Taxamo is delighted to announce that we will be supporting compliance for digital service suppliers with customers in the Kingdom of Saudi Arabia and United Arab Emirates (UAE) as of January 1, 2018.
That is the date a new Value-Added Tax (VAT) system is introduced in the two Gulf Cooperation Council (GCC) States. The new systems are the result of a Common VAT Framework Agreement finalised between all six GCC States on June 16, 2016. The GCC is an alliance — both economic and political — of six Middle Eastern countries namely: Saudi Arabia, Kuwait, the United Arab Emirates (UAE), Qatar, Bahrain, and Oman. A 5% VAT rate applies in Saudi Arabia and UAE.
It was originally planned that all six States would implement the Unified VAT Agreement on January 1, 2018. Presently, only Saudi Arabia and UAE have provided the necessary implementation information that will allow companies to update their systems accordingly. The four remaining GCC States are due to implement a new VAT system in the next 18 months.
Find out more here.
Impact on foreign digital businesses
As a result of these new VAT systems foreign businesses with customers based in Saudi Arabia and the UAE must now register for, collect, and remit VAT to the relevant authorities. This, of course, is in addition to foreign exchange and bespoke invoicing requirements.
Luckily for you, here at Taxamo we do all the heavy lifting for digital businesses with customers in Saudi Arabia and UAE. Taxamo acts as the Intermediary in the supply chain and assumes the VAT liability. As a result digital businesses do not have to register for VAT in these States.
When you partner with Taxamo for VAT compliance in Saudi Arabia and the UAE you do not need to register for, file, and remit VAT in the local currency (the Saudi Riyal and the UAE Dirham) of these two GCC States. Instead, Taxamo acting as an Intermediary in the supply chain does all of this for you. Taxamo’s service is fully compliant with the VAT rules in both Saudi Arabia and the UAE.
Not registering, collecting, and remitting VAT on your sales in Saudi Arabia is risky as the penalties for non-compliance are quite tough. For example, there is a penalty of 5% of the tax due for each month or part of it that the tax due is not settled. In addition the penalty for late filing of VAT returns will be not less than 5% of the tax due but you can potentially be penalised to an amount of a quarter (25%) of the tax due.
First, we will take a brief look at how both States have reached this historic taxation point.
In February 2017, Saudi Arabia ratified the GCC VAT framework and committed to introduce VAT on January 1, 2018.
The General Authority of Zakat and Tax (GAZT) is responsible for managing the implementation, administration and enforcement of VAT in Saudi Arabia. It does so in close coordination with other relevant entities.
United Arab Emirates (UAE)
On July 31, 2017, President of the UAE His Highness Sheikh Khalifa bin Zayed Al Nahyan issued the landmark Federal Law No. 7 of 2017 for Tax Procedures. This law established the foundations for the planned new UAE VAT system. The Federal Tax Authority (FTA) is the responsible authority in relation to the administration and collection of VAT.
Online registration for VAT in the UAE opened in mid-September 2017. On November 27, 2017, the VAT Executive Regulations were signed into law. The VAT Executive Regulations were issued after His Highness Sheikh Khalifa bin Zayed Al Nahyan issued the Federal Decree-Law No. 8 of 2017 for Value-Added Tax (VAT) on August 27, 2017.
Lack of MOSS-style registration system
In January 2015 the European Union (EU) amended their VAT rules and extended the system to the cross-border supplies of digital services. In doing so they also created a registration and filing system known as the Mini One-Stop Shop (MOSS).
The VAT MOSS system allowed a company to select one of the 28 EU Member States as their Member State of Identification (MSI). As a result they only needed to register in one EU Member State for all of their B2C digital supplies in the EU.
An EU MOSS-style system in the GCC would have simplified the registration and VAT return processes. It would have been an ideal move and would more than likely increase compliance, especially as global digital businesses are now familiar with such a system.
The moves by the GCC States to introduce a new VAT system reflects on the success of this indirect taxation measure across the globe.
However, the fact that the new rules in Saudi Arabia and the UAE also extend to foreign-supplied digital services is a more contemporary approach and follows a trend set by over 40 jurisdictions worldwide. Indeed on January 1, 2018, Belarus also amends its VAT system to extend its scope to foreign-supplied digital services.
You can read more on international trends to taxing the digital economy in the Taxamo blog here.
How Taxamo helps
Taxamo, the global digital VAT/GST compliance expert, is at the forefront of a revolution in international taxation.
Across the globe tax jurisdictions continue to amend consumption tax legislation — be it, as is the case in Saudi Arabia and UAE, a Value-Added Tax (VAT) or a Goods and Services Tax (GST) system — to account for the phenomenal growth of the digital economy. Taxamo exists to take on the risk of complying with these ever-evolving global rules.
Taxamo’s software solution enables us to take on the liability for digital businesses’ international VAT/GST obligations in global markets. As a result businesses do not have to collect, register, file, and settle VAT/GST in multiple tax jurisdictions and in multiple currencies. Taxamo delivers businesses up to 40% reduction in compliance costs when compared with in-house solutions.
For all their transactions with customers from impacted countries (such as Saudi Arabia and UAE) Taxamo forms part of the supply chain, issuing these customers with a fully compliant invoice from Taxamo.
In partnering with Taxamo you can continue to concentrate on what you do best. The partnership allows you to grow internationally with confidence safe in the knowledge that we are taking care of your global digital VAT/GST compliance.
Taxamo: Peace of mind assured.
PLEASE REMEMBER THAT THIS INFORMATION HAS BEEN PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND IS NOT PRESENTED AS SPECIFIC TAX OR LEGAL ADVICE. ALWAYS CONSULT A QUALIFIED TAX OR LEGAL ADVISOR BEFORE TAKING ANY ACTION BASED ON THIS INFORMATION. VERTEX INC. ACCEPTS NO LIABILITY FOR ANY LOSS RESULTING FROM ANY PERSON ACTING OR REFRAINING FROM ACTION AS A RESULT OF THIS INFORMATION.