A survey of investment experts and professionals in the Gulf Cooperation Council (GCC) countries revealed that investors will bear a significant portion of the tax increases in the real estate market, with the results showing that 87% of investment experts believe the additional expenses incurred by real estate companies will be passed on to investors, while the report indicated that 54% of members of the Institute of Certified Financial Analysts believe that individual investors will be more affected than institutional investors following the implementation of the value-added tax, while 4% believe that institutional investors will face a greater impact following implementation.
In this regard, Pratik Shah, a VAT expert and resident partner at “WT Drofa Consultants,” predicted that the implementation of the value-added tax would lead to a generally moderate increase in construction costs and building materials, at a rate of 5% at the beginning of next year.
He explained that contractors and builders must agree with employers and clients that VAT will be collected in addition to the previously agreed-upon price, noting that contract prices in the Gulf Cooperation Council (GCC) typically include taxes and that there is a general silence regarding tax matters.
He noted that this situation will lead to increased negotiations between contractors and their clients, as contractors will face higher procurement costs, and consequently will want to pass on part of this increase to their clients, which means we could see many unprofitable projects if contractors do not plan adequately for VAT.
He advised subcontractors and any service providers not registered for VAT to register voluntarily, even though they often fall below the minimum threshold required for mandatory tax registration with the Federal Tax Authority.
He pointed out that one of the risks involved in dealing with unregistered suppliers is the potential inability to claim input tax refunds, which makes costs uncompetitive.
He added that when dealing with subcontractors registered for VAT, these suppliers will be able to charge VAT, which the contractor can then reclaim.
