February 2, 2019

How to self assess- VAT compliance and recognize the applicability of VAT on your operations

The VAT is newly launched in Bahrain by the beginning of this year. As per the common VAT agreement of states of GCC, the same has been introduced in the Kingdom of Bahrain. As VAT we implemented and it is in the early stage of transition to VAT. This is the right stage to have a self-assessment to VAT compliance and recognize the applicability of VAT on your operations, its preliminary necessities and the method ahead for a soft grounding at your end. This concise piece of writing will talk about the first round ordinary apprehension which as a business owner/manager you may have with consideration to the applicability and requirements for VAT, ahead of the publication of the Law and its regulations.
1. Is it necessary that my business operations require registration under VAT?For the self-assessment, you need to go through the two types of registration – Mandatory and Voluntary. The kind of registration can be checked as below, based on your annual invoicing:
a.)Mandatory Registration– Invoicing More than mandatory threshold If your past 12-month invoicing or within next 30 days is/ will be more than the mandatory threshold (considering Bahrain, where the mandatory threshold is equivalent of BHD 37,750 – then you need to register mandatorily under VAT Law.
b.) Voluntary Registration– Invoicing more than voluntary threshold If your past 12-month invoicing or within next 30 days is / will be more than the voluntary threshold (Considering Bahrain, where the voluntary threshold is equivalent of BHD 18,850), then you may (optional) register voluntarily under VAT Law.
2. Do I need to charge VAT for the goods/services I supply? A self-assessment on VAT compliance on goods/supply is to be made. Normally talking, the greater part of goods and services will be roofed under VAT. However certain goods/services are specifically exempted by the VAT law. In simple words, if your goods/services are not under the exempt category, then these will be subject to VAT (either at the standard rate or at zero rates).
3.What will be the rate of VAT on my goods and services?The taxable goods and services will be subject to the standard rate of tax i.e. 5%. However, if the goods/services will be under zero rate, the rate will be 0%. The exempt goods and services will not be taxable under VAT.
4. Is it necessary to modify my accounting application/software system for VAT compliance?The accounting software may not require to be changed, however, it would require modification to ensure that the system is competent to function as per VAT law. The major areas of system amendments will be:
a.) VAT compliant Invoicing / Credit notes.
b.) Correct documentation of VAT input recoverable and VAT output payables & Reverse Charge Tax Accounting.
c.) Supplier and Customer master data adjustments.
d.) Computerized functionality for report generation for net VAT payable (Output VAT – Input VAT).
e.) Product/Service master modification to record rate of tax to be charged based on goods/services categories.
5. What are the consequences if I do not register or comply with VAT laws? Definitely, there will be some penalties that can be forced on business owner for non- compliance even from the very first day of implementation of VAT. As a business owner/manager, you be supposed to be VAT compliant from day 1, provided the present level of business is above the mandatory threshold limit.
6. What are the concerns with the existing bond / committed supplies of goods/services? The rule is straightforward; any supply of goods/services after implementation of VAT will be subject to VAT. However, there are a few transition rules (exception in the initial period), which will permit you to invoice items without VAT, which is conditional. Nevertheless, even if you had acknowledged advance from your customer for the supply of goods/services, which is not yet conveyed /finished, most likely these transactions will be subject to VAT to be charged to customers.
7.What are the terms and conditions of VAT on imports of goods/services?The VAT is due to imports of goods/services from abroad. However, there are certain procedures (viz. reverse charge mechanism) which will explain the method to pay / record VAT liability. Value Added Tax is a Tax on Import and Supply of Goods and Services which are taxable supplies.
8. What is the period of VAT return filing – Monthly or Quarterly and how it will be paid?The due VAT amount is required to be paid on a monthly/quarterly basis (as the case may be), which is based on the business turnover. Most likely, the payment of VAT will be online and the payment details have to be mentioned in VAT return as well.
9.Do I need any training on VAT?Training is a very important feature which is required to fulfill the required compliance of the VAT law. The initial training to owners of the business and employees is necessary in order to carry out the VAT Impact Study. The areas include VAT applicability, invoicing, accounting of transactions, sales & sales return, system procedures, maintenance of records, the filing of Tax Returns and payment of tax dues.
10.Do I have to register separately for many businesses? Every business is required to be registered as per mandatory threshold limit under VAT Law. However, generally, VAT law endow with an alternative to a group of businesses under same Management to register as one tax group (subject to certain conditions). If you register as one tax group, then all the businesses under the same group will form part of consolidated compliance and regulatory reporting under VAT law.
11.What documents do I have to keep?As per VAT law, the business wants to keep all the records i.e. purchase and sales invoices, debit/credit notes, VAT payment evidence, inventory records including quantitative particulars, Expenses, etc. in order to make available for the VAT officials for their verification, whenever it is requisite by them. These records should be kept in a proper manner for examination purposes.
This short commentary is provided for self- assessment of businesses, to the right of entry for the requirements at a premature phase and to employ towards the essential transformation management for the even transition towards VAT, effectively, without any complexity.

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