VAT Basics FAQs

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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VAT Basics FAQs

Thu Oct 11, 2018 3:55 pm

What is VAT?
Value Added Tax (or VAT) is an indirect tax applied on the consumption of most goods and services. It is also referred to as a type of general consumption tax. It is imposed on a product at each stage of production before the final sale.

At each stage in the supply chain, businesses collect VAT on behalf of the government. Because it is added to the customer’s purchase price, ultimately it is the end consumer who pays VAT.

Why is BAHRAIN implementing VAT?
One of the main reasons for implementing VAT in BAHRAIN is to generate more revenue for the government. Using this revenue, the Government plans to offer various types of public services, including medical facilities, good roads, transportation facilities, public schools, parks, waste control, and more. VAT will also provide a new source of non-oil revenue for Bahrain.

How will VAT affect one’s cost of living?
Each person’s cost of living is affected by their lifestyle, so the impact of VAT will vary between individuals. There will probably be a slight increase in overall cost of living, but a person who spends mostly on exempt and zero-rated things will not see much increase.

When will VAT go into effect?
The Tax Authority has decided to introduce VAT in the BAHRAIN by 01 January 2019.

Will VAT be applicable for tourists?
The short answer is yes. The travel and tourism industry is an important part of the BAHRAIN national economy.

Not all parts of the industry will be subject to the same VAT rates, though. The travel and tourism sector can be broken down into several components, such as luxury, medical, education, meetings, exhibitions, healthcare, education, events and other special interest groups. It is expected that healthcare and education will be zero-rated supplies in the BAHRAIN. Meetings, conferences, events, and trade expos, which account for a significant portion the revenue-generating drive of the tourism sector, will be taxable.

As and When a Tourist Refund Scheme is implemented, visitors and tourists will be able to claim a refund on VAT paid on certain goods and services purchased in the BAHRAIN.

How does VAT work?
Output VAT is the value added tax that you calculate and charge on your own sales of goods and services if you are registered for VAT. Output VAT must be charged on sales both to other businesses and to ordinary consumers. Input VAT is the value added tax added to the price you pay for eligible goods or services. If you are registered for VAT, you can deduct the amount of VAT paid from your settlement with the NTA.

VAT registered businesses charge and add VAT to the value of goods and services they supply. They can also reclaim VAT incurred on goods and services. Please refer to the illustration for an easy-to-understand example.

Who needs to register for VAT?
A business should register for VAT if their taxable supplies and imports exceed the mandatory registration threshold of 37,700 BHD.

A business can also choose to register for VAT voluntarily under two conditions:

If the supplies and imports of the business are less than the mandatory registration threshold, but greater than the voluntary registration threshold of 18,850 BHD.

If expenses of the business exceed the voluntary registration threshold. This opportunity is designed to enable start-up businesses with no turnover to register for VAT.

What are the VAT rates?
The proposed standard rate of VAT in the BAHRAIN will be up to 5%. Certain supplies of goods and services may be either exempt (meaning VAT will not be applicable at all), or zero-rated (meaning 0% VAT will be applied to goods and services). The standard rate will be applied to all goods and services that do not fall under an exempt or zero-rated goods and services category.

What sectors are zero rated?
Zero-rated supplies include:
Exports of goods and services to outside the GCC.
International and intra-GCC transport
Supplies for certain sea, air, and land means of transportation (such as aircraft and ships).
Supply of precious metals for investment (gold, silver, and platinum)
Newly constructed residential properties that are supplied for the first time within three years of their construction.
Supply of certain educational services and relevant goods and services.
Supply of certain healthcare services and associated goods and services.
Certain eatables (a standard list will be ratified across the GCC by the Financial and Economic Cooperation Committee)
The oil sector and the oil and gas derivatives sector (at the discretion of each member state)

Additionally, each member state can zero rate or VAT-exempt:

The educational sector
The medical sector
The real estate sector
The local transport sector

What sectors are VAT exempt?
The following categories of supplies that will be exempt from VAT are:
The supply of certain financial services
Sale of bare land
Lease or sale of residential property
Local transport

How will business owners calculate their VAT?
Businesses should keep track of their sales purchase and expenses including the tax paid on the same. The tax payable by for a particular taxpayer is equal to tax collected on output (sales) - tax paid on input (purchases).

Let’s look at an example of how to calculate output and input VAT.

Suppose you own a trading shop and spend 10,000 BHD towards obtaining trading items. The input tax rate is 5%, so the input tax you pay is 5% of 10,000 BHD = 500 BHD.

You make sales of 20,000 BHD. Supposing 5% is the output tax, the output tax you pay is 1,000 BHD.

So, final (net) VAT payable by you will be 1,000 BHD - 500 BHD = 500 BHD.

In the VAT settlement, you deduct input VAT from output VAT. The resulting amount must be reported to your tax office. As you can see, you only pay tax to the state on the value your enterprise has added to the goods. (If your purchases exceed your sales in any one period, the difference will be negative, and the difference will be refunded).

How do I check whether my TRN is valid?
To check the validity of your TRN:
Log in to the tax e-services portal.
Click the TRN Verification tab at the top of the page.
Fill out the TRN field.
Click Validate.

If your TRN is valid, you will see the message ”TRN is available in the system” at the bottom of the screen.

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