Coronavirus: taking advantage of GCC tax reliefs

Some of the tax reliefs and deferment schemes that have been implemented across the GCC region are potentially very valuable to businesses. They include deferred tax filing and payment deadlines, exemption from certain customs duties and guarantee requirements, and significant exemption from tax penalties in the Kingdom of Saudi Arabia (KSA).

Identifying the applicable reliefs, how to avail of them and the associated time lines is not always an easy task. Available tax reliefs differ greatly from one GCC state to another, are being implemented and managed by different authorities and in different forms and, in some cases, are being officially published in Arabic only.

That being said, in-house tax and finance leads should persevere with the relevant authorities, as some of the available reliefs will not be applied automatically. In addition, where deadlines and payments are 'deferred', it is vital that those responsible for tax implement adjusted in-house procedures for meeting these new deadlines from an administrative and cash management perspective.

With this in mind, we have set out the current position on the main tax reliefs available across the GCC and their value to businesses. Please note that the landscape is ever-changing with additional reliefs being announced on a 'drip-fed' basis from one week to the next, and so daily updates should be monitored by businesses.

We have also reported on the GCC's emergency fiscal response to Covid-19, and some smart tax planning and mitigation actions that tax leads in the region should be considering in order to support their businesses. A number of tourism and municipality fees and levies have been mitigated across the region as part of the Covid-19 fiscal stimulus packages in addition to the below tax reliefs and deferment initiatives.

Tax reliefs in the United Arab Emirates

The United Arab Emirates (UAE) has not implemented significant tax exemptions, deferments or reliefs as part of its Covid-19 fiscal stimulus package. This is not surprising: at a time when oil prices have hit record lows and non-oil industries such as tourism, hospitality and transport are visibly suffering from the Covid-19 'lockdown' protocols, the UAE perhaps views the natural impact of the crisis on VAT and excise tax collections in particular enough of a 'hit' to its budget without offering additional reliefs.

One important thing to note about the UAE is that it does not have a fully-fledged corporate tax regime. Historically, when we have witnessed significant 'mega-trends' affecting national and global economies, the impact on government collections from corporate, personal income and other direct tax regimes has been much more significant than the impact on VAT, excise and other indirect taxes. Collections from transaction and consumption taxes tend to dip less and to recover quicker from economic factors as a result of individuals and businesses needing these transactions to survive, even if operating in a negative financial position; while direct taxes are only collected when businesses and individuals are in a net positive position.

As a result, the overall tax collections impact of Covid-19 on the UAE may be somewhat lesser than in other GCC states - which rely more heavily on direct tax regimes across all industry sectors - and is likely to bounce back more quickly.

The limited reliefs that have been made available by tax authorities in the UAE to date are set out below.

Customs duty

Details of customs duty reliefs are set out in the Dubai Customs Authority's Notice 1/2020 (2-page / 1.9MB PDF). They include, during the period from 15 March to 30 June 2020:

• a refund of 20% of the customs duty imposed on imported goods sold locally into the UAE which are normally subject to a customs duty rate of 5%, i.e. the net customs duty rate will be 4% between 15 March 2020 and 30 June 2020;
• 90% reduction on the fees imposed on submitted customs documents;
• traditional wooden commercial vessels registered in the UAE are exempted from berthing service fees on arrival and departure, as well as direct and indirect loading fees at Dubai Creek and Hamriyah Port.

In addition, the AED 50,000 (US$13,600) bank or cash guarantee required to undertake customs broker activities has been revoked, and the bank or cash guarantee deposited by existing customs brokers and clearing companies will be refunded.

The Dubai Customs Authority should be contacted directly for refunds of amounts already paid, and where a business seeks to avail of up-front exemptions.

We understand that some of the other emirates' customs authorities are also offering some limited reliefs. Customs authorities in each emirate should be contacted directly for details of any reliefs available and how to avail of them.

Excise tax

The UAE's Federal Tax Authority (FTA) has extended the deadline for filing the March 2020 excise tax return, together with any associated excise tax payments, from 17 April to 17 May. Details of this deferment were issued directly to excise tax registered businesses by the FTA. This means that taxpayers will be obliged to file both the March and April 2020 excise tax returns on the 17th May.

VAT

VAT relief has been recently announced in the UAE as of 21 April where the Federal Tax Authority declared a one month extension to the filing and payment deadline for monthly and quarterly VAT returns for the tax periods ended 31 March 2020 until 28 May 2020. This is an extension from its original deadline which was set at 28 April 2020.  

Tax reliefs in Saudi Arabia

The KSA has implemented a range of tax initiatives across a number of different taxes to support businesses in the region in managing the financial impact of Covid-19.

Most of the reliefs defer filing and payment obligations for a period of three months, resulting in some of the current period filings and payments not having to be completed until the end of September 2020. These deferments are aimed at giving businesses time to handle the financial pressures as a result of the pandemic, although a few of the reliefs also reduce the overall tax compliance cost for businesses.

