Claim Input Tax -Can you claim Input Tax in Bahrain You Paid Prior to Your VAT Registration?

Can you claim Input Tax you paid prior to your VAT Registration?

In the Kingdom of Bahrain, unlike any other GCC countries, eligibility to claim input tax for the period in which one was not registered under VAT in Bahrain is an important concern for every person in Bahrain. This is because the VAT Registration in Bahrain for taxable persons has taken place in 3 different stages during the year 2019. Before learning the eligibility to claim Input Tax paid prior to your VAT Registration, let us understand the 3 stages of VAT Registration in Bahrain.

In Bahrain VAT Registration has taken place in 3 stages:

1. Category first is those companies that are having higher turnover (taxable supplies) i.e. more than 5,000,000/- Million BHD for a period of 12 months. They were to apply for registration by 20th December 2018 and were supposed to get ready to collect and pay VAT to the Tax Authority in Bahrain – National Bureau of Revenue with effect from 1^st January 2019.
2. Companies that are having a turnover (taxable supplies) for a consecutive period of twelve months for more than 500,000/- BHD but are less than 5,000,000/- Million BHD then they had to apply for VAT registration by 20th June 2019 and get ready to collect VAT from 1^st July 2019.
3. Small, Medium and Micro-Level Companies that are having turnover (taxable supplies) less than 500,000 BHD for a period of twelve months are the rest. They have to apply for VAT Registration on or before 20th December 2019 and get ready to collect VAT from 1^st January 2020.

As VAT Registration in Bahrain took place in different stages, some of the companies in Bahrain have paid VAT even though they have not registered for VAT in Bahrain 

Now the question is whether such non-registered businesses who have paid VAT can claim an input tax credit on tax paid prior to VAT Registration or Not.

The answer is, to a certain extent is that you will be able to claim the VAT paid for the period which you have not registered under Bahrain VAT.

Tax paid related to goods purchased

In the case of goods, you have purchased prior to your VAT Registration in Bahrain but tax paid for such purchases. You will be eligible to claim input credit only if such goods are available for taxable supplies. For example: assume that you purchased goods worth 100,000/- BHD in the month of January 2019 and VAT is paid for such purchases and if goods are sold to the customers only after your VAT Registration under Bahrain VAT law. It means that the goods are used for taxable supplies.

In such cases, you can claim the input tax you have paid, i.e., 5,000/- BHD. But in case, if you had sold 25% of those goods (25,000/- BHD) before VAT Registration, you will not be able to claim input credit to the extent of goods sold without tax i.e., 1,250/- BHD. The balance amount 3,750/- BHD will be eligible to claim input credit because 75,000/ BHD worth of goods are sold as taxable supplies.

 Tax paid for the supply of services

Any tax you have paid for services incurred prior to VAT Registration in Bahrain and if you have used such services for making taxable supplies, then you will be eligible to claim input credit. But if we are not able to directly identify such services as used for taxable supplies in such cases, the expenses incurred within six months prior to the date of VAT Registration in Bahrain can be claimed in the first VAT Return.

For example: suppose you are going to register for VAT in Bahrain by the end of the year 2019 you can claim input credit for the expenses you have incurred from July 2019 up to 31^st December 2019.

We hope the tax treatment is well understood which is very useful for those who have not yet registered for VAT in Bahrain and are going to be registered for VAT in Bahrain by the end of this year, December 2019.

Further, in case you set a new company and incur expenses prior to your VAT Registration in such cases also the eligibility to claim input credit will be similar to that as explained above.

What are the general principals applicable for Input Tax Recovery in Bahrain?

The general principle on the application of input tax recovery in Bahrain is that VAT is charged on expenses and its recoverability is based on the usage of these expenses as mentioned below:

• The VAT which is charged on expenses that are NOT used for economic activities as defined for VAT purposes cannot be recovered
• The VAT which is charged on expenses that are USED FOR economic activities in cases where expenses are used for making taxable supplies (i.e., supplies taxable at 5%, 0% or out of scope)

The recovery of input tax in Bahrain should meet the conditions as prescribed by the Bahrain VAT law.

What are the conditions to be met for Input Tax Recovery in Bahrain?

There are a few conditions to be fulfilled in order to recover the Input Tax for the Tax you have paid which is as follows:

• You should be registered for VAT in Bahrain
• The VAT that is charged should be on the expenses used for the purpose of an economic activity
• If input tax is paid for certain expenses which are specifically disallowed within the provisions of the Bahrain VAT Law. For example entertainment expenses incurred for the business purpose.
• The expenses should be incurred for making taxable supplies (i.e., supplies which are not exempt from VAT)
• There should be valid supporting documents like original tax invoices to comply with the requirements of the Bahrain VAT Law
• There is a time limit that has been set by Bahrain VAT law to claim input tax within the stipulated time of five years

You may better learn general principals applicable for Input Tax Recovery in Bahrain through our Youtube video

Emirates Chartered Accountants Bahrain offers an exclusive range of VAT Services in the Kingdom of Bahrain. The Tax Department has practical experience of implementing VAT in Bahrain & VAT in UAE and is professionally well versed with the Bahrain VAT laws and its compliances.

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