Chetan Suri
<h1><span style="font-size:14px">1. October 7, 2018</span></h1> <h1><span style="font-size:14px">Bahrain to implement VAT effective 1 January 2019</span></h1> <p>The parliament in Bahrain has today approved that the introduction of Value Added Tax (VAT) will be effective starting 1 January 2019 at the expected standard rate of 5%.</p> <h1>2. October 7, 2018</h1> <h1>Bahrain published VAT law in Arabic</h1> <p>Government has published the Arabic version of its Value Added Tax (VAT) law. As previously announced, the legislation is due to take effect on the VAT implementation date of 1 January 2019.</p> <p>The VAT Law states that detailed Regulations will also be published, however it states these are expected to be issued within 15 days after the effective date of VAT on 1 January 2019.</p> <h1>3. November 29, 2018</h1> <h1>Bahraini businesses with annual sales exceeding 5m dinars to register for VAT by January 1, 2019 to implement VAT effective 1 January 2019</h1> <ol style="list-style-type:lower-alpha"> <li>Turnover exceeding 5m Bahraini Dinars (BD), approximately 13.25m US Dollars, shall mandatorily register for Value Added Tax (VAT) before January 1, 2019.</li> <li>Businesses with an annual turnover below 5m BD but exceeding the mandatory VAT registration threshold of 37 500 BD will be required to register for VAT. It is not known whether voluntarily registration will be permitted in this initial period, or the impact this will have on group registrations.</li> </ol> <h1>4. December 4, 2018</h1> <h1>Bahrain Value Added Tax implementation update</h1> <p>The Ministry of Finance (MoF) held a briefing on Monday, 3 December 2018 with Bahraini businesses, Value Added Tax (VAT) experts and business professionals.</p> <p>The key message that came out of the meeting, was that VAT will definitively be implemented with effect from 1 January 2019 with a staggered implementation dependent on the level of turnover of the taxpayer.</p> <p>There were some helpful clarifications around certain aspects of how the law was intended to function and operate. In particular, the <strong>real estate sector</strong> will benefit from wide ranging zero-rating in respect of new builds; however the downside is that VAT incurred on refurbishment and maintenance is unlikely to be recoverable as leasing and sales will be exempt from VAT. An interesting lean towards encouraging new builds, perhaps. The finance sector will follow a model that is broadly very similar, if not identical, to that of Saudi Arabia with VAT being applied to explicit fees/commissions, and loans (including Sharia compliant) being exempt.</p> <p>Taxpayers will be relieved to hear that invoices will not need to be issued in Arabic.</p> <p><strong>A. VAT Law update</strong></p> <p>The implementing Regulations (IRs) are expected to be released within the next week and/or by the end of December at the latest. An official English language version of the VAT Law is likewise expected to be issued in the near future.</p> <p><strong>B. VAT registration</strong></p> <p>a. VAT registration will be completed in 3 main stages.</p> <p>b. The first stage will require large businesses with annual taxable supplies (standard and zero-rated) exceeding BD 5m to register by 20 December 2018, effective date 1 January 2019.</p> <p>c. The second stage will involve businesses with annual taxable supplies more than BD 500,000 to register, effective date of 1 July 2019.</p> <p>d. The third stage will involve businesses with annual taxable supplies in excess of 37,500 to register by 20 December 2019, effective date January 1, 2020.</p> <p>e. Voluntary VAT registration will still be allowed for those companies, irrespective of their size, if their turnover is greater than BD 18,750. Details on when such taxpayers will be registered and what their return filing deadlines will be, have not yet been provided.</p> <p>f. Non-resident businesses (NRB) supplying goods and services in Bahrain will be required to register for VAT on the date of the first taxable supply. There is no threshold for such supplies. NRBs are able to register directly with the National Bureau of Taxation (NBT) and therefore unlike Saudi Arabia, there is no need to appoint a fiscal representative.</p> <p>g. Filing deadlines, invoices</p> <p>It is anticipated that after the initial period, that there will be two VAT filing periods; monthly and quarterly. This will be driven by the size of the turnover of the businesses:</p> <p>Businesses with turnover over BD 5m will file quarterly in 2019</p> <p>Businesses with turnover under BD 5m who register before 20 June 2019 will file in July and then quarterly in 2019, then, once the system is in ‘steady state’, businesses with turnover over BD3m will be required to file monthly returns from 1/1/2020. Businesses with turnover of under BD3m will be required to file quarterly returns</p> <p>Invoices will not need to be issued in Arabic and taxpayers can also issue simplified tax invoices (less than BD 500), subject to the conditions listed in the Regulations</p> <p>VAT will be calculated in addition to or on top of, municipality fees and other similar levies by government.</p> <p><strong>VAT grouping</strong></p> <p>The NBT indicated that the rules and procedures relating to the registration of a VAT group will be outlined in the IRs, however in the short term it was likely that taxpayers may need to register individually up until the Grouping system is set up.</p> <p><strong>Commercial and residential real estate</strong></p> <p>The supply of buildings by way of sale or lease used for commercial and residential purposes shall be exempted from VAT</p> <p>However, the construction of buildings – regardless of whether they are residential or commercial - will be zero-rated the goods and services that will benefit from the zero rating will be specified in the implementing regulations</p> <p><strong>Financial services</strong></p> <p>The supply of life insurance will be exempt from VAT; General insurance will be standard-rated</p> <p>Islamic Banking products that are equivalent to commercial banking products will be treated the same for VAT purposes. The principal component of financial leases or ijarah instalments received after the date of implementation for assets made available prior to the date of implementation will not be treated as taxable. In other words, the finance element is exempt from VAT</p> <p>The standard method for partial exemption is based on turnover, similar to KSA</p> <p><strong>Food – Zero-rating</strong></p> <p>A list will shortly be issued covering “basic” foodstuffs that will be zero-rated. In order to minimize any ambiguity, HS codes will be used.