15 Jan 2019
LESSONS FOR BAHRAIN VAT IN VIEW WITH VAT IN GCC
Tax consultants have been carrying out regular pulse surveys about how businesses and executives in the GCC getting compliant with VAT. The findings of the new survey, launched in last year, shows businesses have a more positive outlook on VAT.
Matchup to previous statistics produced from the first Indirect Tax Client Survey, GCC businesses have shown a spin in their views towards VAT.
“It is positive news that the majority of respondents feel very well-informed regarding reports of the introduction of VAT in the GCC and even more so that the number of respondents feeling this way has increased to 60 percent from 25.6 percent since the first survey. This means awareness about VAT in the industry is increasing,” Leaders of Middle East tax say.
The most recent survey outcome demonstrated that nearly 60 percent of respondents feel very well-informed about the compliance of VAT, whereas in the previous survey only a quarter of respondents felt well-informed. This represents an increase of 33.1 percent of respondents who now feel very well informed, indicating a heightened awareness of VAT among executives and businesses in the Kingdom of Bahrain.
This raise is likely to be the consequence of the hard work that has been laid in by the governments by the Kingdom of Bahrain to communicate with taxpayers over the last several months.
The United Arab Emirates (UAE) was the first of the six Gulf Cooperation Council (GCC) member state introduced VAT in January 2018, at a rate of 5%. Almost one year later
So, what has conveyed companies up in the UAE? Here are some noteworthy lessons that businesses across the Gulf can take on board as the VAT rollout continues. If you need help complying with VAT rules, don’t hesitate to get in touch with expert consultants.
1. Connection and legalization is a work in progress
Businesses have practiced issues relating their tax registration number and Customs registration to official systems in order to conclude and submit their VAT return – but this is no fault of their own.
Under the GCC’s VAT agreement, applied to Bahrain VAT due on imported goods in member states will be paid at the first point of entry, deposited and then transferred to the final destination state within the framework of the GCC Customs Union. On the other hand sequentially for this to happen in practice, each member state needs to create its own electronic tax system and link with the GCC tax information center that will function through a central website. Since not all GCC states have implemented VAT, the integrated GCC tax information ‘hub’ is not yet linked to each local tax system. Until all six GCC states introduce VAT, many transitional rules remain in play and local tax intricacy will stay prominent. Once the leftover four GCC states bring in VAT, companies will need to remodify their tax treatment for inter-GCC dealings and comply with the unified GCC VAT agreement.
2. Recognize your VAT from your secretarial necessities
In spite of the date of issue of a sales invoice, the arising VAT liability is resolution based on the period in which the connected payment is released or the products or services are delivered. Company ERP systems must be tested accordingly to ensure that the charging VAT is accurately adopted.
3. Diverse zones = Diverse tax handling
In the UAE, different tax treatments apply to designated zones (DZs or free zones) and mainland entities. DZs are designed to offer incentives for business and be tax-free zones for goods. They are therefore outside the UAE for VAT purposes.
This doesn’t mean, on the other hand, that a company reputation as a DZ or free zone entity is exempt from VAT. It depends on the way company actions are levered inside the zone.
For example, “if a supply of goods is made within a designated zone to an entity to be used by them or a third person, then the place of supply shall be in the state unless the goods are to be incorporated into, attached to or otherwise form part of or are used in the production or sale of another goods located in the same designated zone which itself is not consumed” (Executive Regulations Art. 51).
4. Steady reporting is essential
In the UAE it has been seen Emirate-level reporting necessities applied incompatibly, with businesses sometimes incorrectly accounting for VAT on sales based on the location of their customers. Working with local tax experts is recommended to ensure you’re reporting in line with the right necessities.
Businesses will face managerial fines for disobedience of the VAT law, including ignored payment and filing deadlines.
5. Trade X Private expenses
Some expenses under a company name can be input VAT recoverable, however only if they are used – or intended to be used – for making taxable supplies (standard rated or zero rated). The input tax may not be recovered if the business provides exempt supplies (non-taxable).
The VAT law has also provided a Capital Assets Scheme to recover the input tax paid at the time of acquiring new assets. The initially-recovered input tax is adjusted based on actual use during a specific period
Once the businesses in Bahrain put attention to these key issues in VAT they can run a hassle-free accounting and filing in connection with VAT. If these measures are kept in mind and practiced well they can avoid tax evasion penalties as we