Some special meetings were organized both in the Bahrain National Assembly’s lower and upper houses on Sunday and Monday, and its Council of Ministers and also the Shura Council have given a go-ahead to the draft bills for the unified GCC VAT Agreement and also the draft VAT law. The law which establishes the Bahrain tax authority, the National Agency for Gulf Taxes, is also now approved. The draft VAT law has already been printed in the Arabic language.
It has been decided that VAT would be imposed in Bahrain at 5%, which is the standard rate and is as per the unified GCC VAT Agreement, which is going to be effective from 1 January 2019, and will place Bahrain at the third spot in GCC country’s after UAE and KSA, to have implemented VAT. As per the draft VAT law, the VAT regulations are going to be printed within 15 days of the effective date of the law (i.e. by 15 January 2019) and would list down the detailed applications of this law.
The Main Features of Bahrain’s New VAT system
Under the draft VAT law, the most important features of the VAT regime in Bahrain are as follows:
VAT Registration – In Bahrain, the compulsory and voluntary registration thresholds depend on the unified GCC VAT Agreement. Organizations that fully make zero-rated supplies could be exempted from the need to register. Every company or individual who is involved in an economic activity inside Bahrain would need to calculate their forecasted yearly revenue beginning from 1 January 2019 to find out if they have to register or not. The registration schedule is going to be based on the value of taxable supplies where the larger taxpayers would have to register first. The detailed schedule or timetable would be shortly announced.
Zero rated supplies – Bahrain is following UAE’s footsteps where a big list of supplies will be zero rated. The export of various goods and services, global transportation of goods and also passengers, the supply of investment-grade valuable metals, the supply of some specific medicine and health equipment had to be necessarily zero rated as per the unified GCC VAT Agreement. Besides this, Bahrain would also zero rate preventive healthcare services, the supply of some precious stones like pearls, construction of latest buildings, educational services, and local transportation services. Unlike the UAE and KSA, Bahrain also plans to zero rate about 94 food items as per the unified GCC VAT Agreement.
Exempt some supplies – Just as the UAE and KSA, Bahrain would also exempt the supply of margin-based fiscal or financial services and the supply of bare land.
Government supplies – The government supplies will also be taxable only until they are in its capacity as a public authority.
VAT Group – Bahrain plans to allow all the businesses or companies in the same group to get registered as a tax group thus allowing a single company to file a VAT return for the complete group.
VAT Returns – The VAT returns need to be filed and submitted within a month after the end of a tax period, which will be at least one month.
Books and Records – All the books and records have to be maintained for at least a three-year period.
What are Bahrain businesses required to do?
Businesses in Bahrain would need at least three to six months to be prepared for VAT. But there is lesser time remaining for the VAT implementation in Bahrain, companies must ideally begin preparing for VAT as soon as possible. The most important areas that the businesses need to concentrate on to implement VAT within their business are as follows:
- Create a Project Plan: Develop a detailed budget for the VAT implementation (for example, consultants required, training, resources, IT systems needed), form a VAT steering committee and then allocate various responsibilities
- Spread Awareness: Educate and train one’s staff on the impact VAT would have on accounting and reporting processes
- Assessment of the VAT Impact: Take the VAT impact assessment and review the transitional provisions and categorize and map the VAT treatment of all business transactions
- Evaluate Cash Flow: Gauge the impact on cash flow and accordingly estimate the working capital requirements
- IT Systems: Review the capability of the existing accounting systems for VAT reporting and then think of upgrading or getting a new system
- Pricing: Review the impact of VAT on factors such as demand and pricing
- Contracts: Assess the existing contracts with various suppliers and customers and then include the VAT clauses in the new contracts
- Processes: Decide on the amendments needed to the existing AP (accounts payable) processes and documentation like invoices and record-keeping
- Customer and Supplier Management: Discuss with the existing suppliers and clients to inform them about the impact of the VAT and enter a negotiation with the new suppliers and customers
- Compliance: Decide if it’s required and then accordingly register for VAT on time
We at IMC, have strong expertise and experience of VAT implementation and have been doing it in the UAE and the KSA. We can help you in assessing how VAT would impact your business and accordingly guide you with the VAT requirements in Bahrain.
