Value Added Tax (VAT) is one of the modern financial mechanisms aimed at enhancing government revenues and achieving economic sustainability. Its rates and applications vary from one country to another, as it has been adopted in most Gulf countries as part of a diverse strategy to strengthen the national economy. This tax aims to impose fees on the consumption of goods and services, which directly affects prices and reflects the economic trends of the region.

In this context, the article addresses the amount of VAT applied in Gulf countries and how to recover it when shipping abroad, helping companies and individuals understand their rights and obligations under these tax systems.

What is Value Added Tax?

Value Added Tax is a type of indirect tax imposed on all goods and services purchased and sold by companies, with some exceptions. This tax is applied in over 160 countries worldwide and is considered a primary source of income that enhances national budgets. VAT is applied at every step of the supply chain, starting from production, through distribution, to the final sale of the product or service. The consumer bears VAT when purchasing goods and services, while companies transfer the tax they collected from consumers to the government and can recover the tax paid to their suppliers.

VAT Rates in Gulf Countries

In June 2016, the Gulf Cooperation Council (GCC) countries agreed to implement a uniform VAT rate of 5%. However, there are some exceptions and minor differences between member states, as detailed below:

Implementation of VAT in Saudi Arabia:

In February 2017, Saudi Arabia ratified the unified VAT agreement. The Kingdom began applying VAT at a rate of 5% starting January 1, 2018. On July 1, 2020, the VAT rate was increased to 15% on all applicable goods and services, following Royal Decree No. A/638 issued on May 11, 2020, which included an amendment to Article 2 of the VAT Law to raise the rate from 5% to 15%.

VAT Rates in Saudi Arabia:

• Food items: 15%
• Domestic transport: 15%, while international transport: 0%
• Sale of commercial and residential real estate: 5% (referred to as real estate transaction tax)
• Sale of used residential property: 5% (also referred to as real estate transaction tax)
• Private education: 15%

Implementation of VAT in the UAE:

As the UAE is one of the GCC countries and closely linked to them through various agreements, such as the Economic Agreement among GCC countries and the GCC Customs Union, the UAE implemented VAT at a rate of 5% starting January 1, 2018, in line with the unified agreement between GCC countries.

VAT Rates in the UAE:

• General goods and services: 5% on most goods and services.
• General insurance and reinsurance: subject to 5% VAT.
• Exempt sectors: Some sectors such as education and basic healthcare are exempt from VAT.
• Zero-rated sectors: Certain products and services, such as international exports, are subject to a zero rate (0%), meaning no tax is imposed, but input tax can be recovered.

Implementation of VAT in Bahrain:

Bahrain began applying VAT at a basic rate of 5% starting January 1, 2019, on all goods and services supplied. Some goods and services are subject to a VAT rate of 0% or are exempt from VAT according to the VAT Law and its executive regulations. Since January 1, 2022, the basic VAT rate has been adjusted to 10%.

VAT Rates in Bahrain:

• All goods and services are subject to VAT at a rate of 10%, including stationery, office supplies, legal services, meals in restaurants and hotels, fashion, and vehicles.
• Goods and services with a 0% VAT rate include basic food items, private education services, preventive and basic healthcare services, certain medicines and medical supplies,
• oil and gas, domestic and international transport, services for building new buildings, and valuable stones like gold, platinum, and silver.
• Examples of goods and services exempt from VAT include the sale and lease of both commercial and residential properties, and certain financial services, such as interest income from loans granted and the sale of shares.

Implementation of VAT in Oman:

Oman implemented VAT in accordance with the unified agreement between GCC countries, under Royal Decree No. 50/2021. The VAT Law in Oman was issued in 2020, imposing a 5% VAT on imported or supplied goods and services.
VAT Rates in Oman: In Oman, most goods and services are subject to VAT at a rate of 5%. However, there are some important exceptions. Sectors that are exempt from VAT include healthcare, education, financial services, basic food items, and supplies for individuals with disabilities.

Implementation of VAT in Qatar:

Although Qatar signed the agreement among GCC countries in 2016 to implement VAT, there is currently no VAT in Qatar. Discussions about its potential implementation have occurred, but no laws or official procedures have been issued in this regard.

Implementation of VAT in Kuwait:

Although Kuwait joined other GCC countries in the implementation of VAT and the Customs Union, like its neighbor Qatar, it has not yet imposed VAT. The Kuwaiti government recently confirmed a new four-year plan, excluding the application of VAT before 2028.

VAT Refund When Shipping Abroad

When shipping goods outside the GCC countries, the VAT paid on those goods can be refunded through the following steps:

• Registering in the VAT System: The company must be registered in the VAT system in the country where it operates.
• Preparing Required Documents: Original invoices showing the VAT paid and shipping documents proving the export of the goods must be submitted.
• Submitting a Refund Request: A request for VAT refund must be submitted to the relevant tax authority in the respective country.
• Review and Approval: The tax authority reviews the request and the submitted documents, and if approved, the paid VAT is refunded.