KSA - Amendments to the GCC Unified VAT Agreement approved

The Kingdom of Saudi Arabia (KSA) has approved amendments to the Unified Value Added Tax (VAT) Agreement for the Gulf Cooperation Council (GCC) member states, originally approved under Royal Decree No. (M/51) dated 3/5/1438H, introducing significant changes to the treatment of intra-GCC supplies, import tax payment mechanisms, the minimum standard VAT rate, and information access rights among member states. The amendments affect Articles 12, 13, 25, 64, and 71 of the Agreement. 

Key highlights

1- Amendment to Article 12(4) — Supplies without initial transport

The amendment addresses scenarios where goods are supplied without transportation or dispatch, but are subsequently transported or dispatched to another GCC member state. The updated provision sets out the following settlement and recovery mechanism:

• General rule: The member state where the transportation or dispatch ends has the right to settle or recover the tax from the member state where the transportation or dispatch began, through the direct automatic transfer mechanism used in customs.
• Ministerial Committee exception: The Ministerial Committee may approve alternative provisions, including permitting the destination member state to impose VAT at its entry ports, with the tax paid and collected in the state of supply being settled or refunded directly to the taxable or non-taxable customer residing in another member state.

2- Amendment to Article 13 — Intra-GCC supplies to non-registered persons

Article 13 has been revised to govern the treatment of intra-GCC supplies made to individuals and non-registered persons. The main change is the following:

• Ministerial Committee exception: The Ministerial Committee may approve alternative arrangements, including permitting the destination member state to impose VAT at its entry ports, with the tax paid in the state of supply refunded directly to individuals and non-registered persons residing in another member state.

3- Amendment to Article 25(1) — Minimum standard VAT rate

The amendment clarifies that each member state shall apply VAT at the basic rate in accordance with its domestic law, with an explicit minimum:

• The VAT rate shall not be less than 5% of the value of the supply or import, unless the Agreement provides for an exemption or zero-rating on the same supply.This codifies the 5% minimum rate at the treaty level, providing legal certainty across the GCC.

4- Amendment to Article 64 — Payment of tax on imports

Article 64 has been substantially restructured to introduce a more flexible framework for the payment and settlement of import VAT:

• First point of entry rule (General): Tax due on imported goods must be paid at the first point of entry and deposited into a dedicated tax account, before being transferred to the state of final destination via the direct automatic customs duty transfer mechanism within the Customs Union.
• Ministerial Committee exception: The Ministerial Committee may approve alternative settlement mechanisms, including allowing another member state to impose VAT on imports at its own entry ports, with the tax paid at the first entry point settled or refunded directly to the taxable or non-taxable importer residing in that other member state.
• Deferred payment mechanism (New): Each member state may, subject to conditions and controls it determines, allow a taxable person to defer the payment of import VAT on goods imported for economic activity purposes and declare it in their VAT return. Such deferred and declared tax is treated as deductible in accordance with the Agreement.

5- Amendment to Article 71(4) — Access to intra-GCC supply information 

The competent tax authority in each member state involved in intra-GCC supplies is now expressly granted the right to access information relating to intra-GCC supplies made between persons in those states. This amendment reinforces cross-border transparency and enforcement cooperation among GCC tax authorities.

Summary table of amendments

Recommendations for businesses

1. Impact assessment on intra-GCC supply chains: In anticipation of the GCC-wide electronic transfer system that will activate much of the framework, businesses engaged in intra-GCC transactions, particularly those supplying goods across borders, should assess how the revised Articles 12 and 13 affect their current VAT reporting, recovery, and settlement processes, particularly where goods are initially supplied without transportation but are subsequently moved across borders.
2. Review of import VAT processes: The new deferred payment mechanism under Article 64(3) may present a significant cash flow opportunity for taxable persons importing goods for business purposes. Businesses should evaluate eligibility under the conditions set by their relevant member state and consider whether adjustments to existing import processes and VAT return filings are required.
3. Systems and Enterprise Resource Planning (ERP) updates: Where systems are configured to handle intra-GCC VAT settlement, including customs duty transfer mechanisms and import VAT, businesses should assess whether updates will be needed to reflect the new settlement and refund frameworks introduced under the amended Articles 12, 13, and 64.
4. Preparation for increased information sharing: In light of the strengthened information access rights under Article 71(4), businesses should ensure their intra-GCC supply records, documentation, and reporting are accurate and up to date, as tax authorities across the GCC will have greater access to cross-border supply data.

How Deloitte can help

Deloitte has extensive experience across KSA and the wider GCC in advising on VAT and indirect tax matters, including:

• Advising on the VAT implications of intra-GCC supply arrangements and cross-border transactions
• Assessing the impact of import VAT deferral mechanisms and identifying cash flow optimization opportunities
• Assisting with VAT registration and amendment of existing registrations across GCC jurisdictions
• Conducting VAT health checks to identify compliance gaps in light of updated Agreement provisions
• Reviewing and updating ERP systems and VAT return processes to reflect the amended settlement and recovery frameworks
• Liaising with tax authorities to obtain clarifications and rulings on the application of the amended Agreement provisions
• Supporting documentation and record-keeping requirements in anticipation of increased cross-border information exchange

For a detailed analysis or any assistance, please feel free to contact our tax professionals listed below.