As per Article 71 of the GCC VAT Agreement, an Electronic Service System (ESS) to be placed by each member country to facilitate the smooth movement of goods/ transactions/ information on Tax between the members.
In line with the requirement of ESS, Article 79 (7) of Implementing Regulations (IR) of the KSA VAT Law specifies that Prior to the introduction of ESS in all member states, all supplies to/ from KSA to other member country shall be treated as import/ export and these are to be dealt as done with outside GCC countries. Resulting that if ESS is not in place in the GCC, transactions between KSA and other member countries to be dealt as done with outside GCC and accordingly provisions of Export/ Import with outside GCC country shall apply.
Similarly Article 70(15) of the Executive Regulations of the UAE VAT Law specifies that a GCC state shall be treated as implementing state only if that GCC state will treat UAE as implementing state and full compliance of Common VAT agreement is there amongst the GCC countries. Resulting that if KSA will not treat, UAE as implementing state (as per Article 79 (7) of IR of the KSA VAT Law), KSA may also not be treated as implementing state for the UAE VAT Law.
Since KSA & UAE both have specific conditions of treating each other as implementing states it’s most likely that all supplies between them will be treated as Export/ Import. Export to be subject to VAT @0% and import to be dealt according as per the applicable law.
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Abstract of the Articles:
Article 71 of the GCC VAT Agreement: Each Member State shall create an electronic Services system for the purposes of complying with requirements related to Tax. The GCC Secretariat General shall take the necessary measures to establish a tax information center, and to operate a central website or electronic system to follow up the information related to Internal Supplies and the exchange of this information between the concerned Tax authorities in the Member States; provided that the website or electronic system of the tax information center must include at least the required information.
Article 79 (7) of IR of KSA VAT Law: Prior to the introduction of of the Electronic Services System in all Member States (a) a Taxable Person who receives Goods into the Kingdom from another Member State shall be deemed to have imported the Goods into the Kingdom, and Tax will be collected in accordance with the provisions for other imports, (b) Supplies of Goods involving transport of the Goods from the Kingdom to another Member State shall be treated as an Export of the Goods for VAT purposes.
Article 70(15) of ER of UAE VAT Law: A GCC State shall be treated as an Implementing State according to the provisions of the Decree-Law and this Decision if the following conditions are met: a. Where the GCC State treats the State similarly as an Implementing State in its published legislation. b. Full compliance with the provisions of the Common VAT Agreement of the States of the Gulf Cooperation Council (GCC).