Conferences business is likely to suffer if VAT recovery proves difficult
VAT recovery in the UAE is another thorn in the process of reclaiming the tax
The introduction of VAT in the UAE and Saudi Arabia will have implications for conference and event businesses, as companies not registered for the tax in both countries will pay the levy when they hold events, according to a VAT recovery firm.
"For businesses that are not VAT registered in the region, both sets of legislation [in the UAE and Saudi Arabia] have indicated a mechanism is going to exist for businesses to make standalone claims to recover VAT they might have incurred on hotels, subsistence things like that when visiting the country on business meetings,” said Richard Barrett, head of consulting for the UAE at VAT IT.
The UAE and Saudi Arabia are the only two GCC countries to introduce VAT at a rate of five per cent in January as a means to boost government revenue dented by low oil prices.
Companies around the world are losing out on $20 billion globally every year in unclaimed VAT, according to VAT IT. This is mainly due to the complex and time consuming European rebate system, which leaves businesses less inclined to recover the VAT they paid. The figure is high because more than one-fifth of companies who incur VAT in foreign countries say they are unable to recover it, due to procedures being too complex and burdensome.
Mr Barrett expects the mechanism for VAT recovery in the UAE and Saudi Arabia to be based on the EU model.
For Saudi Arabia and the UAE "it is tricky because the exact recovery mechanisms for non-registered businesses has yet to be released," he said. "But it is expected to be based on the EU framework. I think EU businesses as a whole are going to be much better placed than they may have been in other regions in order to ensure they are maximising their VAT recovery.”
The lack of clarity is clouding the way businesses handle details about how VAT recovery forms will be submitted manually or digitally to the minimum level of claims that can be claimed by these unregistered businesses, he added.
“For non-VAT registered businesses, let’s say European businesses that are simply visiting the region and don’t have to be registered in KSA and the UAE, one of the big challenges for recovery is whether both countries restrict that recovery to countries that offer a reciprocal agreement,” said Mr Barrett.
Within the EU, there are some countries such as Italy which will only refund VAT to businesses in countries that offer the same treatment to their local businesses.
“Where businesses are established in countries that maybe don’t offer reciprocity to UAE and KSA businesses, obviously there will be an ultimate cost for them, so that may potentially affect the decisions that they make in their business,” he said.