Value of Supply Under Bahrain VAT- All You Need to Know

Value of Supply Under Bahrain VAT

Once the VAT payer has identified the Taxable supply and segregated between VAT to be charged at 5% and 0%, knowing the value of supply under Bahrain VAT is important to understand the amount on which VAT at the rate of 5% must be charged.

The Bahrain VAT Law and Executive Regulation contains certain rules to determine the value of supply under Bahrain VAT.

What is the General Valuation principle of the value of supply under Bahrain VAT?

As a general rule, the value of supply under Bahrain VAT includes everything that a taxable supplier receives from his client or for the supply given to the client. Therefore, the value of supply includes everything received from the client whether in cash or in kind. The value of remuneration received in-kind would be taxable at its fair market value.

The supplier must include all the costs or expenses imposed on the client while calculating the value of supply. That is, any transportation cost, insurance costs, administration charges, taxes or duties except VAT imposed on the client.

The value of supply together with VAT charged on the supply is called the consideration for the supply.

The Bahrain VAT law defines consideration as “All that is received or expected to be received by the taxable supplier from the customer or from a third party in exchange for from the Customer for the supply of Goods or Services, inclusive of Tax.”

What is to be deducted while calculating the Value of Supply under Bahrain VAT?

The VAT should be charged after deducting the following amounts from the value of supply as per the Bahrain VAT Law.

1. Any discount provided for the supply at the date of supply and such discounts should be shown as a reduction in the invoice.
2. The subsidies the supplier has received from government bodies.
3. Any payments made by the supplier on behalf and in the name of the customer and claimed back from the customer. That is Disbursement made by the supplier in the name and on behalf of the client.
4. Any penalty, compensation or fines paid by the supplier due to customers default which is later recovered from the customer.
5. Refundable deposits made by the customer which are not considered as an advance payment for the supply.

How to calculate the VAT amount when Price inclusive of VAT or the consideration for the supply is provided?

The VAT amount is 5% of the value of supply. The value of supply is always exclusive of VAT. Given a price inclusive of VAT, the value of supply and the VAT amount would be calculated as follows:

Value of supply = Price inclusive of VAT ÷ 1.05

VAT amount      = Price inclusive of VAT ÷ 21

What should be done in case the discount is provided after the supply?

In case the discount is provided to the customer after the issue of the tax invoice, the supplier is to provide a tax credit note showing the value deducted and reverse the VAT charged earlier up to the amount of discount.

For e.g., Mr. George issues a tax invoice for BD 200 and charge BD 10 as VAT for consultancy charges to Mr. Fernandes. Later he agrees to provide a discount of BD 30.

In this case Mr. George will have to issue a tax Credit note for BD 30 and reverse 5% of BD 30, that is BD 1.5 from the VAT charged.

How to calculate Fair market Value for remuneration received in Kind?

In case where the remuneration is received in a non-cash component then the value of supply is determined by the Fair market value of the component received from the supplier.

Fair market value is the Fair price at which the non-cash component is tradeable on the date of supply between two independent parties.

In case the fair market value of an identical product or supply is not available then the fair market value of a similar product or supply can be taken into consideration. 

What is the rate of exchange applicable when the value of supply is in Foreign currency?

The VAT amount and the value of supply should be expressed Bahrain Dinars in the invoice. When the value of supply is in foreign currency it should be converted to Bahrain Dinars using the relevant exchange rate on the tax due date. The relevant exchange rate would be the one issued by the Central Bank of Bahrain.

What is the value of supply for supplies subject to the reverse charge mechanism?

Under reverse charge mechanism, the VAT should be paid by the customer and not the supplier. In this case the value of supply would be the purchase price paid by the customer to the supplier.

In the case where the purchase price cannot be determined, the value of supply would be calculated using the Fair market value rule as discussed above. 

What is the value of supply in case of Vouchers?

Vouchers are those documents which have a monetary value and grant the holder:

1. The right to receive goods or services equivalent to their face value, or
2. The right to receive a discount or reduction on the value of such goods or services.

The value of supply in the case of vouchers is the face value of the voucher. In case the voucher is sold for a value higher than the face value then the difference between the sale price and face value will be considered as Price inclusive of VAT.

For Example: ABC W.L.L. Sells gift vouchers worth BD 10 for BD 12. What would be the amount of VAT?

In this case, the price inclusive of VAT would be the difference in the face value of vouchers and the selling price. That is, BD 2. VAT amount would be BD 2 ÷ 21 = BD 0.095.

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 are professionally well versed with the Bahrain VAT laws and its compliances.

VAT Services we provide in Bahrain:

• VAT Registration
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