Simplifying VAT law: Addressing two key concerns of businesses in Bahrain

      Published on Friday, 6 December , 2019      632      
Simplifying VAT law: Addressing two key concerns of businesses in Bahrain

  • Bahrain News

With the implementation of the value-added tax (VAT) law in a region that used to enjoy a VAT free environment, some businesses in the GCC have raised fundamental questions about its provisions as they navigate through the impact and comply with the relatively new taxation system. There are understandably many queries. In Bahrain, where the law is being implemented in different stages beginning the 1st of January 2019, two of the main commonly asked questions are: is VAT going to be a cost to my business and how can I apply VAT for the contract signed before my registration? Contrary to popular belief, VAT is generally structured in such a way that it would not become an additional cost to businesses. This can be achieved if a company meets certain conditions.

There are five instances in which VAT can lead to new expenses for a business organization.

The first involves businesses that need to account acquire supplies or services that fall within the law’s exempted category. Examples of these are the sale of bare lands or certain financial activities such as banking transactions. Under the law, companies cannot recover the expenses or payments they incur for acquiring supplies or services under the exempted category. These include payments to suppliers. Luckily in Bahrain, there’s a limited number of categories of exempted supplies. Second is the failure to meet the mandated VAT registration deadline. Businesses required to register under the VAT regime but fail to do so within the given timeframe should pay the corresponding penalties and fees for non-compliance.

The third scenario involves any expense incurred before a company’s VAT registration. For example, if a firm that is yet to register but needs to pay VAT for the goods bought, the payment can no longer be recovered as per the law’s provisions, provided, such goods are not used for taxable supplies.

The fourth one covers expenses that are non-recoverable by nature. However, such cases are limited.

The fifth is the cost incurred for training people and infrastructure development. Looking at it from a different angle, however, these expenses can be considered as long-term investments rather than additional costs. Human capacity development is necessary to help bring the business to new heights, while infrastructure development, including software integration, streamlines company operations and enhances overall efficiency and productivity.

As for the second query, VAT implications on contracts, let us focus on deals entered before VAT implementation and are still in effect after the VAT rollout. If invoices are made or payment is done against the supply and the actual delivery of that supply takes place after the registration, it is still considered a taxable supply. That means, under Bahrain’s VAT law, a company cannot avoid VAT just by making an invoice or making a payment before its registration.

Another important provision that businesses should keep in mind involves contracts signed before a company’s VAT registration but is silent on the new law. Suppose the contract is signed for BD 100,000 and nothing is mentioned about VAT. Businesses should take it in such a way that VAT is inclusive of the total amount. To avoid confusion and misunderstanding, it is important to include a VAT clause in their agreements.

On contracts signed with government authorities before VAT implementation, if the contract is silent about VAT, it is considered as zero-rated

This will be applicable until the completion of such a contract, or renewal, or until the end of 2023. If businesses are entering into agreements, the deals should include a VAT clause to help companies do their business better.

The VAT system might seem complex., but through the help of tax experts and available automated solutions, the law can easily be simplified for compliance purposes.

This article is written by CA Manu Nair, as a part of Tally’s VAT knowledge series ‘Let’s Talk VAT

Category Bahrain News | 2019/12/06 latest update at 12:39 PM
Source : CA Manu Nair | Photocredit : CA Manu Nair
Comments Add comment

Gulf Media

Related Articles

The editorial staff of Bahrain Today would like to give all of its readers from Gulf and Bahrain and the whole world the opportunity to participate actively in the development of the website! If you have something interesting, fun, scandalous - just something worth to be seen from more people. Capture it and share it in the Bahrain Today with a short text.

Do you have information you want to reach our readers?

Send article/s

You can subscribe to our Facebook, Twitter and Google pages or use our RSS feed channel to always read the most important news about Bahrain, the Gulf and the world.