The six countries of the Gulf Co-operation Council (GCC) are expected to introduce VAT next year. Traditionally Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates have enjoyed ‘no tax’ or ‘low tax’ regimes with obvious advantages to expatriates. Although the initial VAT rate is set at only 5%, there are suggestions – and fears – that other taxes will follow. For tax professionals considering a career move to the region however, the future looks sunny
What’s happening and why?
The GCC governments have agreed jointly to introduce VAT at 5% on 1 January 2018. The decision follows the IMF’s call for the region to introduce taxation to fund the security, health and education that its citizens expect. This is ever more urgent with the revenues from oil falling.
Businesses will need to record, assess and report their VAT obligations and entitlements to the tax authorities. Although the idea of VAT in the Gulf is not new – it was on the agenda for Dubai in 2008, but shelved amid the international financial crisis and debt restructuring – it does require a huge change in mindset for businesses.
“The expected introduction has put tax on the map,” says Rupert Pease, Head of Tax at KPMG in Saudi Arabia. “In many companies, accounting came up once a year with a hope that it was being completed correctly; there was no planning. Now tax management is being discussed in boardrooms here for the first time.”
This is good news for tax professionals looking for roles in the GCC as the tax departments of the Big Four accounting firms have greater licence to recruit expertise from other parts of the world.
“There’s a push to look for good people with VAT experience and my sources tell me the other three big firms are doing the same thing,” says Pease. “It’s going to be a focus for the next three years or so, I believe.”
“There’s never been a more exciting moment to be a tax professional,” says the General Manager of Tax at one of the large trading organisations in the UAE, who has requested to remain anonymous. “Whenever I’m asked what I do, I have always had to justify the way I make my living in this part of the world – but now there’s a great need for tax specialists and the right talent.”
At the time of writing, the VAT framework has been twice delayed and is still not finalised. Large trading groups are understandably awaiting confirmation before increasing headcount.
“People are currently working on the expected framework rather than the actual framework,” says Nauman Mian, Chair of the Members Advisory Committee for the Association of Chartered Certified Accountants. “It will be a copy and paste from somewhere else, of course, but people can’t base their decisions on that – the tweaking of the nuts and bolts, that’s what is holding everybody back.”
Preparations are underway in many of the conglomerates with existing employees identified to take on responsibility for tax affairs.
“My personal expectation is that once the compliance cycle starts we can expect a flurry of recruitment activity and some organisations will start panicking in Q4 2017 and Q1 2018,” says the General Manager of Tax. “I think most hiring will be at senior accounting or assistant manager level and people with VAT experience and something of a legal background will be in hot demand.”
Inevitably, some of the hiring will involve poaching from accountancy firm to in-house practitioner. “Clients use the big firms for recruitment,” says Pease. “If employees don’t see a route to partnership they may leave. There may be a lot of that in the next few years.”
While the larger companies have the ability to absorb the planning and possibly some of the compliance side of the changes, smaller businesses are less well positioned.
“The threshold for VAT has moved to $100,000, which is nothing,” says the trading organisation’s General Manager. “The grocery store around the corner where my family shops takes $5-6 million a year. The shopkeeper said to me: ‘You’re in tax, you can help me with the VAT!’ Certainly the smaller businesses will need extra assistance.”
“Not everyone can afford one of the Big Four,” says Mian. “But they will need professional accountants and for the smaller accounting firms, VAT is a goldmine. For large companies we are talking about the recruitment of hundreds of people for now, but in the bigger picture, it’s thousands.”
However, cautions Mian, new recruits may not be additional headcount; rather replacements with a different skillset and specific tax knowledge.
“If you currently drive a Toyota, you may need to upgrade to a Ferrari,” says Mian. “But it doesn’t necessarily mean you’ll need two cars. Certainly, professional organisations like the Association of Chartered Certified Accountants are likely to benefit as candidates want to show an understanding of tax, and certification.”
The most obvious secondary area for recruitment is IT. Indications suggest most large organisations will use their current complement of staff for this, together with some outsourcing and additional products.
In terms of legal professionals, Mian doesn’t see big numbers of lawyers being hired at this stage – with companies only likely to need to add a clause to contracts to clarify tax liability. But he says that when compliance begins, firms will realise all of a sudden that they aren’t covered and will want to safeguard themselves.
At least one large UAE law firm is believed to have set up a specific tax practice, in part to be ready to tackle any tax disputes that will inevitably arise down the line.
But will people still want a Gulf posting if there’s tax?
VAT at 5% is not a game changer for professionals considering a career move to the Gulf – especially if they’re used to 20-45% income tax, plus VAT of up to 20%, elsewhere. The real question is what VAT heralds for the future.
Although the UAE has repeatedly said it has no plans for income tax, independent experts believe the country will see how VAT beds down first and that it is thinking of only three-five years ahead for direct taxation. The IMF also raised the possibility of corporate, property and excise taxes for Gulf states.
“It’s more the economy that needs to be looked at in terms of overall recruitment of professionals to the Gulf rather than VAT specifically,” says Pease. “Why do the governments feel the need to introduce it? That’s the wider discussion.”