Who is an agent?

VAT treatment in Bahrain on the supplies made by the agent will depend on the nature of the agency. An agent is a person who acts on behalf of another person. Often the businesses employ agents in order to facilitate their supplies. An agent may be a disclosed agent or undisclosed agent.

Now, let us go through the VAT treatment in Bahrain on supplies made through agents as per the Bahrain VAT Law.

Who is a disclosed agent?

A disclosed agent is an intermediary who acts in the name and on account of the other person. In this case, the buying and selling parties know each other directly. The disclosed agent is employed only to facilitate the conduct of the transaction.

For example, ABC telecom company in Bahrain sells calling cards. It supplies the calling cards through retailers. In this case, the retailer is a disclosed agent as the customers are aware that the calling cards are provided by ABC telecom company. The retailers facilitate the supply of calling cards by making it reachable to the customers. Also, the retailers charge a commission from the ABC company for the service provided by them.

What is the VAT implication on supply through disclosed agents as per the Bahrain VAT Law?

As per the Bahrain VAT Law, the supply through a disclosed agent mainly involves two separate transactions. They are:

1. The supply of goods or service by the seller to the customer directly.
2. The supply of agency service or intermediary service by the disclosed agent to the person he is representing. The disclosed agent could be representing either the buyer or the seller.

In the above example, the two transactions involve:

1. The supply of calling cards by ABC company to the customer
2. The agency service provided by the retailer to ABC company for the supply of calling cards.

In the case of the above transaction, the seller is liable to charge the customer the applicable VAT rate for the product sold by him.

The disclosed agent who is a taxable person should charge VAT only for the commission or remuneration earned by him for the intermediary service provided by him. The agent is also supposed to issue a tax invoice to the person to whom he provides the intermediary service.

In our example, ABC telecom is supposed to charge its customer the applicable VAT rate of the supply. The retailers should issue a tax invoice to ABC telecom company for the commission charged for the intermediary service provided by them.

Also, in the case of disclosed agents, the agents can recover Input VAT it incurred on costs relates to supplies subject to normal Input VAT recovery rules as per the Bahrain VAT Law. However, the agent cannot recover the input VAT incurred on behalf of another person in the course of providing the intermediary service.

Who is an undisclosed agent?

An undisclosed agent is an intermediary who acts in his own name but for the account of another person. Another person could be the actual supplier of the goods and service issued by the undisclosed agent or he could be the actuals person who requires the goods or service acquired by the agent.  In this case, the actual parties to the transaction that is, the supplier and the buyer does not know each other.

The selling party and the buying party does not enter into contracts directly. The undisclosed agent enters into a contract in its own name as the seller or the buyer whatever the case may be.

For example, DEF agro agency procures harvests from various farmers across Bahrain. They sell the so procured goods to the customers from their outlet namely DEF vegetables and fruits. In this case, DEF agro agency is an undisclosed agent. DEF enters into a contract with the customer in its own name for the sales of goods procured from the farmers. Here the farmers and the customers do not know each other.

What is the VAT implication on the transaction made by the undisclosed agent as per the Bahrain VAT Law?

As per the Bahrain VAT Law, the undisclosed agent is considered as the principal in the supply of goods or services to the buyer under the buy and sell arrangement. There are two separate transaction to be considered in this regard. They are:

1. The supply of goods and service from the actual supplier to the undisclosed agent.
2. The supply of goods and service from the undisclosed agent to the actual customer.

In the above transactions, the actual taxable supplier charges the applicable VAT rate to the undisclosed agent on the purchase of goods or services. While supplying the goods to the actual customer, the taxable undisclosed agent should charge the applicable VAT rate on the supply. Any mark-up added on the sales by the undisclosed agent should be considered as a part of the value of the supply of goods or service and should not be considered as a separate element from the selling price of the supply.

A tax invoice should be issued by the taxable supplier to the undisclosed agent. Also, the undisclosed agent should issue a tax invoice to the actual customer.

Even if the supplier is not registered for VAT, the taxable agent should charge the applicable VAT rate while selling the goods to the customers.

Also, the undisclosed agent can recover the Input VAT incurred while buying the goods, provided he meets with the normal rules and conditions for claiming the input VAT as per the Bahrain VAT Law.

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.

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• VAT Registration
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