Middle East – VAT paves way for new taxes and more TP regime updates

2020 is set to be another volatile year in tax and transfer pricing across the Middle East, with jurisdictions continuing to update their tax and TP regimes, adding complexity and uncertainty to tax management across the region.

We anticipate that the Gulf states’ adoption of VAT will continue to lead the region’s tax challenges in 2020. More than one Gulf state is looking for new ways to grab indirect tax revenue after introducing a value-added tax, as seen in the recent imposition of a new excise tax on sugar in the UAE and Saudi Arabia. At the same time, uncertainty remains as to the uptake of VAT by jurisdictions such as Oman.

Saudi Arabia and Qatar will continue to fine-tune their VAT regulations, often releasing updates exclusively in Arabic, underscoring the need for capable personnel who can quickly interpret and implement new guidance to avoid confusion and disputes.

Advisers are also closely watching Oman, where the government has given off mixed signals about its adoption of VAT. A finance ministry official suggested that VAT would not be launched before 2021 – but other government sources suggest adoption in 2020 is still on the cards. In reality, whatever happens will be influenced by macroeconomic factors, but the experience of Qatar’s VAT launch has taught taxpayers and advisers that they cannot rely on uniformity among the various states’ VAT regimes and will have to adapt to regulations as they are released.

Clearly the VAT situation in the Gulf will remain far from harmonised, and companies will need the expertise to be able to adapt quickly to this uncertain and fast-changing environment. With the additional complexity these requirements bring, taxpayers and advisers are looking to build their compliance capacity in these states.

Meanwhile, advisers are conscious of the need to grapple with new transfer-pricing regulations in Egypt, Saudi Arabia, and Qatar. And, although countries in this region have tended to lag when it comes to applying BEPS changes to their domestic regulations, the potential remains for even greater disruption stemming from the OECD process to change transfer-pricing rules globally to align taxing rights with economic substance.

We think it the compliance burden for operating in many Middle Eastern states is certain to increase as more sophisticated BEPS regulations make their way into domestic legislation. One example is country-by-country reporting (CbCR), which is being rolled out in Qatar, Saudi Arabia, Egypt, and the United Arab Emirates.

Regulatory changes around economic substance requirements in the UAE will provide another potential source of complications around TP. These changes contribute to an environment in which we anticipate many companies reconsidering where to site their economic substance in this region in order to adapt to a turbulent situation of changing TP rules.

In these ever-shifting conditions, Mason Rak’s powerful network of global tax intelligence can help you anticipate changes before they arrive and face new challenges as they emerge.