GCC countries renew VAT agreement with advanced collection and refund mechanisms.

The Council of Ministers, chaired by the Custodian of the Two Holy Mosques King Salman bin Abdulaziz, approved an amendment to the unified Value Added Tax agreement for the Gulf Cooperation Council states. This approval came as part of member states’ efforts to develop tax application methods and enhance tax and customs integration among them, based on Royal Decree No. M/51 issued on May 3, 2017.

Procedural steps leading to adoption

A comprehensive study was previously conducted by the Ministry of Finance on the matter, and the results were presented to the Council of Experts at the Council of Ministers. Recommendations from the Council of Economic and Development Affairs, the Shura Council decision, and the recommendation of the General Committee of the Council of Ministers were also taken into account before approving the amendments.

Amendment of transport and delivery clause between member states

Clause 4 of Article 12 was amended to clarify that the state where transport or dispatch concludes has the right to settle or refund the tax from the state where the process began, through the direct automatic transfer mechanism used in customs. The ministerial committee was also granted authority to adopt additional arrangements to regulate settlement or refund processes, including the possibility of imposing tax at entry points to the receiving state for goods, with a refund or settlement of the previously paid tax to the customer.

Rewording of Article 13 for inter-supplies to non-tax-registered persons

The text was amended to enable any member state to claim tax paid in another state if the supply value exceeds 10,000 riyals or its equivalent in GCC currencies, for individuals and non-registered persons. The tax is refunded or settled through the direct automatic transfer mechanism for customs duties. The importing state also has the right to impose tax at ports if proof of payment in the other state is not provided.

Updating tax rates and import procedures

Amendments were introduced to Article 25 to oblige each member state to apply the basic VAT rate according to its local system, provided it is not less than 5% of the supply or import value, while maintaining exemptions and zero rates in cases stipulated in the agreement.

Regarding import tax, the amended Article 64 stipulated that the tax due on imported goods must be paid at the first entry point and deposited into a dedicated tax account, to be later transferred to the final destination state via the automatic transfer mechanism for customs duties within the GCC customs union framework. The amendments also allow alternative arrangements that permit imposing tax in the destination state, with a direct refund or settlement of the tax collected at the first entry point to the importer.

The amendment granted member states the authority to allow taxpayers to defer payment of import tax on goods used in economic activities, provided they are disclosed in the tax return and eligible for deduction according to the agreement’s provisions.

Enhancing tax information exchange

Clause 4 of Article 71 was updated to enable competent tax authorities in member states to access information related to inter-supplies, aiming to improve data exchange between GCC tax administrations and enhance oversight efficiency and verification of cross-border transactions.

These amendments reflect the GCC states’ path in developing the VAT system in line with the growth of inter-trade and goods movement within the region, contributing to facilitating collection and refund processes, reducing double taxation, and enhancing coordination between tax and customs systems in the Gulf states.