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Taxflash 13 June 2019

11 working days left until VAT implementation for the second tranche of Bahrain businesses (taxable turnovers between BD0.5m and BD5m) on 1 July.

Register soon – you’ve got five working days left! All that and more in this week’s TaxFlash.

What does the Bahrain MoF announcement on staggered registration mean for businesses?

On 28 November 2018, the Ministry of Finance announced that it is staggering the registration of VAT for businesses in Bahrain. We understand this announcement means that only businesses with turnover of over BD5m will need to register for VAT by 1 January 2019. These businesses must submit their registration before 20 December 2018.

What should these ‘larger’ businesses be doing now?

Businesses with turnover above BD5m should be continuing (on a fast track basis) with their preparations to be ready for the implementation of VAT by 1 January 2019.  If you haven’t received the form from the MoF you should urgently contact the MoF or speak to your advisor.

Has the Bahrain government changed the mandatory registration threshold (MRT)?

No, the Bahrain VAT law clearly refers to the MRT as BD37,500 (approx. USD100,000) as per the GCC VAT treaty.  The voluntary registration threshold (VRT) also remains at BD18,750 (approx. USD50,000).  This announcement does not change the MRT or the VRT.

Does the announcement mean the Bahrain government is going to apply the VAT law differently to smaller businesses?

No, the announcement is only a staggering of the registration which appears to effectively be a staggering of the introduction of VAT in Bahrain.  Saudi Arabia did something similar but used a much lower threshold of SAR1m.  The MoF has not announced any changes to the application of the VAT law.

What should businesses with turnover above the MRT but BD5m or less do?

It appears these ‘smaller’ businesses have some extra time to get ready for VAT.  Based on the announcement to stagger it would appear that these businesses will likely not be implementing VAT on 1 January 2019.  However, there has been no announcement on how much extra time they have – these businesses will need to wait for clarity from the MoF on when they need register for VAT or whether these businesses will be able to voluntarily register.

What does this actually mean?

In simple terms, these ‘smaller’ businesses will not charge VAT on any of the supplies they make until they are registered – hopefully the MoF will announce an effective date of VAT for these businesses soon.

Will these ‘smaller’ businesses still have to pay VAT?

All businesses importing goods into Bahrain, purchasing any services or goods from a larger business (ie with turnover over BD5m) that is registered for VAT in Bahrain will still pay VAT.

If a business is not registered can it recover VAT?

In short, no.  Until businesses below the BD5m threshold are allowed to register, VAT will likely be a cost to these businesses as they won’t be able to recover any input VAT they pay on their expenses.  However, the Bahrain VAT law does allow for the recovery of input VAT paid prior to registration subject to meeting the conditions specified in section 44 of the Bahrain VAT law – hopefully, the regulations will provide more clarity on this. We recommend businesses retain copies of tax invoices received and make sure that these are valid (as prescribed by the Bahrain VAT regulations) to protect their position on pre-registration input VAT claims.

Should ‘smaller’ businesses stop preparing for VAT?

Assuming the go live date for these businesses is being delayed these businesses will have more time to prepare – will this be one month, six months or longer we currently do not know.  Whilst, smaller businesses may be able to slow down their preparations for implementation of VAT we do not know how much “breathing space” the MoF has decided to provide so our strong recommendation to these businesses is that they do not stop preparing.  All the MoF has announced is a staggered registration (which in effect appears to be a staggered introduction).  See also the answer to the question above – businesses will still need to know what to do to protect their position on input VAT incurred prior to registration – they will not be able to do this unless they have an understanding of how the VAT law applies.

To discuss this development – or any VAT issue – with one of our VAT specialists, contact Mubeen Khadir (mubeen.khadir@keypoint.com), George Campbell (george.campbell@keypoint.com) or another member of the Keypoint VAT team.

Bahrain to stagger VAT registration

Bahrain’s Ministry of Finance has announced – through its Instagram page – that it is staggering the registration of Bahrain’s businesses for VAT. While the National Bureau of Gulf Taxation (NBGT) continues to circulate a series of questionnaires to help determine which businesses need to be prioritised before VAT is implemented on 1 January 2019, we understand that – in the initial stage – only businesses with revenues over BD5m will need to register for VAT. These businesses must submit their registration before 20 December 2018.

There  has  been no  announcement  on when businesses  below  the  BD5m  threshold  will need  to  register  for  VAT or whether businesses will be able to voluntarily register. Until businesses below the BD5m threshold are allowed to register, VAT will likely be a cost to these businesses as they won’t be able to recover any input VAT they pay on their expenses (unless they meet the conditions in section 44 of the Bahrain VAT law – hopefully, the regulations will provide more clarity especially in relation to s 44(2) and 44(4)). We recommend businesses retain copies of tax invoices received, and to make sure that these are valid (as prescribed by the Bahrain VAT regulations) to protect their position on pre-registration input VAT claims.

The Instagram account also said that MoF will host meetings for companies and traders about VAT and the readiness of companies and that 94 basic food items – as well as other basic services such as education and health – have been zero-rated. The post also indicates that implementing regulations – once released – will set out procedures for calculating, paying and collecting VAT. The NBGT will be responsible for managing and collecting all types of taxes and related fines.

To discuss this development – or any VAT issue – with one of our VAT specialists, contact the VAT team at vat@keypoint.com or +973 1720 6809.

‘Grandfathering’ in Saudi Arabia

The zero-rating transitional provision in Article 79(3) of Saudi Arabia’s implementing regulations – the ‘grandfathering provision’ – permits zero-rating of supplies made under some legacy contracts, subject to strict conditions:

  •  The contract was entered into before 30 May 2017
  •  The customer is entitled to deduct input tax in respect of the supply in full or is an eligible person entitled to a VAT refund
  •  The customer certifies in writing to the supplier that input tax can be deducted or refunded in full

All of these conditions must be met. If grandfathering has been applied where it should not have been, GAZT is entitled to pursue suppliers for due VAT – often for large sums – even before the application of penalties.

Unfortunately, a number of companies in Saudi Arabia have applied the grandfathering provision incorrectly. For more information on common misapplications and the possible ramifications, please read our VAT alert.