The pros and cons of filing and payment deferrals should be considered by businesses and sufficient planning put in place, in order to pre-empt cash flow challenges arising from higher combined tax bills at a later date. However, in-house tax and finance leads should be ensuring that any opportunities to reduce the actual overall cost of tax to their businesses are availed of in a timely manner.

KSA's General Authority of Zakat & Taxation (GAZT) has published a detailed guide to the available reliefs (25-page / 943KB PDF), now available in English. Further details of the most significant reliefs are set out below.

More generally, until 30 June, GAZT has committed to:

• granting tax certificates without restrictions on declarations made in 2019;
• accepting tax liability instalment requests without requiring a down payment;
• expediting the payment of refund requests.

Customs duty

The Saudi Customs Authority announced a 30 day deferral for the collection of customs on most affected business activities from imports for the next three months, from 22 March until 30 June 2020. This postponement is subject to providing a bank guarantee.

Temporary 'tax amnesty' penalty suspension

The most significant and beneficial of the KSA's tax reliefs is likely to be what the GAZT is referring to as its Covid-19 'tax amnesty'.

This is a full exemption from fixed and tax/time geared penalties for both registered and non-registered businesses where they declare their tax errors under any tax type before 30 June 2020, along with the payment of any outstanding tax liabilities or agreement of a payment plan with the GAZT.

The following penalties will be exempted if the above conditions are met:

VAT penalties:

• late registration penalty - SAR 10,000 (US$2,660);
• late VAT return filing penalty – between 5% to 25% of the tax due;
• late VAT liability payment penalty – 5% of unpaid tax due for each month or part thereof; and
• VAT return amendment penalty – up to 50% of the tax under-declared or underpaid.

Excise tax penalties:

• late excise tax return filing penalty - between 5% and 25% of the tax due; and
• late VAT liability payment penalty – 5% of unpaid tax due for each month or part thereof.

Corporate income tax (CIT) and withholding tax (WIT) penalties:

• late CIT/WIT registration penalty - up to SAR 10,000;
• late CIT/WIT liability payment penalty – 1% of unpaid tax due every 30 days; and
• late CIT/WHT tax return filing penalties – 1% of revenues up to a cap of SAR 20,000 plus 5% of unpaid tax due for delays of 30 days or under, 10% of unpaid tax due for delays of over 30 days up to 90 days, 20% of unpaid tax due for delays of over 90 days up to 365 days or 25% of unpaid tax due for delays over 365 days.

Unlike a number of the other reliefs implemented in the KSA, the tax amnesty will reduce the overall cost of tax compliance in the KSA for businesses which need to declare errors. This could include late registration and filing by non-resident suppliers, declaration of errors on previously filed VAT returns, voluntary disclosure of incorrect tax deductions taken over a period of time and payments to foreign vendors not declared for WHT purposes, among others

Many businesses in the KSA have experienced significant penalties for non-compliance with the tax regulations since the implementation of VAT and excise tax, together with the increase of tax audits over the last two years. The penalties have been so significant that some taxpayers have already objected GAZT decisions to the Tax Disputes Settlement Committee.

While the tax amnesty is aimed at supporting businesses which are suffering financially as a result of the Covid-19 pandemic and the associated economic crisis, it also effectively creates a small window of opportunity to any business wishing to perform a 'tax health check' on its finances and to declare any errors while the opportunity exists to eliminate the often quite significant financial penalties for doing so.

VAT

The deadlines for the period filing of VAT returns, together with the payment of associated VAT liabilities, have been delayed for a period of three months. This deferral arrangement will work differently depending on whether the taxpayer or tax group files on a monthly or quarterly VAT period basis.

For monthly filers:

The deferred deadlines will result in March 2020 and June 2020 VAT returns both being due for filing and VAT liability paid on 31 July; April 2020 and July 2020 on 31 August; and May 2020 and August 2020 on 30 September. This will need to be carefully planned internally from a procedures and controls perspective, to ensure that all administrative tasks needed to complete these 'double filings' in an accurate and timely manner are in place; as well as ensuring that the necessary funds are in place to make double payments if required.

For quarterly filers:

Currently, there is no indication that the April - June 2020 quarterly VAT return filing and payment deadline will be extended from 31 July.

For quarterly VAT filers, the practical impact of this deferment regime is that the VAT returns and associated VAT liability payments for Q1 and Q2 2020 will all become due on 31 July. Businesses should similarly ensure that they are ready for this 'double filing' in terms of administrative processes and cash availability.

Given that the filing deadlines of the above returns will be deferred, import VAT will also be deferred for businesses which account for import VAT due on imported goods for business purposes by means of a reverse-charge on their periodic VAT return. The input VAT should be reported on the return that it would normally have been reported on in accordance with the date of import, and filed subject to the new filing deadlines outlined above.

