Imports from UAE and Saudi zero-rated for VAT

Local Omani businesses importing goods and services from the United Arab Emirates (UAE) and the Kingdom of Saudi Arabia (KSA)— the only two GCC countries that will implement Valued Added Tax (VAT) with effect from January 1, 2018 — have been advised to make sure their procurements are zero-rated for VAT.

The potential for UAE and KSA businesses to mistakenly include a 5 per cent VAT in their invoices on goods and services exported to the Sultanate going into 2018 is tangible, according to a Muscat-based tax expert. “Local businesses need to be suitably prepared and well-informed in order to be able to respond to UAE and Saudi firms adding a VAT charge on supplies imported into Oman. There can be instances where UAE/KSA businesses may pass on the standard 5 per cent VAT charge on their supplies,” warned Alkesh Joshi (pictured), Partner (Business Tax Advisory Services) at multinational professional services firm EY Oman.
The note of caution comes in the wake of Tuesday’s announcement by the Omani government deferring the rollout of VAT in the Sultanate to 2019, at least a full 12 months later than previously scheduled in 2018. The move, while broadly welcomed by local businesses, has some quarters concerned about the likely implications for them when VAT is introduced in neighbouring the UAE and Saudi Arabia.
“This development needs to be looked at from two perspectives,” Joshi noted. “Firstly, Omani companies that are currently doing business in the UAE or KSA would need to register for VAT purposes in these countries, so that they are able to charge VAT to their end consumers and deposit these amounts with the respective tax authorities in these countries. Businesses that are registered in Oman and are carrying out activities in the UAE/KSA may also need to do an impact assessment to determine whether they should be applying VAT or not. After all, special rules apply for goods while another set of special rules apply for services.”
“On the flip side, when Omani businesses procure goods and services from the UAE/KSA, we understand that the suppliers in the UAE/KSA are supposed to treat their supplies to any of the other 4 GCC states that have not yet implemented VAT, as exports of goods and services. Under the VAT framework, such exports of goods and services are zero-rated for VAT in the UAE and KSA,” the tax expert explained.
Joshi stressed however the need for Omani businesses to be vigilant for inadvertent inclusions of VAT on goods and services procured from the two GCC states when VAT is rolled out early next year.
“There is a possibility that some firms in the UAE/KSA may be ill-informed or may misinterpret the transshipment guidelines, thereby making goods coming into Oman 5 per cent more expensive. Local businesses need to be alert for such increases,” he added.

Conrad Prabhu