VAT for Retailers in Bahrain

VAT for Retailers in Bahrain is applicable to several transactions of different nature that takes place every day on a retail business in Bahrain. The treatment for VAT on Retail Sales for each transaction as per the Bahrain VAT Law needs to be analyzed and applicable. The VAT on Retail Sales for each of its transactions should be in proper compliance with the Bahrain VAT law.

Through this blog, we will take you through various transactions and applicability of VAT for Retailers and VAT on Retail Sales in a supermarket. Take ABC Supermarket who is registered for VAT in Bahrain and what is the applicability of VAT for Retailers in each of the transactions and different scenarios mentioned below.

Example 1:

ABC Supermarket leases out a small portion of its area to Food Truck restaurant limited to open up a coffee shop and collects a monthly rent of BD 200.

As Per the Bahrain VAT Law, the sale or lease of a real estate located in Bahrain is an exempt supply. As a result, the monthly rent received from the Food truck restaurant will be an exempt supply and not taxable under the Bahrain VAT Law.

Example 2:

ABC Supermarket provides a designated area to food truck restaurant to set up a coffee vending machine and charges a monthly rent of BD 50 for the same.

The supply of a designated area to set up a vending machine is taxable at the rate of 5% and therefore ABC Supermarket will have to issue a tax invoice to the Food Truck for the rent of vending machine and charge 5% on the rent.

Example 3:

ABC Supermarket buys software from a company in India through the online service portal of the Indian company.

As per the Bahrain VAT law, the reverse charge will be applicable, when a service is received from outside Bahrain to a taxable person in Bahrain and when such service is actually taxable in Bahrain.

In this case, ABC Supermarket avails a service from outside Bahrain. In Bahrain, the purchase of software is subject to VAT at a rate of 5%.

 Therefore, this transaction should be treated as an import of service and ABC Supermarket is liable to account VAT under the reverse charge mechanism.

Example 4:

ABC Supermarket provides permission to Food truck restaurants to affix its signage outside the building and collects a fixed amount from the Food truck restaurant for the permission provided.

The provision of permission to affix signage to land or building is a taxable supply as per the Bahrain VAT Law and therefore, ABC Supermarket is required to raise a tax invoice and charge VAT for the amount collected from food truck restaurant for the permission to affix signage outside the building.

Example 5:

DEF Electronics announces a 1-week long offer for its products and ABC Supermarket agrees with their request to put up a promotional stand inside its premises announcing the offer from DEF Electronics. ABC Supermarket charges a fee from DEF Electronics for this service.

As per the guidelines of the Bahrain VAT Law, The provision of space for retail or promotional stands (e.g. at a retail, entertainment area or supermarket) for a period of less than one month will be taxable at 5% and will not be regarded as an exempt supply for VAT purposes.

Therefore, in this case, ABC Supermarket is liable to charge VAT at the rate of 5% for the service provided to DEF Electronics.

But in case the promotional stands are put up for on the basis of a contract for more than 1 month then such supply is exempt from VAT.

Example 6:

ABC Supermarket receives a rebate at the rate of 8% from DEF electronics against the purchases for the month of January 2020. DEF electronics does not provide a credit note to ABC Supermarket for rebates given by them.

Rebate income is taxable at the rate of 5%. Hence ABC supermarket is required to raise a tax invoice to DEF Electronics for the rebate income received and charge VAT at the rate of 5% and account for output VAT in the books of accounts.

Whereas, in case DEF electronics issue a Tax Credit note to ABC Supermarket then, ABC Supermarket can reverse the Input VAT earlier claimed for the purchases made from DEF Electronics as per the credit note provided by DEF Electronics. 

Example 7:

 ABC Supermarket buys a product, Orange juice from its supplier Oranze Co. W.L.L. who charged VAT at the rate of 0%. ABC Supermarket claims input VAT at the rate of 5% on the basis that Orange juice is actually taxable at 5% as per the Bahrain VAT Law and ABC Supermarket charged VAT at the rate of 5% on its sale of Orange juices.

First of all, Orange juice is taxable at 5% and the practice of Oranze company W.L.L. has to be rectified. ABC Supermarket should intimate Oranze Co. W.L.L. about the same.

ABC Supermarket cannot claim input VAT against purchases from Oranze Co. as Oranze Co. is not charging VAT from ABC Supermarket and therefore ABC Supermarket is not actually paying VAT to Oranze Co. Hence, ABC Supermarket cannot claim VAT on what they haven’t paid.

Moreover, the VAT amount can be claimed back from NBR only with proper invoices or documental support of Input VAT paid. In this case, the Invoices from Oranze company will not contain any VAT amount on Orange Juices and therefore ABC Supermarket cannot claim back input VAT using the invoices from Oranze Co.

Generally, VAT for retailers in Bahrain especially many supermarkets follows the practice of deciding whether an item is taxable at 5% or 0% on the basis of the VAT rate charged by the Supplier. This practice would result in charging the wrong VAT rate to customers on items where the supplier has charged wrongly. It is highly recommended to obtain a justification from the supplier for charging 0% or 5% whatever the case may be to ensure that the VAT charged on all products is right and in case of any ambiguity, it is advisable to get a confirmation from National Bureau for Revenue

Our Tax Experts in Emirates Chartered Accountants Group Bahrain believe in a proactive approach to tax advisory services with a cost-effective and tailor-made option that is preferred by businesses all over. Our team of professionals is well versed with the Bahrain VAT Law as well as the UAE VAT Law  They are also equipped with practical experience of implementing VAT in UAE and VAT in Bahrain.

Our wide range of services includes:

• VAT Registration
• VAT Training 
• VAT Implementation 
• VAT Return Filing Service
• VAT Consultancy 
• Accounting for VAT Compliance

We’d be happy to support you – Call us!