Note that the GAZT guidance indicates that the general facility available in the KSA of being able to defer VAT on imports until the point of filing the periodic VAT return will be removed with effect from 1 July 2020. All taxpayers, whether directly themselves or through an import agent, will therefore be required to settle all import VAT due with the KSA customs authorities at the point of import.

Businesses which import large volumes or large value items into the KSA may wish to consider the cash flow impact of this for their business and to put in place practical in-house procedures to ensure that the removal of this VAT facility does not delay the release of goods by the customs authorities and impact the actual flow of goods for their business.

Corporate income tax and zakat

Any taxpayer obliged to file a KSA corporate income tax or zakat return with a normal filing and payment deadline before 30 June 2020 will have the deadline extended by three months. For example, the deadline for returns due by 30 April 2020 has been extended to 31 July 2020; for returns due by 15 May 2020 to 15 August 2020; and by 20 June 2020 to 20 September 2020.

Excise tax

The deadline for submitting the bi-monthly excise tax return, together with making any associated payment, for the March-April 2020 period has been deferred until 15 August 2020.

As there is no change in filing deadlines for the May-June 2020 return and the July-August 2020 return this means that, practically speaking, taxpayers will need to file excise tax returns monthly during July, August and September, as follows:

• May-June 2020 excise tax return – due 15 July (original deadline);
• March-April 2020 excise tax return – due 15 August (deferred deadline); and
• July-August 2020 excise tax return – due 15 September (original deadline).

Businesses should again implement these new filing and payment deadlines into internal processes and procedures now, so that no penalties are triggered for non-compliance.

The deadlines for declaring and paying excise tax on imports by an excise tax registered business through temporary approval/declarations have been extended as follows:

• March imports – declaration and payment before the end of June;
• April imports – declaration and payment before the end of July;
• May imports - declaration and payment before the end of August; and
• June imports – declaration and payment before the end of September.

As with the VAT facility for the deferment of import VAT until the filing of the periodic VAT return, this excise tax deferment regime will be removed for all taxpayers from 1 July and all taxpayers therefore obliged to pay excise tax on import to the customs authority at the point of import. Businesses need to assess the impact of this for them and ensure that they can comply on a timely basis, so as to avoid any supply chain delays as a result of tax clearing on import.

Withholding tax

Withholding tax deadlines for filing returns, together with making associated payments, have also been deferred by three months, as follows:

Again, these deferred deadlines will result in 'double filings' for businesses in the relevant months, which will need to be planned for administratively and financially in advance to avoid non-compliance and penalties.

Service suspension and funds seizure

Procedures relating to suspension of government services and seizure of funds will not be enforced, and suspensions currently in place will be revoked, until 30 June 2020. This will allow taxpayers to continue their business activities.

Tax reliefs in Qatar

The tax reliefs introduced in Qatar to date have been reasonably limited. There is some similarity to those implemented in the UAE and KSA, in terms of the suspension of penalties and the extension of filing deadlines.

Qatar state's General Tax Authority

The General Tax Authority (GTA) has extended the filing deadline for 2019 corporate income tax returns by three months, until 30 June 2020.

Qatar Financial Centre

The Qatar Financial Centre (QFC) free zone has reduced the rate of the late payment tax charge from 5% to 0% for the period 1 March to 31 August 2020. This represents a real tax compliance cost reduction for affected businesses.

Qatar customs duty

The Qatar General Authority of Customs (GAC) has exempted 905 basic food items and medical supplies for personal and household hygiene from customs duties for a six month period.

The main food items to which the exemption applies include meat, fish, dairy, cheese, legumes, oils, pastries and juices, among others. Medical supplies that are exempted from customs duties include face masks, sterilisers, soap products, detergents, sterilisation wipes and personal and household hygiene items for personal use.

Tax reliefs in Oman

The Sultan of Oman Tax Authority has announced a number of similar penalty suspensions and timeline deferments to support taxpayers.

Corporate income tax

Again, a three month corporate income tax deadline deferment is available to all affected taxpayers. Therefore, for example, the deadline for the filing of preliminary returns for a financial year end of 31 December 2019 has been extended from 31 March 2020 to 30 June 2020.

Additional measures in support of corporate income tax payers include:

• all taxpayers can apply to pay tax liabilities in instalments;
• exemptions from all penalties for deferred filing deadlines, instalment payments etc.;
• tax deductions for any contributions made to charities in support of Covid-19 relief efforts as part of FY 2020 tax returns; and
• extension of timeline for filing objections against tax decisions and additional time to submit supporting documentation for ongoing objection proceedings.

Customs duty

The Directorate General of Customs in Oman has implemented minor procedural reliefs:

• documents accompanying the goods will be considered original documents without the need to collect a guarantee; and
• customs authorities will accept product authentication labels, including country of origin, even where the certificate of origin cannot be submitted.

Tax reliefs in Kuwait and Bahrain

We are not aware of any specific tax reliefs that have been implemented in response to Covid-19 in Bahrain or Kuwait to date.