Navigating the Transition to VAT in Bahrain

Since this is the first form of taxation in Bahrain, most of the concepts may seem complex and unfamiliar. To help clear things up, we’ll be explaining the different transitional provisions for VAT that have been prescribed by the National Bureau for Revenue (NBR).

Transitional provisions for the supply of goods and services

The NBR of Bahrain has issued the following transitional provisions for the supply of goods and services:

• All supplies made after the 1st of January, 2019 or after the date of registration are taxable. This applies regardless of whether the invoice or payment for the supply was approved before either of those dates.

• If a taxable supply is delivered for an invoice that does not include the tax amount, then the supplier must send out a separate tax invoice that includes the VAT amount applicable for the supply.

• For the following cases, the date of supply is treated as after 1st of January, 2019:

  • When goods are delivered after 1st of January, 2019.
  • When services are completed after 1st of January, 2019.

Transitional provisions for contracts

For contracts that have been signed with and without the Government, the NBR has issued separate transitional provisions as follows:

• Those supplies that have been mentioned in contracts signed with the Government before 1st of January, 2019 and that would normally be taxed at the standard rate of VAT are instead taxed at the zero rate. The zero rate will be replaced with a standard rate of VAT either when the contract is renewed, or on the 31st of December 2023, whichever date is earlier. Any amendments made to the contract will also be considered renewal.

• Those supplies mentioned in contracts that have been signed with entities other than the Government, are taxed at the standard rate of VAT starting on 1st of January, 2019. If the contract states that the amount to be paid is exclusive of VAT, then the supplier may go ahead and add VAT to the mentioned amount. If the contract does not explicitly state that the amount to be paid is exclusive of VAT, then it is considered inclusive of VAT. In such cases the supplier is not allowed to add VAT to the mentioned amount, unless the customer has agreed to pay it.

Note: The following formula can be used to calculate the amount of VAT to be paid for a VAT-inclusive supply, when it is subject to 5% VAT: Amount of VAT (5%) = Total amount to be paid for a supply/21

Implementing states

An implementing state according to VAT law is a GCC member state that has implemented VAT throughout the country, abiding by the official VAT framework. Supplies that are moved between different implementing states are called intra-GCC supplies. Until the Electronic Service System for VAT is up and running, these intra-GCC supplies will be treated as imports and exports.

GCC member states that have not implemented VAT yet are called non-implementing states. Moving supplies between and implementing and a non-implementing state is considered a transaction with a state outside of the VAT Council’s region.

Continuous supplies

A transaction in which goods and/or services are repeatedly supplied to a particular buyer is called a continuous supply. This type of supply is usually done with a contract that specifies details like the cost, frequency, and amount of the supply. The transition to VAT has clashed with the dates of several contracts, meaning part of the contract has been completed before VAT implementation and the rest is applicable to VAT. The transitional provisions for cases like this state that VAT only needs to be charged for the services performed during the VAT period.

For example, consider a maintenance service contract from July 2018 to July 2019. Part of the services of the contract were done before VAT was introduced, and the remaining services were done after VAT. Under the transitional provisions, only the services performed after the implementation of VAT are required to be taxed at the rate of 5%.

As per the latest update by the National Bureau for Revenue, the VAT rate has increased from 5% to 10%. Along with this VAT increase that is effective from January 1, 2022, new transitional provisions have been introduced. These provisions will permit businesses to continue with 5% VAT for a certain period, provided that the conditions listed are fulfilled.