</p> <p><strong>Oil, gas and electricity</strong></p> <p>The zero-rating for oil and gas will be widely applied, down to fuel at the pump. Zero-rating will not apply to electricity supplies</p> <p><strong>Imports</strong></p> <p>VAT will apply to imports, as expected, from 1 January 2019</p> <p>It will be possible for taxpayers to account for Import VAT through the VAT return; certain conditions will need to be fulfilled.</p> <p><strong>Taxpayer communications</strong></p> <p>The NBT will be carrying out a number of initiatives to assist taxpayers in their efforts to become VAT compliant. Amongst such initiatives are:</p> <ol> <li>A self-review tool that will allow taxpayers to ascertain their VAT readiness</li> <li>VAT Awareness sessions for businesses</li> <li>Large taxpayers will be allocated a Relationship Manager.</li> <li>Taxpayers can contact the MoF and make enquiries via email or through their call centre (80008001).</li> </ol> <h1>5. December 16, 2018</h1> <h1>Bahrain publishes VAT Executive Regulations in Arabic</h1> <p>The long awaited Value Added Tax (VAT) Regulations (the Regulations) have been published in Bahrain. The only official version is currently in Arabic.</p> <p>The Regulations provide the implementing guidelines for the Bahrain VAT Law, Decree-Law No. 48 of 2018 on Value Added Tax, which was published in October. The VAT Law refers extensively to the Regulations.</p> <p>The VAT Law and Regulations will take effect on 1 January 2019, from which date VAT will be implemented in Bahrain.</p> <p><strong>Compliance obligations</strong></p> <p>The Regulations provide specific detail, expanding on the concepts and provisions introduced within the VAT Law.</p> <p>The publication of the Regulations marks a critical development in the Bahrain VAT regime, and it is vital that impacted businesses ensure they are in full compliance of the requirements set out within the VAT Law and Regulations by 1 January 2019.</p> <p>According to the National Bureau for Taxation (NBT), the Regulations provide taxpayers sufficient information to fulfill their VAT compliance requirements. It is clear that the NBT will now expect taxpayers to be compliant. Those that are not are at risk of penalties.</p> <p>The Bahrain government is adopting a more stringent penalty regime compared to both the United Arab Emirates (UAE) and the Kingdom of Saudi Arabia (KSA) on implementation of VAT in these jurisdictions from 1 January 2018 therefore businesses should not delay their implementation activities</p> <p><strong>Action to take</strong></p> <p>Although businesses (who are registered or are required to be registered) will have until 31 July 2019 to complete their first VAT return there are a number of critical activities that will need to be undertaken by 1 January. At a minimum, they will need to be able to issue VAT compliant invoices, particularly if they operate in the retail or B2C sector. In addition to this, businesses will need to understand their VAT obligations with respect to their supplier and customer contracts – this means whether the transitional rules apply or whether pricing adjustments may need to be made.</p> <h1>6. December 20, 2018</h1> <h1>Bahrain publishes the bilingual version of its VAT Executive Regulations</h1> <p>The Kingdom of Bahrain National Tax Bureau (NTB) has issued its bilingual version of the Value Added Tax (VAT) Executive Regulations on their official website. A summary document of the regulations was also released in Arabic and English.</p> <p>The Arabic version of the executive regulations was released earlier this month. As previously stated, the regulations provide the implementing guidelines for the Bahrain VAT Law, Decree-Law No. 48 of 2018 on Value Added Tax, which was published in October. The VAT Law refers extensively to the Regulations.</p> <p>The VAT Law and Regulations will take effect on 1 January 2019, from which date VAT will be implemented in Bahrain. To view our previous alert, available in both languages, which discusses the compliance obligations and action to take, please refer to the following link.</p> <h1>7. December 26, 2018</h1> <h1>Bahrain government may reconsider start date of VAT</h1> <p>Over the past few days, there has been a lot of speculation leading up to the implementation of Value Added Tax (VAT) in Bahrain, as to whether it will be formally introduced on 1 January 2019 or would be postponed for up to a year.</p> <p>Yesterday the Bahrain Parliament voted in a proposal to postpone the introduction of VAT, however, this is yet to be formally passed in law. The matter has been referred urgently to the Cabinet meeting on 31 December where it will be further debated.</p> <p>By all accounts, we are aware that the VAT registration system is up and running and several hundred Bahraini companies have registered for VAT in anticipation of a 1 January 2019 start.</p> <p>Therefore, from a preparedness perspective on the part of the National Bureau for Taxation, there does not appear to be any suggestion that an administrative delay is required.</p> <h1><a name="m_-4482804536728844835__8531166335655032">8. January 7, 2019</a></h1> <h1>NBT confirms hundreds of VAT inspections underway</h1> <p> </p> <p>The Bahrain National Bureau for Taxation (NBT) told that the Consumer Protection Unit of the Ministry of Industry, Commerce and Tourism (MoIC) had conducted 430 inspections of businesses to ensure compliance with the Value Added Tax (VAT) legislation.</p> <p> </p> <p>Further, it announced that 224 complaints had been addressed, and that approximately 1,000 calls were being answered each day.</p> <p> </p> <p>The fact that hundreds of inspections were conducted in just the first few days of the new VAT regime (and continue to be conducted) indicates that the NBT and MoIC officials are taking a proactive approach to ensuring compliance with the Bahrain VAT legislation, and financial and criminal penalties will be applied accordingly.</p> <p> </p>
Bahrain Vat Updates till 7th January 2019