Saudi Arabia approves GCC VAT reforms for cross-border trade

• Import VAT may increasingly be administered through a first-port-of-entry model.
• New VAT clearing mechanisms could simplify onward movements of goods within the GCC.
• Tax authorities will gain greater visibility of intra-GCC transactions.
• The GCC has formally acknowledged diverging VAT rates across member states.

The amendments affect Articles 12, 13, 25, 64 and 71 of the Agreement and focus on intra-GCC supplies, import VAT, VAT recovery and information exchange between tax authorities.

• Article 64: Import VAT collected at first GCC entry point

  • One of the most significant reforms concerns import VAT.
  • The amended provisions allow VAT to be collected at the first GCC port of entry before being transferred to the member state where the goods are ultimately consumed.
  • For businesses importing goods through major regional hubs, such as goods entering the GCC via the UAE before being distributed to Saudi Arabia, Bahrain or other member states, the changes could eventually simplify import VAT administration and reduce duplicate compliance processes.
  • The amendments also support import VAT deferral through VAT returns where domestic legislation permits.

• Article 12: New VAT settlement mechanism for onward movements

  • The reforms also address situations where goods are imported into one GCC member state and subsequently moved to another.
  • The amended Article 12 introduces mechanisms allowing VAT settlement, adjustment and recovery between member states. This could reduce the need for businesses to manage complex refund claims or VAT corrections when goods are redistributed across GCC borders after importation.
  • The provision represents a step towards a more coordinated destination-based VAT system across the Gulf.

• Article 71: Enhanced tax authority information sharing

  • The amendments give GCC tax authorities wider access to information relating to intra-GCC supplies.
  • In practice, this could allow tax authorities to cross-check supplier and customer reporting more effectively, increasing visibility of cross-border transactions and reducing opportunities for reporting discrepancies.
  • Businesses should expect greater scrutiny of intra-GCC supply chains and transaction reporting.

• Article 25: GCC VAT rates formally diverge

  • The revised Agreement confirms that 5% is the minimum VAT rate within the GCC rather than a common mandatory rate.
  • The amendment reflects the reality that GCC member states have adopted different VAT rates, including Saudi Arabia’s 15% rate and Bahrain’s 10% rate.
  • This effectively formalises the move away from the original concept of a harmonised GCC VAT rate.

• Article 13: Supplies to individuals and non-registered persons

  • The amendments also revise the rules for certain supplies made to individuals and non-registered persons.
  • Whilst the existing SAR 10,000 threshold remains, the new provisions introduce broader VAT adjustment and recovery mechanisms and may support VAT collection at points of entry in specific circumstances.
  • Further implementation guidance is expected from GCC member states.