ALRMEH Consultants is dealing in VAT in BAHRAIN for over 2 years now since the implementation of VAT in BAHRAIN back in 2019. We have dealt and handled over 2000 clients and projects successfully and we have been assisting them to understand scope and laws relating to VAT, and to provide them with specific solutions and answers to their queries according to their specific business model.
ALRMEH Consultants have a wide base of VAT experts who are equipped technically to cater the needs of the clients related to different dimensions of businesses and individuals and to provide best possible solutions to their needs.
VAT in Bahrain was 5% since the implementation but now it will be increased to 10% and that has been approved by Shura clearing all legislative hurdles. It will be implemented from Jan 1st 2022. The VAT law of 2018 will be amended according to the above amendment of increase in percentage.
Based on our past experience in OMAN, KSA and UAE, we have witnessed that the businesses lack the acumen and resources to be prepared for the implementation of new workflows, processes and systems to comply with VAT regulations, which lead to administrative and financial penalties.
ALRMEH Consultants is assisting businesses to understand the scope of VAT laws and to provide tailored solutions for their specific business needs. Our team of VAT experts is ready to serve you in all your tax related matters.
VAT in Bahrain is administered and implemented by Govt. body NBR, The NBR is responsible for the registration of taxpayers and their tax liability, the validation of VAT return filing and the related assessment, the payment of refunds and collection of any amount due, the auditing and processing of any appeal and the monitoring and enforcement of compliance.
ALRMEH Consultants provide full support in all of the above matters related to NBR, We have experienced and experts related to VAT, who can deal with every help and solution related to NBR and VAT in BAHRAIN.
HOW DOES VAT WORK
If, as a VAT registered person, you make taxable supplies (i.e., supplies of goods or services subject to VAT), you must charge VAT on your supplies, and pay it to the NBR. This is your “output tax”.
The VAT charged by your suppliers on your business expenses and the VAT you pay on your imports of goods and services is your “input tax”.
As a VAT registered person, you can reclaim from the NBR the input tax incurred on your purchases and imports to the extent that these expenses and imports are used to make taxable supplies. You cannot reclaim the VAT incurred on expenses used for a non-business activity or for making exempt supplies (i.e., supplies of goods or services that are not subject to VAT due to a specific VAT exemption).
On a regular basis, you will file a tax return to the NBR and pay the excess of your output tax over your input tax. If your input tax exceeds your output tax, you can ask for a refund of this difference from the NBR or you can carry it forward as a credit to use against future VAT liabilities.
ALRMEH Consultants is emerging in her services in the field of VAT with success rate of above 95% and over 2000 happy customers, we have a diversified approach and with that we have been solving complex issues of VAT related to different sectors of businesses and different sectors of economy, we are focused on providing the best possible solution to our clients and to guide them to carry their businesses in light and accordance with laws and regulations set by National bureau of revenue the governing body of VAT in Kingdom of BAHRAIN.
How ALRMEH Consultants can help you?
Furthermore to explain Vat in Bahrain more specifically we will go through different dimensions of Value added tax commonly known as VAT.
About VAT in Bahrain
VAT, or Value Added Tax, is an indirect tax that is levied on all taxable goods and services. Registered sellers will collect VAT from buyers on behalf of the government, which makes it an indirect tax.
The Kingdom of Bahrain will be the third GCC country, following the UAE and the Kingdom of Saudi Arabia, to implement VAT. Even though the basic framework of the law will remain the same, there are a few key differences that will set Bahrain’s VAT law apart from the other countries. For instance, Bahrain will impose zero-rated tax on basic food items, education, and health, construction of new buildings, local transportation, oil, and gas. Certain supplies related to real estate and financial services will be VAT exempt.
Date of Implementation: January 1st, 2019
VAT Collection and Administration Authority: The National Bureau for Revenue in the Kingdom of Bahrain
How does VAT work?
Let’s use an example to understand how VAT works.
