Since the announcement of the introduction of VAT in the GCC, the tax landscape across the MENA region is currently going through major changes and businesses will have a broad impact, says EY.
The advisory firm held its annual MENA Tax Conference in Dubai, which brought together C-suite executives from leading multinational companies to provide the latest updates on the changing tax landscape in MENA.
Sherif El-Kilany, MENA Tax Leader, EY, says: “GCC Governments are now starting to cut subsidies and introduce taxes to help combat the deficit created by the lower oil prices. Changes in the global tax landscape are also expected to have a knock-on effect on MENA countries. Governments across the world have long been concerned about the shifting of profits into low-tax jurisdictions and corresponding reduction in tax in higher-tax jurisdictions. The recent recommendations by the Organization for Economic Cooperation and Development (OECD), that address different aspects of base erosion and profit shifting (BEPS) are likely to impact countries in MENA that are typically known for having low taxes.”
The EY MENA Tax Conference is held in major cities across the world including Dubai, London, Houston, Tokyo and Seoul, with the aim of keeping companies that operate in MENA updated with key tax developments.
VAT in the GCC and BEPS
The introduction date for VAT has now been confirmed by GCC Government officials as of 1 January 2018. The MENA tax conference featured a session on preparing for VAT in the GCC, providing status updates on the tax implementation and the actions that companies in the region need to take.
Finbarr Sexton, MENA Indirect Tax Leader, says: “The introduction of VAT on businesses will have a broad impact. It will diversify Government revenue sources and reduce reliance on oil revenues to finance Government expenditures. The additional revenues collected are likely to fund programs for the development of job opportunities for nationals and improve education and healthcare in the GCC.
“If VAT is not applied correctly, it may become an additional cost to the business. Further, non-compliance with tax laws attracts severe penalties. All businesses must undertake a review of their current contracts to determine if VAT has been appropriately addressed.”
BEPS recommendations by the OECD are expected to lead to significant changes in domestic tax laws, international tax agreements, extra-territorial provisions and greater bilateral and multilateral cooperation. Some recommendations will have immediate impact, others will depend on how individual countries interpret and implement the recommendations. This is one of the perceived weaknesses of BEPS.
“The OECD has no control over what individual countries do with the recommendations, even for its members. It may be some time before the post-BEPS tax landscape is clear. BEPS could challenge MENA tax policies. Countries across the region may face tax leakage as investors respond to pressures to report more profits in their home countries,” comments Sherif.
Africa Tax Workshop
African countries have recently become extremely popular as investment destinations for GCC businesses. EY Tax partners based in major African countries conducted a half-day Africa Tax Workshop at the conference to brief participants on the key business and tax considerations relating to investing and conducting business in major sub-Sahara African countries.
Tobias, Partner, Tax, EY, says: “As many African countries have implemented new tax regimes and expanded their commercial laws relating to foreign inbound investment in recent years, it is important to understand what these updates are. Participants at the conference were provided with the latest information on foreign inbound investment, fiscal and regulatory considerations, and the developments impacting business operations in Africa. The Africa Tax Workshop also provided clients with the opportunity to gain from the considerable in-country experiences of EY Tax partners on the tax practices followed by African tax authorities.”