The efforts involved in planning and executing the introduction of VAT is a big task for any one country, let alone for a group of neighboring countries to attempt at the same time. Nonetheless, the Gulf Cooperation Council (GCC), currently Saudi Arabia, UAE, Oman, Qatar, Bahrain and Kuwait, have during the last couple of years been slowly but surely working towards a near-simultaneous introduction of VAT in the previously (indirect) tax-free region. The GCC States originally wanted as short of an implementation window as possible to ensure that there would be no major gaps in trade impact and economic competitiveness among the participating countries.
Timeline for the introduction of VAT in the Gulf States
Around one year ago, Oman seemed to be the most eager adopter in the race to VAT and had announced its ambition to be live by July 2017. However, one year down the road much has changed.
The original timetable envisaged gradual adoption over a couple of years. Bahrain, Saudi Arabia, and the UAE were planning to introduce the tax during the course of 2018. Out of that group, only Saudi Arabia and UAE have adopted and published the full legislative package and seem sufficiently equipped to meet the 1 January 2018 deadline. Some sources claim that Bahrain’s ambition is July 2018, whereas others believe it is more likely that Bahrain joins Oman, Kuwait, and Qatar who will most likely implement VAT during 2019. Already we can see that this attempt at a harmonized introduction of VAT across the Gulf States is proving problematic.
Saudi & UAE – moving ahead with detailed secondary legislation
Both Saudi Arabia and the UAE have published their respective general VAT/Tax Procedure laws, together with additional, more detailed secondary legislation. In Saudi Arabia, this is called the Implementing Regulation and in the UAE the Executive Regulation. Together, these legislative packages set out the necessary framework for the implementation of VAT, including rules on the primary evidentiary tool for VAT collection: the invoice.
The UAE, in particular, is an interesting example. We’ve noted with interest how the UAE has seized the opportunity to codify an EU-style approach to the integrity and authenticity (I&A) of the e-invoice. The Executive Regulation set out the possibility to send e-invoices instead of paper invoices provided that:
- The taxpayer is capable of securely archiving the e-invoice in compliance with the recordkeeping obligation set out in local law; and
- The taxpayer can guarantee the authenticity of origin and the integrity of the content of the e-invoice.
Meeting I&A requirements in a region where the VAT legislation is still being drafted
When confronted with these (arguably vague, and consequently not entirely risk-free) requirements, service providers and taxpayers should look into legally reliable tools that local legislation already today recognizes as suitable for I&A assurance.
Since 2006, an electronic signature is awarded the equivalent legal effect to that of a handwritten signature in the UAE. This, together with the fact that the above mentioned Executive Regulation also requires invoices to be signed with a signature of the supplier or an authorized signatory, leads to the conclusion that an e-signature is the only way to meet the I&A requirement in compliance with the current legislation. Whether or not the relevant authorities in the UAE decide to further regulate the matter, e.g. by introducing alternative compliance methods or by providing more detailed guidance, remains to be seen. More interesting still – will the rest of the GCC States follow the UAE down this well-established route or produce something more creative and entirely different?