A manufacturer sells goods to a wholesaler at BHD 1000. Under the new law, a VAT of 5% will be applicable on these goods. So the wholesaler pays BHD 1050. The wholesaler increases the price to BHD 2000 to include a profit margin and sells it for BHD 2100, after adding 5% VAT.Finally, the retailer increases the price to BHD 3000. After levying 5% VAT on the goods, he sells it for BHD 3150. From this example, we can see that VAT is levied at every stage of the supply chain until it reaches the consumer.
The different VAT rates applicable on taxable goods and services in Bahrain will be as follows:
Standard rate: 5% tax will be levied on the total value of all taxable goods and services, unless they belong to a zero-rated or tax-exempt category. Registered business owners can recover the tax paid on these goods and services (which is known as input tax).
Zero rate: 0% tax will be levied on the value of certain goods and services, including basic food items, education, health including pharmaceuticals and all medical supplies, real estate (construction of new buildings), local transportation, and oil and gas (and their derivatives). Registered business can recover tax paid on these goods and services. The final consumers will not pay any tax, since the VAT rate is 0%.
Tax Exempt: If goods or services are considered tax exempt, then the consumer will not pay VAT, and the registered business owners cannot recover the tax paid on these goods and services. Some tax exempt supplies include the lease or sale of real estate, and financial services (excluding explicit fees, commissions, or commercial discounts charged by financial institutions).
Who are required to pay VAT?
The following persons are required to pay tax:
A taxable person who sells goods or services in the Kingdom of Bahrain. A taxable customer who buys goods or services in the Kingdom of Bahrain from a non-resident supplier under the reverse charge mechanism. All importers who are declared by the Unified Customs Law must pay tax on importation. Every person who issues invoices with tax amounts in the Kingdom of Bahrain.
Supply under VAT
The government has defined supply as any exchange of goods or services including production, sales, purchases, and leasing transactions for a consideration.
Supply of goods
Any transfer of ownership or the rights to use goods is considered to be a supply of goods.
Supply of services
If a supply is not considered a supply of goods, then it is considered to be a supply of services.
Supplies made or received on behalf of a taxable person
If a person supplies or receives goods or services on behalf of someone else, then the person supplying or receiving will be considered the supplier or recipient of the goods or services.
Any supply of goods or services that falls under any of the following scenarios is considered a deemed supply:
When goods that are part of a person’s assets are used or surrendered for non-business purposes. When goods intended for a different use are used for making supplies that are non-taxable. When goods are still owned on the date of deregistration despite stopping all business activities. When goods are given away for free, and are not used as samples or gifts for business purposes. These goods must be within the threshold specified by the Regulations. When a supplier provides services for free.
Any supply under VAT has three components: place, value, and time. These are used to calculate the tax owed for a transaction.
For the purpose of VAT registration, the turnover shall include taxable turnover (taxed at either 5% or 0%) and the turnover on which VAT is payable under reverse charge mechanism (import of goods and services).
A resident taxable person must register for VAT if they fulfil any of the following conditions: If the total value of the supplies they made in the Kingdom of Bahrain exceeds the mandatory threshold of BHD 37,500 in the twelve months before the end of any months in 2018. If the value of the supplies they made in the Kingdom of Bahrain is expected to exceed the mandatory threshold in the next 12 months.
The timeline for registration for businesses is based on the annual turnover in sales.
A resident taxable person can register for VAT from 1st of January, 2019 if they fulfil any of the following conditions: If the value of supplies they made in the previous 12 months exceeds the voluntary threshold of BHD 18,750. If the value of supply is expected to exceed the voluntary threshold in the next 12 months.
Registration for non-residents
According to the VAT law, a non-resident supplier is a business owner who does not reside in Bahrain but makes taxable supplies in Bahrain.
It’s mandatory for non-residents to register for VAT in the Kingdom of Bahrain, irrespective of the value of their supply. A non-resident can either register directly or appoint a tax representative to register on their behalf after getting the Authority’s approval.
Non-residential business owners in Bahrain must register before their first supply after January 1, 2019. They may register for VAT themselves without appointing tax representatives.
Who can register as a tax group?
