The Gulf Cooperation Council (GCC), comprising Oman, Bahrain, Kuwait, Qatar, Saudi Arabia and the United Arab Emirates, has agreed to formalise a VAT system in its states according to certain principles; however, the VAT Framework Treaty also allows a degree of flexibility for each member state, allowing them to opt for different VAT treatment in relation to certain supplies. For the sake of business continuity, it is important to obtain advice that is relevant to the territory in which a business operates, to avoid being caught by the penalties and ensuing disruption that can occur in case of non-compliance.
The intention was that the GCC member states would implement local VAT regimes by 1 January 2018 or at least by the first quarter of 2018. Formal announcements have already been made by the United Arab Emirates and Saudi Arabia regarding their roadmap for putting in place a VAT framework.
Businesses in Oman are still waiting for an announcement from the Omani government regarding the implementation, which is expected soon. Still, even prior to the formal release of the VAT law, businesses should consider now how they will tackle the potential effects of VAT, to guarantee that any steps to ensure compliance have been put into place when the new law takes effect. For example, it is anticipated that businesses will need to update their IT systems and interfaces to correctly capture input and output VAT. VAT liabilities are generally self-assessed, with errors, incurring severe penalties and time-consuming interactions with local tax authorities, or worse, causing a business disruption.
Oman, along with other GCC countries, is planning to levy a 5 per cent VAT, which is an indirect tax levied at every stage of economic activity in the supply chain. The implementation of VAT is most likely to impact all segments of the Oman economy and entails a fundamental change in the way consumption taxes are enforced in Oman.
Preparations for the implementation of the VAT regime are essential to all types of business and at all levels of the supply chain. Before VAT is implemented, businesses are advised to consider a number of actions and matters when determining their systems, processes and contractual arrangements.
To ensure that your business is VAT ready we recommend undertaking the following immediate steps:
- Consider the impact of VAT on the transactions the company undertakes.
- Assess whether the mandatory VAT registration provisions apply and take the requisite steps (such as filing of VAT returns, remitting any VAT payable and maintaining clear records to evidence compliance).
- Develop roadmaps through to 1 January 2018 or at least to the first quarter of 2018 and develop a resourcing plan to identify the work necessary to be ready to capture relevant transactions and submit VAT returns in 2018. As referred to above, this could include updating IT systems to ensure appropriate data is captured.
- Create internal VAT compliance teams. Certain industry sectors, such as the retail sector, would be advised to devise monitoring and reporting mechanisms, using key contacts represented by the different divisions in the business (retail, marketing, contracts, legal etc.), headed by a project manager, to ensure continued compliance and to minimise adverse impact on the business.
- Review and update contractual arrangements with vendors and customers to ensure that each party is aware of its responsibilities for paying and accounting for VAT.
- Include appropriate clauses in contracts and implement changes to contractual terms, where necessary, e.g. managing VAT costs in vendor contracts or future pricing/revenue in customer contracts.
Further matters to consider include:
- Train employees on VAT compliance and the updated operations relating to VAT (i.e. IT and governance)
- Revisit business models and projections so that a company continues to maintain a competitive edge in the market.
- Review current and future contractual arrangements so that provisions are made for VAT and the impact this new taxation might have on corollary obligations.
Dentons can assist you in analysing your current preparedness for the new VAT regime. We have been in Muscat for over 36 years providing local and international clients with a full range of Omani and English law advice across both the public and private sectors.
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The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.