Value added Tax - VAT

Value Added Tax (VAT) application started in Gulf Council Countries. On 27 November 2016, GCC States signed Common VAT Agreement of the States of the Gulf Cooperation Council. Pursuant to the said Agreement, the six GCC States agreed to introduce the VAT at rate of 5% where each of the member States will set the implementation date.

Kingdom of Saudi Arabia and United Arab Emirates decided to introduce VAT starting from 1 January 2018.

Such Agreement is expected to be adopted in the State of Kuwait starting from January 2019. Particularly that the common agreement indicates that “if 12 months elapse from the implementation of VAT by two States out of the six States, then the remaining States shall have to implement the same or otherwise, they shall be out of the Value Added Tax (VAT) scope”.

In Kuwait, Ministry of Finance presented the Value Added Tax (VAT) implementation mechanisms to the National Assembly to decide whether to implement the same or not. If the bill is passed, Ministry of Finance will issue the Executive Regulations of the Law and announce the mechanisms to be followed by businesses to enforce the Law.

It is worth mentioning that Value Added Tax (VAT) is an indirect tax, which is imposed on consumption of products or services, not profits. VAT is a vehicle that nations use to raise the revenues in order to finance the State public budget. It is assessed in each phase across the supply chain. In general, the final consumer will bear the cost of VAT while businesses calculate and collect the tax and then pay the same to the government. Currently, VAT is applied in more than 150 countries worldwide including Arab countries.

Companies subject to VAT:

Only companies operating in the State of Kuwait that meet the minimum annual turnover requirement set as per the Law will have to register for the purposes of value added tax in Kuwait. Companies in the State of Kuwait are currently in the process of assessing the VAT impact on their business.

Added value to business entities from engagement of VAT services in Kuwait:

• Ensure compliance with the applicable legislative and regulatory requirements related to value added tax in State of Kuwait.
• Minimize risks of exposure to financial penalties and sanctions, and thus, save relevant expenses and costs.
• Enhance business entity’s reputation and motivate business growth.

Value Added Tax (VAT) Services provided by Baker Tilly

• Develop report on the impact on VAT implementation on business entities in terms of impacts on their business activities, operations, accounting systems and processes, and IT systems.
• Assist companies with the application of value added tax.
• Provide training to the companies’ employees regarding awareness about VAT nature and implications.
• Assurance report on compliance with VAT regulations.

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