Two or more legal taxable individuals can apply for registration as a tax group. The members of the tax group will be liable for all tax obligations that arise from the group’s activities. The Authority can adjust or de-register a tax group based on the terms, conditions and procedures mentioned in the Regulations.
Exemption from registration
If an individual’s supplies are all zero-rated, they can be exempted from mandatory registration upon request to the Authority.
A taxable person should deregister if they are no longer carrying out an economic activity or if they’ve stopped making taxable supplies in the past 12 consecutive months. They will also be eligible for deregistration if the value of their taxable supplies for the previous 12 months falls below the voluntary threshold and is not expected to exceed the voluntary threshold for the next 12 months.
A taxable person can choose to apply for deregistration if the value of their annual taxable supplies for the past 12 months falls below the mandatory threshold of BHD 37,500 but exceeds the voluntary threshold of BHD 18,750. Transitional Provisions
What are transitional provisions?
Since this is the first time an indirect taxation method is being implemented in the Kingdom of Bahrain, the tax authority has established certain provisions to make it easy for businesses to transition to VAT.
Transitional provisions for supply of goods and services
If a supply is made after January 1, 2019 or after the date of registration, it is considered taxable even if the invoice and/or payment were completed before either of those dates.
If a taxable supply is completed after an invoice has been issued without tax, then the supplier should issue a tax invoice that is inclusive of the VAT amount charged on the supply.
The date of supply is considered to be after January 1, 2019 in the following cases: If the goods are delivered on a date after January 1, 2019 If the services are completed after January 1, 2019
Transitional provisions for contracts exclusive of tax signed before January 1, 2019
If a contract has been signed before January 1, 2019 and the supply is made completely or partially after VAT has been implemented, then the supply is taxable (unless the contract already includes a tax clause).
In cases where a contract has been signed with the government before January 1, 2019 and the supply is made completely or partially after VAT has been implemented, then the supply is considered zero-rated. It will continue to be zero-rated until the renewal or expiry of the contract or December 31, 2023 (whichever comes first)
Invoicing under VAT
Issuing a tax invoice
A taxable person must issue an original tax invoice for any goods and/or services supplied by them. This includes deemed supplies and invoices issued to record complete or partial payments received before the date of supply.
The date of issuing a tax invoice
A supplier must issue a tax invoice by the 15th day after the end of the month in which the supply took place. For example, if a supply took place on January 31, 2019, then the tax invoice must be issued before February 15, 2019.
Currency used in a tax invoice
The base currency of the tax invoices should be Bahraini Dinars (BHD). For supplies made in foreign currencies, the value of supply should be converted to BHD based on the daily conversion rate prescribed by the Central Bank of Bahrain for the date of supply.
Contents of a tax invoice
A tax invoice should contain the following details: The date on which the invoice was issued (the date of supply should be mentioned if it’s different from date of issuance) Invoice number (The series should be sequential and each invoice should have a unique number) Name and address of the supplier Tax ID number of the supplier Name and address of the customer, Description and quantity of the goods supplied/ Nature of the services provided. Gross and net values of the supply, VAT applicable on the supply (include explanation if standard rate is not applied)
Note: A tax invoice should be issued within 15 days of supply of the goods and/or services.
Amendments to a tax invoice
A taxable person can make adjustments to the value of supply in the following ways: If the tax amount specified in the original invoice exceeds the actual value, the taxable person should issue a credit note. If the tax amount specified in the original invoice is less than the actual value, then the taxable person should issue a debit note.
Both documents are given the same treatment as an original tax invoice.
Tax period for VAT returns
The Regulations will determine the duration of the tax period for a taxable person, which should not be less than one month. The start and end dates of each tax period will differ for each taxpayer.
Submitting VAT returns
A taxpayer must submit a VAT return to the Authority by the last day of the month following the end of each tax period. This VAT return will contain details regarding the supplies and imports made and received by the taxpayer in that tax period.
A taxpayer should submit a VAT return even if they haven’t made or received any supplies or made any purchases during the tax period.
A taxable person must maintain organized records, tax invoices and accounting books related to their supplies and imports of goods and services for at least 5 years from the end of the year in which they were issued.
