VAT implementation in Bahrain in comparison with UAE and KSA.
The Kingdom of Bahrain has become the third Gulf Cooperation Council (GCC) member state to introduce VAT on 1st January 2019 after the UAE and Kingdom of Saudi Arabia.
The Kingdom of Bahrain published its Value Added Tax (VAT) law under Royal Decree No. (48) of 2018 in October 2018 and Executive Regulations in December 2018. as well directed the formation of the National Bureau of Revenue which will manage, collect and control all types of taxes and related administrative fines through the application of local laws and tax regulations.
Deadlines for registration:
According to the Ministry of Finance VAT shall be introduced in a phased manner through transitional mandatory registration thresholds. As anticipated and, conforming with the position in KSA and the UAE, the mandatory VAT registration threshold is BHD 37,500 (AED 365,250) and the voluntary registration threshold is BHD 18,750 (AED 182,625) as provided in Articles 33 and 44 of the Executive Regulations. The various deadlines for registration as well as the turnover limit are also provided.
Any business having annual turnover of more than BHD 18,750 (AED 182,625) may register voluntarily on the website of National Bureau of Revenue anytime throughout the year.
Frequency of filing Returns:
Large businesses will file tax returns on a monthly basis while all other businesses are required to file quarterly, however, for 2019, registered businesses will have only three or four tax periods, depending on their turnover. Tax returns will be due on the last day of the month following the month in which the tax period ends.
Although most of the provisions of the Executive Regulations are in line with UAE and KSA, the regulations contain certain business friendly provisions aimed to reduce the burden of compliance on businesses and certain taxpayers which are as follows:
- A tax invoice must be issued when a supply of goods or services is made by a person that is VAT registered and the Regulations list what should be on a tax invoice in order for it to be valid. Unlike KSA, there is no requirement for invoices to be issued in Arabic and suppliers will not need to include their customer’s VAT registration number on the invoice, unlike in the UAE.
- The acceptance of a bank statement as a valid tax invoice subject to some minor amendments as mentioned in Article 52 of The Executive Regulations of Bahrain. Unlike the UAE, where separate tax invoice is supposed to be generated by the banks for bank transactions.
- A separate Ministerial Decision is expected to list the GCC States that Bahrain will recognize as Implementing States, and those not on the list will be assumed to be non-GCC States for the purposes of VAT. Until a Ministerial Decision on this is issued, all GCC States will be considered as non-GCC States for the purposes of VAT. To date, neither Saudi Arabia nor the UAE has recognized the other as an Implementing State.
VAT Impact on Certain Industries:
The Executive Regulations provide us with detail on many of the principles outlined in the VAT Law, including those goods and services that will be zero-rated or VAT exempt however, there are some clear differences between the VAT system to be introduced in Bahrain and those implemented in KSA and the UAE including the following:
Basic Food Items:
In accordance with Article 80 of the Executive Regulations, basic food items shall be zero rated. These shall not include items supplied by restaurants, coffee shops, caterers and similar establishments. The list has been published by National Bureau of Revenue (in Arabic) on its website which list includes 96 items such as meat, bread, fruit, vegetables cereals, sugar and other items which items are taxed at 5% in UAE and KSA.
It has been observed that the VAT laws implemented in sectors of Real Estate, Oil and Gas and precious metals in Bahrain are also dissimilar to those of the KSA and UAE. It can be conformed from Articles 74 and 75 (related to precious metals) Articles 76 and 82 (related to real estate) and Article 79 (related to the Oil and Gas Sector) of the Executive Regulations of Bahrain that the above-mentioned sectors shall be charged at zero rate.
Impact on GCC countries of VAT implementation:
According to Sarah Townsend’s article published in “The National” on 29th December 2018, , the report from the Federation of GCC Chambers has stated that once implemented, a GCC-wide VAT could generate revenues of between 1.5%and 3%of the six-country economic bloc’s total non-oil gross domestic product in 2019, , citing earlier figures from the International Monetary Fund.
According to the article, which quoted the Federation’s report, UAE’s GDP growth is estimated to rise to 3.7 % in 2019, while Saudi Arabia’s economic growth is forecast to rise to 2.4 % next year from 2.2% in 2018.
In order to create awareness the National Bureau of Revenue is conducting various workshops, trainings and seminars. These seminars are being attended by the representatives of various segments including real estate, education, audit and finance companies. The National Bureau of Revenue website has been launched which will provide individuals and institutions with comprehensive information about the latest developments and guidelines for tax compliance, in addition to acting as a portal to register and make payments of taxes.
It is hoped that eventually the levy of VAT will accelerate the Kingdom’s march towards prosperity and progress.
We at SENAT MEA can help you prepare your business for VAT and assist you in ongoing compliance. In case of any query, feel free to contact us at firstname.lastname@example.org