All representatives of the Member States of the GCC including Kuwait confirmed the introduction of a VAT law across all Member States through the signing of a VAT Framework in 2017. The framework acts as white paper for the VAT legislation in each Member State by stipulating certain rules. It must be followed in spirit by all member countries with the option to opt for different VAT treatments concerning some supplies.
Kuwait is planning to implement a VAT regime from 1 April 2021. The VAT is being introduced as Kuwait is looking for revenue options other than oil. Oil prices in Kuwait have fallen drastically in the past few years. So far, only Saudi Arabia, UAE, and Bahrain have implemented VAT.
The new VAT regulation in Kuwait will be similar to the VAT Framework Treaty. It would form the basis of domestic VAT legislation in Kuwait. The framework needs to be followed by all the GCC countries with all key regulations of the VAT law.
VAT Framework Treaty provides that VAT on the supply of goods or services within the scope of VAT will be charged at a rate of 5% unless the goods or services are exempt or zero-rated. The Member States have been granted the flexibility to choose whether the supply of specific goods or services is considered as zero-rated or exempt.
The distinction between zero-rating and exemption is an important one; in both cases, VAT must not be accounted for on the supply, a supplier making exempt supplies is generally not allowed to recover input VAT concerning such supplies. Recovery of input VAT incurred concerning zero-rated supplies is generally allowable.