified VAT or GST
system (nearly) simultaneously.
The only comparable example is the EU, on which the GCC's
VAT system has been modelled. But when the EU system was
formed, and when its VAT rules were being legislated, its
member states were already familiar with VAT, and most had
their own systems – as attested to by the derogations
from the VAT Directive.
The impact of the move to VAT in the GCC – however
smoothly or chaotically it happens – will be immense.
In some GCC countries, tax is simply not a concept people are
familiar with, as the UAE tax authority's FAQ section
For large global companies with vast tax departments, which
are well-versed in VAT, the main problem in this jurisdiction
will be the inexperience of the tax authorities, which in the
UAE had to be built practically from scratch to administer VAT.
Conversely, there are businesses throughout the GCC that find
themselves almost completely unprepared for the changes,
lacking the basic expertise required to carry out basic tasks
like preparing a VAT invoice.
As late as April 2017, International Tax Review
reported that half of businesses, including MNEs, operating
across the Middle East or selling into the region had not
started preparing for the new VAT system.
This means plenty of work for advisory firms, many of which
have scrambled to open up offices in the region during the past
12 months, with numerous staff migrating to Dubai, Riyadh and
Kuwait City. And it's not just advisory firms; companies are
sending members of their tax departments over to the region to
ease the shock of implementation, too.
"I remember when Australia introduced its VAT system back in
2000, there was an exodus from the EU VAT advisory community at
that point," says Mark Agnew, tax director at Baker McKenzie.
"I think this is on a much bigger scale because of the
magnitude of the system."
Matthew Dwyer, a global tax recruiter at Cain Dwyer, says
that "the growth numbers and stats for indirect tax teams are
staggering", adding that the Big 4 in particular have been able
to "front-load" their teams by bringing in staff before the
January 1 2018 implementation date.
In such a key global region, where the vast majority of
global companies will have operations or a trading
relationship, getting VAT right will take time. However, a lack
of readiness on the part of some businesses – and a
lack of experience in dealing with VAT from the tax authorities
and still more businesses – will make it a difficult
start to 2018 for those involved.