DUBAI: Exporters based in Saudi Arabia and the United Arab Emirates will be required to pay value-added tax (VAT) on goods transported between the two Gulf neighbours from next year, with the tax collected in the country where the products are exported to, according to taxation experts and business executives.
All six Gulf Cooperation Council (GCC) countries, including Saudi Arabia, the UAE, Kuwait, Oman, Qatar and Bahrain, agreed last year to introduce a five percent VAT on an array of goods and services, in a bid to diversify revenue sources in the wake of the low oil price.
“If a UAE company sells or exports goods to a Saudi company.… from January 2018, VAT will be charged in Saudi Arabia, the destination country,” Rakesh Pardasani, partner at RSM consultancy firm, told Zawya in an interview on the sidelines of a VAT seminar held by RSM in Dubai in late September.
“But if a UAE company sells goods and/or services to a non-implementing GCC country, it will be treated as if it is exporting goods and services to a foreign country. So Kuwait will be considered the same as the UK [United Kingdom] in that case,” he added.
According to recent data posted on Trade Map – a trade statistics site developed by the International Trade Centre – Saudi Arabia’s exports to the UAE stood at $6.57 billion, while the UAE’s exports to Saudi Arabia amounted to $4.76 billion last year.
Haitham El-Khouly, exporting manager at Plasco – a Saudi factory that produces plastic products and exports to several countries, including the UAE – said VAT could have a negative impact on the trade between the two neighbours. Saudi Arabia’s exports of plastic and related products to the UAE last year was the second-biggest trade category, according to Trade Map, totalling $823.3 million.
“If I found out that VAT will be imposed on me as an exporter in a country outside the one I am in, I will certainly look out for countries that have free tax and custom duties’ agreements with my country,” said El-Khouly, whose company is part of Saudi’s famous Saleh Abdulaziz Al Rajhi and Partners group, which includes investment, manufacturing and real estate companies.
“The country that add(s) the least cost on the product will be the one that everyone will go to export to,” El-Khouly added, speaking to Zawya in an interview on Monday on the sidelines of the Big 5 construction trade show in Dubai.
