VAT treatment for retail concession stores.

We often come across shops within a shop. That is the process of one company selling its products in the outlet of another company. Some retail stores allow other retailers to open concessions within their stores. The retailers opening concessions within the host store will be referred to as “concessionaires” hereafter.

The host stores allow other brands to operate within them. The concessionaires might hire staff for their section in the host department store. In many cases, the customers of the concessionaires make payment for the products purchased along with the purchases from the host department store.

Let us have a look at the implication of the Bahrain VAT Law, in case of such a business arrangement.

How is the VAT treatment determined on concession stores as per the Bahrain VAT Law?

In order to determine the VAT treatment of the concessionaire sales, we need to look at the contractual agreement between the host store and the concessionaire and the VAT treatment will be applied on a case-by-case basis.

Some of the common concessionaire agreement can be as below:

1. 1. The concessionaire sells their products to the host store at a reduced price than the retail price and the host store sells the product to the customers at retail price.
   2. The concessionaire sells its products to the host store at retail prices. The host store charges a fee or commission from the concessionaire.
   3. The host store provides a license to the concessionaire to operate within their store and charges a license fee.

What is the VAT treatment as per the Bahrain VAT Law when the concessionaire sells their products at discounted price to the host store?

In such a case, the concessionaire sells its products to the host store at a reduced price than the retail price. The host store sells these products to the customers at retail prices. Hence there are effectively two transactions involved:

1. 1. The sales of products by the concessionaire to the host store.
   2. The sale of products by the host store to the customers.

It is important to note that although both these transactions take place simultaneously, they are treated as two different supplies. Hence, if both the concessionaire and host store are VAT registered then the applicable VAT treatment would be as follows:

1. 1. The concessionaire should charge the applicable VAT rate on the discounted price of the goods and issue Tax invoice to the host store.
   2. The host store should charge the applicable VAT rate on the retail price and issue a tax invoice to the customers.

The tax due date for VAT purposes for both the transactions will be the time at which the sales are made to the customer.

What is the VAT treatment as per the Bahrain VAT Law when the concessionaire sells their products at retail price to the host store?

In this case, the concessionaire sells their product at retail price to the host store, and the host store in return charge a fee or commission from the concessionaire for the products sold.

Hence there are effectively three transactions taking place, which are:

1. 1. The sale of products by the concessionaire to the host store at retail price.
   2. The sale of products by the host store to the customer at retail price.
   3. A fee or commission charged by the host store from the concessionaire. This may be a fixed commission or a percentage of the retail price of the product.

If both the concessionaire and host store are registered for VAT, then the VAT treatment of the above supplies would be as follows:

1. 1. The concessionaire should charge the applicable VAT rate on the retail price and issue a Tax invoice to the host store for the products sold.
   2. The host store should charge the applicable VAT rate on the retail price and issue a tax invoice to the customers.
   3. VAT has to be charged at a standard rate on the commission or fees charged by the host store from the concessionaire.

The tax due date for VAT purposes for the first two transactions will be the time at which the sales are made to the customer.

For the commission or fee charged, the tax due date will be based on the tax due date rules applicable to the continuous supply of service. (Please refer to our blog https://www.ecabahrain.com/tax-due-date-on-goods-and-service-in-bahrain/ for more information on tax due date)

What is the VAT treatment as per the Bahrain VAT Law when the host store provides license to the concessionaire to operate within their store?

In such a case, the host store provides a license to the concessionaire to open a concession store and trade within the host store. Usually, in such an arrangement the concessionaire keeps a separate cash register for his goods and sells the goods directly to the customer.

There are two transactions involved in such a case:

1. 1. The sale of goods by the concessionaire to the customer.
   2. The license fee charged by the host store for providing the license to operate.

If both the concessionaire and host stores are registered for VAT, then the concessionaire should charge the applicable VAT rate on the value of the invoice and issue a Tax invoice to the customer for the products sold.

Also, the host store must charge VAT at a standard rate for the license fee charged to the concessionaire for providing the license.

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 in 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
• VAT Training 
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• VAT Return Filing Service
• VAT Consultancy 
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