Bahrain has implemented levy 5 percent value-added tax (VAT) from January 1, 2019, following the introduction of the tax in GCC states UAE in 2018. Earlier last September during a meeting held at the Ministry of Finance and National Economy on Tuesday, officials confirmed that they will “review the mechanisms of applying VAT during the trial period for its launch” and that it will continue to organize and participate in a series of workshops for companies and institutions to raise awareness of the technical, legal and procedural aspects of the tax. Sheikh Salman bin Khalifa Al Khalifa, Minister of Finance and National Economy, also stressed during that meeting that the government agencies will “ensure the proper implementation of VAT procedures from the first day of its launch during the trial period, taking into account the importance of market stability”.These preparation and readiness has ended a hassle-free launch of VAT in Bahrain and the early confusions in business are slowly vanishing out.
The reports say that more and more businesses are getting proper awareness about VAT and the Ministry expect the filing by the first tax period will be as per the expectation and they had declared strict penalties for noncompliance which also will make the companies become a proper Taxpayer.
VAT details
Bahrain’s Ministry of Finance the plan of Bahrain Ministry was to introduce VAT in a phased manner through transitional mandatory registration thresholds. According to the regulations, businesses earning over BD5m ($13.2m), would have to be registered by January 1, 2019, of which most of the businesses in Bahrain have registered in VAT while those making over BD500,000 ($1.3m) and BD37,500 (over $99,730) have to be registered by July 1, 2019 and January 1, 2020 respectively.
Businesses below the compulsory registration verge for 2019 are not required to register this year while those wishing to voluntarily register in 2019 must exceed the voluntary registration threshold of BD18,750 ($49,860).
Huge businesses will file tax returns on a monthly basis and all other businesses will file quarterly. However, for 2019, registered businesses will have only three or four tax periods, depending on turnover. Tax returns will be due on the last day following the month of the end of the tax period. Bahrain’s VAT law also allows a number of differences from the VAT laws that have been already been implemented in the UAE.
Some of these key differences relate to the zero-rating and VAT exemption provisions in the law,“In particular, it is expected that Bahrain will apply the zero-rate on basic food items, the construction of new buildings, education and healthcare services, local transport services, as well as oil and gas and derivatives,” it said.“The sale and lease of real estate as well as certain financial services (ie those with an implicit fee) and life insurance/reinsurance will be exempt from VAT. Financial services provided for an explicit fee including account management, certain trade finance services, and fund managers will be subject to standard rate VAT. Standard rate VAT will also apply to non-life insurance/reinsurance,” the report on the vat law in Bahrain added.The regulations contain certain relaxed legislation to businesses provisions meant for reducing the load of VAT on businesses and certain taxpayers.
These include:
• Tax invoices being acceptable in Arabic or English.
• The acceptance of a bank statement as a valid tax invoice, subject to some minor amendments. “This will be welcomed by banks as this should reduce the burden to produce a separate tax invoice for bank accounts or to significantly adapt such statements to comply with the rules for standard tax invoices,” It added
• Provisions allowing businesses to apply to defer the payment of VAT on imports of goods to their next tax return. “This will be welcomed by large importers who may otherwise be in a regular VAT refund position,” the report said.
• Provisions allowing businesses who export more than 50 percent of their turnover and who expect to be in a
regular VAT refund position to request that the domestic reverse charge mechanism will apply on certain local purchases. This will reduce the cash flow burden of VAT refunds for these exporters, according to PwC. However, the consultancy also warned that VAT will still be complex for certain sectors, particularly financial services and real estate.
“As with most countries with VAT, banks and financial institutions will make both taxable and exempt supplies, and great care will be needed to compute the recoverable input tax correctly,” it stated.
Highlights of VAT in Bahrain
Example of Standard Rated (5%) Supplies that are Zero-rated Exempt Supplies Operations outside the scope of VAT
Financial services provided for a fee, commission, or discount Export of Goods and services Financial services where consideration is an implicit margin. Penalty and indemnity payments, Hotels and Car parking for less than a month Services of constructions of a new building and certain goods supplied during construction.Life insurance and life reinsurance as well as a transfer of such contracts.Deposits that are not used as a part of the consideration for a taxable supply.
Reimbursement of the existing building. Educational services and certain related goods and services provided by an educational institution. Sale and resale of real estate (Residential, commercial and bare land) The transaction between entities forming a Tax Group. (where an application for tax grouping has been approved by NBT)Cosmetic surgery and alternative medicine. Healthcare services and certain goods and services. Transactions between a head office and its branches
Supply of food by restaurants, coffee shops, and caterers.Supply and import of certain basic food items. The supply made by Government bodies in their sovereign capacity.General insurance and reinsurance. Local transportation of goods and passengers.International transportation of goods and passengers and related services.Supply of international means of transport and related repair and maintenances services.

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