VAT in Bahrain- Bahrain VAT Rate increases from 5% to 10%

Transitional Rules

Bahrain VAT rate increases from 5% to 10%  with effect from 1 January 2022, all goods and services will be subject to 10% VAT, unless the supply is zero-rated, exempt, or falls within the transition rules. In the light of the change in VAT rate, it is important to understand the transitional rules that should be taken care, i.e. how and when to apply the new VAT rate. There are 4 transitional rules which are detailed below.

The following dates should be considered when applying the transitional provisions:

1. 1. Law Enforcement Date: 24th December 2021
   2. Effective Date of the VAT rate change: 1st January 2022

One-off Supplies

Transitional Rule 1: Contract entered before 24^th December 2021 to supply good or service after 1^st January 2022:

Under this rule, 5% rate will apply on the goods or service where the contract is entered before 24^th December 2021 to supply good or service after 1^st January 2022.

However, it is important to note that if any change is made to the contract after 24^th December 2021, then the transitional rule 1 will not apply and supply of goods or service after 1^st January 2022 will be subject to VAT at 10%.

Example 1:

ABC WLL, a registered VAT payer in Bahrain, signs a contract to supply machinery to XYZ WLL on 30 September 2021. The machinery is supplied on 10 January 2022. What is the taxability?

Ans: In this case, ABC WLL will charge VAT at 5% on the sale of the machinery to XYZ WLL. This assumes that no changes to the contract have been made prior to the supply.

Transitional Rule 2: Contract entered after 24^th December to supply good or service after 1^st January 2022:

When the contract is entered after 24^th December 2021, to supply the goods or service after 1^st January 2022, then such a supply will be subject to VAT at 10%.

In this case, if the supplier is issuing a VAT invoice before 1^st January 2022, then he should account for VAT at 10%. The supplier should declare this invoice in the VAT return of the month of December 2021.

If the supplier receives consideration before 1^st January 2022, then he should account for VAT at 10% on this consideration and issue a VAT invoice by 15^th January 2022.

Example 2:

ABC Tech WLL, a registered VAT payer in the Bahrain filing returns  on a monthly basis, signs a contract on 28 December 2021 to supply  50  computers to a customer. The computers will be supplied to the customer on 1 February 2022. On 30 December 2021, ABC Tech WLL issue a VAT invoice to the customer. What will be taxability?

Answer:

As the contract was entered into after 24 December 2021 for a supply to be made after 1 January 2022, ABC Tech WLL should account for VAT at the 10% rate on the VAT invoice. ABC Tech WLL should declare the VAT in relation to this transaction in its VAT return for December 2021.

Continuous Supplies

Rule 3: Contract entered before 24^th December for supply of goods or services after 1^st January 2022-continuous supply:

In case of contracts entered before 24^th December for continuous supply of goods or service the following VAT rates shall apply:

1. 1. VAT rate at 5% will be applied for the delivery of such goods or service from 1^st January 2022 until 1^st January 2023.
   2. VAT rate at 10% will be applied from 1^st January 2023.

However, Rule 3 will not be applied on the below cases, even if the contract is entered before 24^th December 2021:

1. 1. If the contract is expired or renewed, then rule 3 will not be applicable from the date of expiry or renewal. That means after expiry or renewal of the contract VAT rate of 10% should be applied on the goods or service.
   2. If the contract is changed or amended then rule 3 will cease to apply. This means VAT rate at 10% should be charged on the goods or services that from the date of amending or changing the contract.

Example 3:

DEF W.L.L entered into a three-year contract on 30 April 2021 to provide consulting services to a customer. As the contract is one for continuous supplies.

DEF W.L.L will apply VAT at the rate of 5% on services provided under the contract until December 31^st, 2022 (the date on which the Transitional Rule expires) and the VAT at 10% will apply on services provided after that date. This assumes that no changes were made to the contract during the transition period.

Rule 4: Contract entered into for continuous supply of goods or service where transitional rule 3 will not apply.

This rule will be applicable in the below cases:

1. 1. Contracts entered on or after 24^th December 2021.
   2. Contracts entered before 24^th December 2021 but changed or amended or expired after 24^th December 2021, but before 1^st January 2023.

In case of supplies of goods or services made under these contracts, VAT at 5% will be applicable for goods or services supplied before 1^st January 2022.

VAT at 10% will be applicable for the goods or services supplied after 1^st January 2022, for contracts entered after 24^th December 2021 and for those contracts changed or amended or renewed before 1^st January 2022.

VAT rate at 10% will be applicable from the date of amendment or renewal or expiry of the contracts made after 1^st January 2022.

Example 4:

ABC W.L.L has entered the contract before 24 December 2021, but amended the contract on 15 March 2022:

VAT at 5% would apply on the value of the services delivered from the start of the contract until 15 March 2022; and VAT at 10% will apply on the value of the services delivered from 15 March 2022.

What does the changes to contract means as per the transitional rules?

The contracts will be regarded as having being changed or amended for the purpose of transitional rules if any of the following events is triggered:

1. 1. Extending the duration of the contract period.
   2. Including the supply of additional goods or services other than those mentioned in the initial contract.
   3. Increasing the consideration payable.

However, the list is not limited to the above 3 points.

The NBR will disregard the earlier contract irrespective of the intention of the parties to the contract in making the changes results in the supplies or consideration being subject to VAT at 5% instead of 10%.

Changes which will not affect the quantity, timing and consideration of the supplies to be made will generally be not regarded as a change or amendment of contract for the purpose of application of the transitional rules.

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

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