Saudi Arabia has confirmed that the Council of Ministers has approved a set of updates to the GCC Unified VAT Agreement, which established a harmonized VAT in the Gulf Region. Following the agreement, Saudi Arabia implemented VAT at the standard rate of 5% on January 1, 2018. However, the VAT rate was increased to 15% in July 2020 in response to the budget deficits during the COVID-19 pandemic. The latest updates modify several specific articles and mainly focus on how VAT is handled for transactions between GCC countries.

What Changed Under the Latest VAT Updates?

The recently adopted amendments to the GCC Unified VAT Agreement improve how cross-border VAT is applied and administered across Gulf states, particularly for goods moving between member countries and for imports. More specifically, the rules are being refined so that VAT is properly attributed to the country where the goods are ultimately transported or consumed.

Additionally, for supplies involving individuals and non-VAT-registered persons, where proof of VAT payment in the originating country is missing, the destination country may collect VAT at the point of entry, ensuring tax is still properly captured. Under the adopted amendments, each GCC country retains the right to set its own standard VAT rate under domestic law, as long as it remains at or above 5%, unless specific exemptions or zero-rating rules apply.

Furthermore, new rules state that where goods enter one GCC country but are ultimately destined for another, VAT may be collected at the first point of entry and later reconciled with the final destination country. Also, in certain situations, VAT-registered businesses may account for import VAT directly through their VAT returns depending on local implementation rules. Finally, new rules strengthen cooperation between GCC Tax Authorities by expanding their ability to exchange and access information on intra-GCC transactions.

Conclusion

For taxable persons operating in Saudi Arabia, it is important to note that the new amendments will only become effective once the necessary VAT implementing regulations are issued. Additionally, the GCC states are expected to introduce matching legal changes so the system remains harmonized across the region. Therefore, further monitoring is required to ensure compliance, not only in Saudi Arabia but across Gulf countries.