Common VAT Agreement of the GCC

The Common VAT Agreement of the States of the Gulf Cooperation Council (GCC) forms the foundation for the Value Added Tax (VAT) systems implemented by member states across the region. It provides a unified legal and regulatory framework for the implementation and administration of VAT, ensuring consistency in tax treatment. However, despite this common framework, the agreement also allows each member state the flexibility to adopt certain exemptions or apply zero-rate VAT in specific sectors and scenarios. This article explores some of the key exceptions and special provisions set out in Articles 29 to 37 of the Agreement. 

Article (29): Rights to Exempt or Apply Zero-Rate in Specific Sectors 

Member states have the discretion to exempt or apply VAT at the zero-rate to specific sectors. The following are the primary sectors where this flexibility is permitted: 

• Education: States may choose to exempt educational institutions or tax them at zero-rate to promote access to education. 

• Health: Medical services and healthcare products can be subject to zero-rate or exemption, reducing the cost burden on consumers. 

• Real Estate: This sector, including the sale or rental of residential properties, may also benefit from preferential tax treatment, depending on each state’s provisions. 

• Local Transport: Public transportation services can be zero-rated or exempted to ensure affordability. 

Additionally, member states can also subject the oil, oil derivatives, and gas sector to zero-rate VAT, given the economic significance of these resources in the region. 

Article (30): Special Exceptions for Specific Groups 

Each member state can exclude certain groups from paying VAT when they receive goods or services. These groups include: 

• Government bodies: Selected governmental entities may be exempted from VAT as per national guidelines. 

• Charities and Public Benefit Establishments: Recognized non-profit organizations may enjoy VAT exemptions to support their operations. 

• Exempted companies for international events: Companies involved in international events may receive relief from VAT under agreements signed by the member state. 

• Citizens constructing homes for personal use: Nationals building private homes may reclaim VAT paid on construction-related expenses. 

• Farmers and Fishermen: Non-registered farmers and fishermen may also benefit from exemptions. 

These provisions are designed to support social welfare and economic development across the region by reducing tax burdens for key groups and sectors. 

Article (31): Supply of Foodstuffs, Medicines, and Medical Equipment 

• Food Items: While all food items are generally subject to the standard VAT rate, member states can apply zero-rate VAT to a list of essential food items as approved by the Financial and Economic Cooperation Committee. 

• Medicines and Medical Equipment: A unified zero-rate VAT applies to medicines and medical equipment, which helps maintain the affordability of essential healthcare products across the GCC. 

Article (32): Zero-Rate on Intra-GCC and International Transportation 

Transport of goods and passengers within the GCC, as well as internationally, is subject to zero-rate VAT. This includes: 

• Transport between member states. 

• International transport of goods and passengers into and out of the GCC. This provision supports the region’s logistics and transportation industries, which are critical to economic integration. 

Article (33): Supply of Means of Transport 

Zero-rate VAT may also apply to the supply and maintenance of transportation vehicles, such as: 

• Sea, land, and air transport vehicles used for commercial purposes. 

• Related goods and services for the operation, repair, and maintenance of such vehicles. This promotes investment in transportation infrastructure, making it easier for businesses to manage logistics costs. 

Article (34): Exports and Supplies Outside the GCC 

Exports of goods and certain services outside the GCC territory are subject to zero-rate VAT, helping to maintain the global competitiveness of GCC-based businesses. Additionally, the re-export of goods temporarily imported for processing is zero-rated. 

Article (35): Investment in Precious Metals 

Supplies of investment-grade gold, silver, and platinum with a purity of at least 99% are subject to zero-rate VAT. This includes the first supply after extraction, ensuring that investors in precious metals benefit from favorable tax treatment. 

Article (36): Financial Services 

Financial services provided by licensed banks and financial institutions are generally exempt from VAT. However, member states may adopt different treatments for specific financial products, allowing them to tailor their taxation of this sector. 

Article (37): Used Goods and VAT on Profit Margins 

Member states have the option to impose VAT on used goods based on the profit margin earned by the taxable person, rather than the full value of the sale. This encourages the resale of used goods, supporting sustainability and the circular economy. 

Conclusion 

The flexibility allowed within the GCC VAT Agreement ensures that each member state can tailor its VAT system to meet national priorities while maintaining the overarching framework for economic cooperation. By allowing for zero-rate or exemptions in key sectors like healthcare, education, transportation, and real estate, as well as in specific cases such as the export of goods and international transport, the agreement strikes a balance between raising revenue and fostering growth. Each member state’s ability to implement these provisions ensures VAT policies that are aligned with local economic and social objectives, helping to create a more resilient and dynamic economic environment across the GCC. 

Summary

The Common VAT Agreement of the Gulf Cooperation Council (GCC) includes provisions that allow member states to implement exemptions and zero-rated VAT in specific sectors. Article 29 empowers states to exempt or zero-rate key areas such as education, health, real estate, and local transport. Article 30 allows certain groups, including government bodies, charities, and citizens constructing personal homes, to be exempt from VAT. 

Further, Articles 31 to 37 detail additional exceptions, including zero-rating for essential food items, medicines, and international transport, while promoting investment in sectors like financial services and precious metals. By allowing flexibility in VAT application, the agreement ensures that each member state can tailor its tax policies to meet local economic and social objectives, fostering growth and competitiveness across the region. 

Disclaimer:   

The Content offer general guidance and should not be considered legal, financial, or tax advice. Consult qualified professionals for personalized guidance. While efforts have been made to ensure accuracy, no guarantee is provided for completeness or applicability to individual situations. Users are responsible for their interpretation and actions based on this information, at their own risk.   

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