Effect of VAT in Bahrain in Your Business?

Effect of VAT in Bahrain

The Kingdom of Bahrain is the third Gulf economy to introduce VAT. Since VAT in Bahrain has been introduced from 1^st January 2019 at a Standard Rate of 5%, there are certain goods and services which will be subject to Zero Rate and some goods and services which will be subject to VAT Exemption in Bahrain . Here, we will learn more on the Effect of VAT in Bahrain.

What is the effect of VAT in Bahrain?

The effect of VAT in Bahrain depends on the kind of contract you have between you and your customer in certain sectors. But specifically, if your kind of business is NOT in the retail sector than it wholly depends on the contract that you have. The VAT Law contains specific transitional rules regarding the supplies of goods and services that are carried out after 1 January 2019 under contracts signed before that date.

The contract will determine whether to charge additional VAT on the price of your supplies of goods and services or the price of your supplies of goods and services is agreed to be inclusive of VAT. It depends on the kind of contract that you have between you and your customer.

If the kind of contract between you and your customer allows you to add VAT at a standard rate of 5%, then additional VAT will be charged to the agreed price. The price that will be charged to the end customer will eventually increase by adding 5% VAT at a standard rate provided the goods and services that you supply is subject to VAT in Bahrain

But the other type of contract is the kind of contract which does not allow to add the VAT amount added to the agreed price, i.e, if the contract is silent with a specific tax clause or provision stating that consideration agreed in the contract, is exclusive of VAT, then the price will not subject to an increase and VAT will be inclusive with the agreed price unless it is agreed with the customer and they have confirmed that they are ready to pay the VAT.

The effect of VAT in Bahrain is that when you make supplies to another VAT registered businesses in the Kingdom of Bahrain, such registered businesses will be able to recover the VAT that has been incurred by claiming for the Input Tax while filing for their VAT Return to the National Bureau for Revenue.

Businesses who have registered for VAT in Bahrain should accept the additional VAT amount that is charged additionally to the agreed price because for registered businesses they will not have to incur the additional VAT amount charged as they will be able to claim the incurred expenses while Filing for VAT Return in Bahrain.

The effect of VAT in Bahrain is only to the end consumers and for those who have not registered for VAT in Bahrain as they will not be able to take claim for the VAT that has been charged on the incurred expenses. The end customers are the ones who will experience the effect of VAT in Bahrain with an increase in the price of goods and services as per the prescribed rate.

How does VAT work in the Kingdom of Bahrain?

If your business makes taxable supplies in the Kingdom of Bahrain, which means if your supplies of goods and services are subject to VAT in Bahrain then the effect of VAT in Bahrain is that you should take the initial step to proceed with VAT registration of your business for VAT purposes with the NBR. Upon registering your business for VAT in Bahrain you should charge VAT at the prescribed rate of 5% or 0% as per the rate prescribed in the Bahrain VAT Law on your supplies of goods and services. This is known as “Output Tax”.

Once you are registered for VAT the business expenses that you have incurred such as, VAT charged by your suppliers and VAT paid on import of goods and services are claimable expenses which is also known as “Input Tax”. If you are a VAT Registered Business, you can claim for the tax that has been incurred to the NBR. You will have to file for your VAT Return on a regular basis as per the period prescribed by the Authority.

How can Emirates Chartered Accountants help you with the effect of VAT in Bahrain?

As Tax Experts, we will initially understand the organizational structure and its business operations. Once we ensure understanding the business operations and the structure, we proceed with VAT Registration. How VAT Registration should be progressed, whether VAT Registration has to done on a compulsory or a voluntary basis and if the businesses should opt for an individual or group registration, each detailing will be focussed and progressed meticulously with apt measures.

We will also Analyse the effect of VAT in Bahrain and the VAT impact on your business by initially reviewing the existing contracts with suppliers/customers/ third parties, analyzing the transactions, etc. Evaluate the options of restructuring the business operation such as supply chain, etc will also be progressed.

The necessary changes for the effect of VAT in Bahrain that has to be made in accounts & IT department will be suggested and the changes with modification requirement to attain better compliance shall be progressed while we implement VAT in your business. Upon modification verification of the output through a trial run and verifying input vat and output vat accounted in the system will be monitored. Necessary guidance and support to complete the statutory procedures as regulated by the National Bureau of Taxation will be given along with support to prepare and submit your first VAT return to the Authority.

Emirates Chartered Accountants Group houses a team of tax professionals in Bahrain to support the business community. Our vast experience in implementing VAT in the UAE as well as in India is a competitive advantage for us to serve the Kingdom of Bahrain in a better way.

We are headquartered in Dubai, UAE providing service to the business community with our core services Audit & Assurance, Tax Services  , Company Formation, Accounting, etc.

Our VAT Services in Bahrain are:

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