There are normally a number of VAT exclusion that be relevant to financial (including Islamic financing) and insurance (including tactful) services and this directs to intricate categorization issues, as well as the requirement for stretchy systems and progressions for managing execution and ongoing compliance. In particular, the following issues should be well thought-out for the financial services segment:
The accurate VAT handling allocated to services provided by financial institutions, namely exempt or taxable. The exact allocation and provenance of costs and input tax credit claims, including VAT on reverse charge and decisive recoverable and irrecoverable VAT. The VAT revival systems related to all-purpose costs that may not be direct to be paid. Resolutions as to whether VAT costs will be borne by financial institutions or potentially passed on to their customers. Evaluate the possibility of outsourcing non-core actions which now may be subject to VAT and lead to irrecoverable VAT cost. The Industrial goods division company face comparable challenges and therefore making sure competence of VAT performance and addressing cash flow inferences will be precedence’s for this zone.
OIL AND GAS:
This is a significant business segment in Bahrain and it is expected that the Government will look for to make sure this zone is not affected by the introduction of the VAT. It is indistinct whether this will come in the form of specific relief and/or exemptions, however particular consideration should be given to the following:
VAT handling of delegate preparations (zero-rating or exemption of O&G producers may or may not be extended to upflow and downflow service providers and sub-contractors. For VAT intentions, willpower of whether the Farm-out and Farm-in arrangement relates to the transfer of goods or merely the provision of services. . Deciding the correct VAT treatment of percentage costs and fabrication sharing/cost recovery arrangements. The VAT treatment of repairs and maintenance on ‘floating production and storage offloading facilities’ where these facilities are located in national, Bahrain waters or international waters. Have a loan of and return or transaction of crude oil arrangements are treated as separate and distinct transactions requiring the issuance of valid tax invoices.
FREE ZONES The VAT places of free zones gives rise to an array of multifaceted queries in terms of the implementation of VAT and consideration should be given to the following:
The VAT categorization and treatment of goods and services obtained inside the free zone, brought from outside the free zone, and from overseas. The VAT treatment of supplies from one free zone to another. The VAT treatment of enterprises working in the free sector and free trade sectors and whether this will be different. Any governmental and structural changes required to optimize competitiveness.
REAL ESTATE: Sale and lease of marketable property are expected to be treated as taxable as contrasting to the sale and lease of inhabited property which is prone to be excused under VAT. Some VAT jurisdictions do typically provide an ‘option to tax’ enabling such transactions is subject to VAT. In particular, deliberation should be given to the following:
The complications in determining the VAT treatment in combined business enterprise provisions with local government authority and other developers and investors. Whether sale and purchase agreements enable the property developer to either to recover or pass on the increased VAT costs to the purchaser, to ensure margins are not impacted. Whether property developers who have entered into long term build-and-sell contracts with purchasers have taken VAT into consideration when pricing their properties.
TELECOMMUNICATIONS: An intrinsic feature of telecommunications contributor is that they provide services to individual and business customers who may reside within Bahrain but who are also mobile and may move outside of Bahrain from time to time. VAT treatments can change depending on whether your customer is a business or individual and where your customer is located at the time your service is provided. This can create important convolutions when determining VAT treatments under various scenarios telecom providers.
Additional consideration should be given to the following:
Agreement terms and conditions for pre-paid and postpaid plans should be reviewed and where necessary amended to incorporate VAT, in particular for suppliers spanning the VAT start date. Evaluating the VAT treatment of various data roaming scenarios plus hubbing services provided to foreign companies and any capacity swapping arrangements you may have with local or foreign telecoms. Deciding the VAT treatment of various applications sold through a third party platform, marketplace or your own website.
RETAIL: For retailers, VAT obedient accounting and pricing, as well as correct VAT categorization of sales, will be significant. Business support schemes, such as constancy programs and voucher arrangements, can offer technically compound VAT scenarios and implications.
Additional consideration should be given to the following:
The instance of any major assets outflow near to the VAT start date to avoid cash flow implications due to VAT refunds stuck with the tax authorities. Reviewing payment terms with your customers and vendors to manage cash flow and allow the claiming of input tax at the earliest opportunity. Termination fees/retained deposits – deposits or advance payments from a customer could be considered as taxable or compensation and outside the scope of VAT where no supply has taken place. The timing of the issue of invoices – for example consideration to invoices being issued at the start of the month (instead of the end) to enable ample time to collect from your customers. Severe thoughtfulness to costing to ensure that the business is not found or appears to be making the profit from the introduction of VAT.