For real estate properties, the invoices, records, and accounting books must be maintained for at least 15 years.
The taxpayer must retrieve and present these records and books to the tax authority upon request.
After submitting tax returns, the taxable person must pay the amount due to the Authority.
An importer must pay the tax due to the Ministry of Interior’s Customs Affairs department, if the first entry point of goods is considered to be the Kingdom. The Authority can allow a taxable importer to defer tax payments on imported goods that will be used for economic activity. In this case, the taxable importer must declare the deferred tax while filing VAT returns.
When imported goods are under customs duty suspension, the tax will be suspended. In this scenario, the importer must provide a financial guarantee equivalent to the tax value.
Refund and adjustment of tax
Tax will be refunded on a supply or import under any of the following circumstances: Tax paid in excess by a taxable person. Tax paid for goods and services supplied inside the Kingdom by foreign governments, international organizations, and diplomatic and military missions. Tax paid in another VAT implementing state for business purposes by a taxable person from the Kingdom. Tax paid by tourists
The tax will be refunded only when the conditions of recovery are met.
Carrying forward excess recoverable tax
Tax authorities can carry forward any excess net tax to subsequent tax periods at the request of the taxable person.
The tax authority can use the excess net tax to offset administrative penalties or any tax due from a taxable person, until the excess value is exhausted.
An administrative penalty is imposed on taxpayers who commit any of the following acts:
Delayed submission of VAT returns or delayed payment of tax, for a prescribed period not exceeding 60 days. The penalty rate in this case would be between 5% and 25% of the tax value to be recognized or paid. Failing to register for VAT within 60 days from the registration deadline, or within 60 days after reaching the mandatory registration threshold limit. The penalty in this case may go up to BHD 10,000. Providing falsified information on the import of goods and services that leads to an increased value declared in tax returns.
For any person who commits the following offences, a penalty of BHD 5000 will be imposed. Not informing the Authority of changes in a registration application or changes in VAT return information within specified dates. Not displaying the price of goods or services inclusive of tax. Failing to provide information requested by the Authority. Not complying with the rules relating to issuing a tax invoice. Violating any rules or regulations of VAT law.
The following offences are considered tax evasion and carry more significant penalties: Failing to register within 60 days from the last date to register for VAT. Failing to submit tax returns or pay tax due on supplies or imports within 60 days from the due date. Unlawfully deducting input tax and making tax adjustments, or violating the provisions of input tax deductions. Unlawfully claiming tax partly or wholly. Submitting forged or falsified documents, records, or invoices in order to partly or wholly avoid paying tax. Not issuing tax invoices for taxable supplies of goods, services or imports. Issuing tax invoices for non-taxable supplies. Not maintaining organized documentation and accounting books related to tax invoices, imports, and supplies of goods or services.
Penalties for tax evasion
The standard penalty for tax evasion is a prison sentence between 3 to 5 years. Along with this sentence, the offender will have to pay a fine for an amount that is not less than the tax amount due, but can be up to 3 times the tax amount due. The penalty will be doubled if the tax payer evades tax again within 3 years from the date of the first verdict. A legal person will have to pay a penalty if their name is used for tax evasion purposes or for their benefit fraudulently or illegally. The fine will be double the amount of the normal penalty fees (which range between 5% and 25% of the tax value to be recognized or paid).Transport tools, materials, and devices used for tax evasion purposes may be confiscated by the Authority. Ships and aircrafts will also be confiscated if they have been prepared and used for tax evasion purposes. Tax evasion crimes are considered with the same sense of seriousness and urgency as other crimes of dishonor and dishonesty. No criminal action can be taken in tax evasion cases without the request of the Ministers or his authorized representatives. The Minister or his authorized representatives may reconcile some of the penalties wholly or partly. In order to do this, the accused or their representative must send a written request to the Minister or his authorized representatives before the litigation, during the trial, or before the final verdict on the case. If the accused pays an amount equivalent to the minimum amount of the decided penalty, in addition to the tax due, the Ministers may agree to a reconciliation. Once reconciliation is reached, it marks the end of the criminal proceedings.