Philip Smith, journalist

In April 2021, Oman will become the fourth Gulf state to introduce a new system of value added tax (VAT) in the region. The country is following in the footsteps of the United Arab Emirates, Saudi Arabia and Bahrain as they shift state revenue collection away from a reliance on oil.

The move comes five years after the historic agreement of the Gulf Cooperation Council (GCC), which saw the six Gulf States – Saudi Arabia, UAE, Bahrain, Oman, Kuwait and Qatar – sign up to the introduction of VAT across the region. Up until then, these countries had been reliant on oil revenues to fund government spending which, in the aftermath of the financial crisis of 2008 and subsequent volatility in oil prices, had become increasingly unstable and unsustainable.

As a result, the region saw an opportunity to tap into consumer expenditure as a source of revenue. So began the shift to indirect taxation, a move that required the introduction of a new tax collection system from scratch.

The UAE, Saudi Arabia and Bahrain have already implemented their VAT systems, while Oman’s becomes effective on 16 April this year. Earlier, Kuwait postponed introduction until 2021 but this is expected to be extended further. Meanwhile Qatar has yet to announce any schedule.

Implementation challenges

According to a recent joint report by ACCA and law firm Al Tamimi, those GCC countries that have forged ahead have faced some challenges in implementing VAT. These have included difficulty in finalising the applicable laws and undertaking the relevant procedures to enforce the legislation; a lack of political will or public desire; and the sheer amount of time required to prepare key stakeholders and for tax authorities to prepare the necessary procedures, systems, IT infrastructure and resources.

As a result, there are already lessons that can be learnt from these earlier introductions, and indeed the staggered rollout of the tax across the has presented the opportunity for Oman, Kuwait and Qatar to reflect on the experiences of the UAE, Saudi Arabia and Bahrain and adjust their approaches in response.

Lessons so far

At the government level, the ACCA/Al Tamimi report, Value Added Tax – Middle East Lessons Learnt, makes a number of suggestions that could help ease introduction in Kuwait, Oman and Qatar:

Engagement – tax authorities should engage with key stakeholders, industry sector groups and the general public to help them understand the impact of the various policy choices.

Awareness – sufficient time should be allowed for businesses to fully understand the implications of the new tax and what their obligations will be.

Resources – tax departments need to ensure they have adequate human and technological resources to ensure a smooth transition to the new system.

Allow time

At a business level, there are a number of steps that can be taken right now to prepare to comply with the new tax. Many businesses may already be dealing with the tax through crossborder trade in those states that have already implemented VAT and, for them, this should be straightforward. Those that are not should take note that any changes will require investment of time, people and systems, and make provision for this.

Shiraz Khan, a partner in Al Tamimi, warns businesses not to delay their preparations, even in the absence of concrete announcements. ‘The agreements were signed some time ago, so taxpayers know that VAT could be introduced at any time,’ he says.

‘VAT is a strategic project in the region, so businesses should not rely on any delay. They should focus on understanding the law and how their business will be impacted by it, and the requirements and deadline for registration.’

At the organisational level, Khan adds that it is crucial that businesses ‘raise awareness among their people, provide education for their different functions, amend contracts, and check prices and invoice policies. They won’t be able to reclaim VAT without a valid invoice.’

ACCA and Al Tamimi partnership

The joint ACCA/Al-Tamimi report, Value Added Tax – Middle East Lessons Learnt, follows the recent signing of a memorandum of understanding between ACCA and Al Tamimi, which is the largest corporate law firm in the region.

The partnership aims to drive activity tackling the most important day-to-day challenges for firms such as economic substance reporting, tax implications, corporate structuring and best practice.

VAT registration in Oman

Businesses in Oman with revenues (actual or expected) in excess of OMR1m (US$2.6m) can register now for VAT. Businesses exceeding this threshold will be required to register by 15 March 2021 and be ready to comply with the VAT law from 16 April 2021.

For businesses with smaller turnovers, there will be a staggered start. Those that exceed an OMR500,000 turnover should register by 1 July, above OMR250,000 by 1 October, and those above OMR38,500 should have registered by 1 April 2022.

Smaller businesses, whose annual supplies or expenses exceed (or are expected to exceed) OMR19,250, have been able to register for VAT at any time since 1 February 2021 on a voluntary basis.

The Oman Tax Authority has clarified that businesses resident in Oman with a valid commercial registration can apply for VAT registration via its online portal. In addition to the details required in the application form, businesses will be required to submit copies of their business registration and trade licence, and identification documents of the ‘principal officer’ of the company.

In addition, the Oman Tax Authority has updated its website to provide a facility for businesses to check the validity of VAT registration numbers in Oman.