Industry - Education

Here you would know the basics and essentials on the workings of VAT in Bahrain. This is a must read and educative knowledgebase for those new to applying VAT within an Organization.
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Industry - Education

Mon Oct 15, 2018 5:17 pm

How is education treated under VAT?
Educational services, and goods and services related to the main educational service, are zero-rated if supplied by any of the following educational establishments:
  • Nurseries, preschools, and schools
  • Higher educational institutions owned or funded by the federal or local government
This means that qualifying educational institutions cannot charge VAT on the zero-rated educational services they provide, but they will be able to recover the input VAT they pay on related purchases when they file their tax returns.

Educational services provided by entities not listed above shall be subject to the standard rate (5%).

Does a qualifying educational institution have to register for VAT?
Qualifying institutions need to register for VAT if their supplies exceed the Mandatory Registration Threshold of 37,700 BHD.

Educational services provided by a qualifying educational institution are a zero-rated supply. An institution can apply for exception from registration using the registration application, provided it doesn’t provide any goods or services that are taxed at the standard rate (5%).

Applying for an exception will relieve the institution of the burden of filing regular returns, but would also mean the institution cannot recover the input tax incurred on its expenses.

Can anybody supply zero-rated education?
No. Only qualifying educational institutions can provide zero-rated supplies. Qualifying educational institutions are:

  • Educational entities recognized by the federal or local competent government entity that regulates the education sector in which the course is delivered.
  • Higher education institutions that are either owned by the federal or local government, or receive more than 50% of their annual funding directly from the federal or local government. Education provided by other educational entities does not qualify for zero rating, and such institutions must charge the standard rate VAT on the educational services they supply.

Is all education supplied by educational institutions zero-rated?
Educational services are only zero-rated if they are provided in accordance with the curriculum recognised by the federal or local competent government entity that regulates the education sector in which the course is delivered.

If any educational entity supplies education that is not in accordance with the recognised curriculum, it must charge VAT at the standard rate 5% on those supplies.

In a limited number of cases, an educational institution may provide educational services to students free of charge if the education is completely funded by government grants. If it is still a recognised curriculum supplied by a qualifying educational institution, then the grant income can be treated as zero-rated.

How are goods and services related to educational services taxed?
Goods and services that are directly related to a zero-rated supply of education qualify for zero rating as well.

For example, books and digital reading materials that are supplied by educational institutions and related to the curriculum being taught are zero-rated.

Are goods and services supplied to a qualifying educational institution ever not zero-rated?
Yes, there are supplies related to providing educational services which are subject to the standard VAT rate of 5%. A qualifying educational institution must charge and account for VAT for the following supplies:

  • Goods and services supplied by a qualifying educational institution to persons who are not enrolled in the institution.
  • Any goods other than educational materials that are provided by a qualifying educational institution and consumed or transformed by the students being taught.
  • Uniforms or any other clothing which are required to be worn by students at a qualifying educational institution, irrespective of whether they are supplied by the institution as part of the supply of educational services.
  • Electronic devices used in educational services, irrespective of whether they are supplied by a qualifying educational institution as part of the supply of educational services.
  • Food and beverages supplied at a qualifying educational institution, including supplies from vending machines or vouchers for food and beverages.
  • Field trips, unless they are directly related to the curriculum of an educational service and are not predominantly recreational.
  • Extracurricular activities provided by or through a qualifying educational institution for a fee in addition to the fee for the education service.
  • Membership in a student organisation.
Another exception to zero rating is the provision of school transportation, which falls under the category of domestic transportation and hence is exempt from VAT.

Is student accommodation taxed under VAT?
Student accommodation is treated as residential accommodation. Therefore, the supply of student accommodation (other than the first sale of a new residential building) will be exempted from VAT.

Educational institutions which supply student accommodation will not be able to recover VAT incurred on costs which directly relate to providing the accommodation.

How is grant income or sponsorship received for education taxed?
Educational institutions may receive grant income or sponsorships from the government or third parties. The VAT treatment of grant or sponsorship income depends on whether the institution provides the donor with a benefit in return for the funding received.

Some examples of benefits are naming an event after a sponsor, giving free or reduced-price tickets in return for the sponsorship, and displaying the sponsor’s logo in a prominent place on flyers.

  • If the donor receives a benefit, the grant income or sponsorship is subject to VAT. The supply of services to the donor is taxable.

    If the donor receives no significant benefit, the grant income or sponsorship will be treated as outside the scope of VAT.

Is research that’s funded by grant income subject to VAT?
The VAT treatment of grant income received to fund research depends on whether the institution provides a benefit to the funder of the research. There are two possible cases:

  • The educational institution is required to provide a return.
The return can be deliverables, intellectual property, or other products of the research. These supplies are taxable at 5%.

  • The educational institution is not required to provide a return.
In this case, the funder does not receive anything in return for the funding other than incidental information (such as progress updates, records of expenses, and evidence that the research has been conducted as requested).

This incidental information will not be considered as a supply of services by the educational institution, and the grant income received will be outside the scope of VAT. VAT that is incurred on an out-of-scope supply (and not linked to any taxable supply) cannot be recovered as part of the business’s overhead costs.

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