When Was VAT In Bahrain Introduced?
VAT in Bahrain was introduced on 1 January 2019. The VAT in Bahrain rate is 5% and applies to most goods and services, with some goods and services subject to a 0% rate or an exemption from VAT. VAT in UAE is a general consumption tax that will be levied on the majority of transactions of goods and services unless specifically exempted by the Law.
VAT in Bahrain: Who comes under it and who is exempted
- A person who sells goods or services in Bahrain.
- A person who buys goods or services in Bahrain from a non-resident supplier under the reverse charge mechanism.
- All importers who are declared by the Unified Customs Law must pay tax.
- Every person who issues invoices with tax amounts in Bahrain.
VAT in Bahrain: Registration and Timeline
A resident person must register for VAT if they meet any of the following:
- If the total value of the supplies they made in Bahrain exceeds the mandatory threshold of BHD 37,500 in the twelve months before the end of any months in 2018.
- If the value of the supplies they made in Bahrain is expected to exceed the mandatory threshold in the next 12 months.
The timeline for registration for businesses is based on the annual turnover in sales in the following:
If an individual’s supplies are all zero-rated, they can be exempted from mandatory registration upon request to the Authority.
The duration of the tax period for a taxable person, which should not be less than one month. The start and end dates of each tax period will differ for each taxpayer. A taxpayer must submit a VAT return to the Authority by the last day of the month following the end of each tax period.
VAT in Bahrain: Penalties
- Delayed submission of VAT returns or delayed payment of tax, for a prescribed period not exceeding 60 days. The penalty rate in this case would be between 5% and 25% of the tax value to be recognised or paid.
- Failing to register for VAT within 60 days from the registration deadline, or within 60 days after reaching the mandatory registration threshold limit. The penalty in this case may go up to BHD 10,000.
- Providing falsified information on the import of goods and services that leads to an increased value declared in tax returns.
- Not informing the Authority of changes in a registration application or changes in VAT return information within specified dates.
- Not displaying the price of goods or services inclusive of tax.
- Failing to provide information requested by the Authority.
- Not complying with the rules relating to issuing a tax invoice.
- Violating any rules or regulations of VAT law.
VAT in Bahrain: Legal Perspective
From a legal perspective, it was necessary to review existing contracts to check if they needed to renegotiate contracts that had no VAT clause in order to avoid bearing any VAT cost. They also had to check that all new contracts dealt with the application of VAT and set out which party was responsible for bearing the VAT liability.
It was also important to communicate with suppliers to ensure they were going to issue VAT compliant invoices and businesses had to evaluate the cash ﬂow implications and their working capital requirements as a result of now having to pay the VAT before they received payments.
VAT in Bahrain: Impact on Travel & Tourism Industry
The VAT for tourism operators can vary from business to business lot more complex than
operators may be able to feasibly handle. This complexity may drive some operators to make changes to the way in which they do business. Tourism operators will generally find that assuming they breach the threshold for being required to register for VAT, they will need to charge VAT on their fees. Even though a significant percentage of their client base will be tourists from offshore. The reality is that the authorities are likely to take the view that the service
is supplied in the respective GCC state, and that it should therefore be subject to VAT there.
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