The Gulf Cooperation Council (GCC) Value Added Tax (VAT) Framework Agreement for the Arab States has been published by the Kingdom of Saudi Arabia in the Official Gazette – UM AL QURA by way of Circular Number 4667 dated 21 April 2017. The agreement was ratified by Saudi Arabia through Royal Decree No. M/51 of 31 January 2017.
According to the standard VAT rate will be 5% except where the zero rate applies. The exempted sectors include Education, Health, Real estate, Local transport.
The Member States have the right to apply zero VAT rate on petroleum products, oil sector, gas, certain food products, medical care, intra-GCC, international transportation and export of goods to the jurisdictions outside the GCC Member States.
Member States also have the right to exempt financial services from VAT, but Member States may apply a different VAT mechanism to financial services.
A Reverse Charge Mechanism applies to the transaction of goods and services from a VAT registered person in one Member State to a VAT registered person in another Member State. VAT grouping seems to be permitted between two or more legal persons resident in the same Member State. The treatment of GCC free zones is not addressed and is left to each Member State to determine its own VAT treatment for free zones.
Companies with annual revenue exceeding $100,000 or equivalent in the currency of the Member State will be required to register for VAT purposes whereas companies with annual revenue between $50,000 and $100,000 will have the option to register for VAT purposes.
Officials at the Saudi Arabian Ministry of Finance (MoF) have indicated that the VAT regime will be applicable from 1 January 2018 and a 5% levy will apply to selected goods as set forth in the GCC agreement.