In the lack of comprehensive domestic law, how can I prepare for VAT?
Based on the VAT legislation, the substance of the Gulf Cooperation Council (GCC) Unified VAT Framework Agreement (VAT Agreement), encounter with VAT in the Kingdom of Saudi Arabia (KSA) and the United Arab Emirates (UAE), and worldwide best practice, businesses can proceed with VAT preparation.
Given the short time before the implementation date, we advise enterprises to complete such projects as soon as possible. The VAT in Bahrain has been reported that there is a higher amount of uncertainty in some industries (for example, financial services and real estate). However, based on experiences in the UAE and Saudi Arabia, ambiguity is likely to persist even after the implementing regulations are published.
Do you believe there will be significant differences in how the regulations are applied in Bahrain compared to the other VAT adopting member states?
There will be some variation in how the regulations are applied throughout the GCC member nations. This is because the VAT Agreement has certain mandatory elements, others that are optional, and somewhere a local treatment decision must be taken. Indeed, the release of the VAT legislation shows that Bahrain has allowed for a zero rate for oil, oil derivatives, and the gas industry, in contrast to Saudi Arabia’s viewpoint. More information on these differences will be provided in the future.
What are Bahrain’s VAT registration requirements?
The VAT legislation is in line with the VAT agreement and stipulates that any firm operating in Bahrain that makes taxable supply or imports over the required registration level of about Bahraini Dinar 36,500 (US$ 100,000) should enroll for VAT. If a company’s supply and imports are less than the required registration level but surpass the voluntary registration threshold of around Bahraini Dinar 18,250 (US$ 50,000), it can choose to register for VAT voluntarily. Businesses with taxable revenue over the voluntary level but below the required threshold should examine whether registering for VAT in Bahrain would be beneficial. When deciding whether or not to voluntarily register for VAT, consider issues such as the VAT status of consumers, the projected value of VAT to be spent on expenses, the reputational impact, and internal resources. A company that is not based in Bahrain must register for VAT if it makes any supplies in Bahrain for which it is responsible for remitting VAT (e.g. the place of supply is in Bahrain and the customer is not able to self-account for the VAT due under the reverse charge mechanism). In the case of non-resident enterprises, there is no such thing as a threshold test.
Is it possible for businesses in Bahrain to register for group tax (VAT)?
Bahrain has chosen to use tax groups to bring together two or more taxable people who live in Bahrain. The implementing regulations will include additional prerequisites and measures for forming a tax group. A Bahraini legal person cannot be grouped with a legal person who is not based in Bahrain.
In Bahrain, which supply will be subject to the standard rate?
Most domestic supply of goods and services in Bahrain will be subject to a standard rate of 5% VAT. Several supply types have been zero-rated in Bahrain. Export of products and services to clients outside the GCC, preventative and basic healthcare, medical equipment, and education are some of the most popular zero-rated supplies. Bahrain appears to enable a more comprehensive zero-rating in numerous areas than the UAE and Saudi Arabia. The local transportation industry, for example, is zero-rated in addition to the international movement of products and persons. Bahrain, like the UAE, has imposed a zero rate on some supply of investment gold, silver, and platinum. Furthermore, Bahrain permits providers to zero-rate the initial supply following the extraction of gold, silver, or platinum for trade purposes, as well as the supply and import of pearls and precious stones.
Bahrain, like the UAE and Saudi Arabia, has chosen to tax essential consumables at zero percent. We anticipate that a more thorough list will be issued at a later date. Consumers typically appreciate zero ratings, but if they aren’t comprehensive enough, they might cause complications for providers. In the real estate industry, while the construction of new buildings is VAT-free, the sale and leasing of real estate and bare land will be VAT-free. The law of VAT in Bahrain does not specify whether the exempt treatment would apply just to residential real estate or will also encompass commercial real estate. While the exemption looks to be extremely broad, once the law’s implementing rules are produced, the handling of commercial real estate should be validated. The zero rates will be applied to oil, oil derivatives, and gas supply as well.
International services are provided by the GCC to a taxable consumer.
According to the VAT Agreement, the place of supply of intra-GCC international services to a taxable (business) customer will be the location of the recipient of the service (with exceptions for services closely connected to the country of performance or land and buildings), with the recipient in another GCC member state required to reverse charge local VAT. The VAT invoice must include the customer’s VAT number in the member state of the establishment to certify the customer’s taxable status in that state. When supplies are made to non-implementing jurisdictions, Bahrain has stated in its VAT law that, similar to the transitional arrangements in place in the UAE and KSA, these sorts of services would be treated as exports. Furthermore, if a state does not acknowledge Bahrain as a participating state, Bahrain will consider it a non-implementing state. Some problems in applying the relevant laws in practice may occur due to the language of the relevant clauses. We anticipate that the Bahraini tax authorities will issue more guidance on this subject shortly, given its relevance.
Goods exports (outside of the GCC)
When the temporal and documentation criteria are completed, the sale of exported products from Bahrain will be zero-rated (with the ability to recoup input tax). To use the zero rate, businesses must be able to show that the items were exported/shipped within the appropriate time restrictions; otherwise, the supply would be liable to VAT at the standard rate of 5%.