The most important terminology to understand herein is 'Place of Supply'. Place of Supply determines how and where VAT will be discharged.
The important test now, is to determine, where the place of supply of intra-GCC supply of goods fall. Article (12) of the VAT Agreement explicates that the place of supply for intra-GCC supply of goods shall be the Member State where the movement of goods terminate for delivery.
However, this principle works as long as the recipient is a “Taxable person”. A taxable person is defined in the VAT Agreement as “a Person conducting an Economic Activity independently for the purpose of generating income, who is registered or obligated to register for VAT in accordance with the provisions of this Agreement.” Consequently, all the businessmen in Bahrain having a turnover of more than USD 100,000 in the preceding twelve months, would be construed as a ‘Taxable Person’.
Thus, a taxable person importing goods in Bahrain from any other Member State should not discover any VAT on their imports, since, the place of supply of such imports is Bahrain and the exporting country cannot levy VAT. Further, the VAT Agreement vide Article (9) imposes the responsibility to discharge VAT on the taxable person who imports such goods and acronyms this concept as the reverse charge mechanism.
Hence, to complete the equation, let us take an example, a supplier registered in UAE exports goods to a taxable person in Bahrain. In this case, the taxable person in Bahrain would have to discharge VAT on such imports under reverse charge mechanism. As on this day, Bahrain is yet to launch VAT in their Kingdom, hence, the taxable person in Bahrain is relieved from discharging any VAT on their imports.
The above equation is true only if the importer in Bahrain is a taxable person. What happens when the importer is not a taxable person? Article (12) goes a step further to explain that where the recipient is not a taxable person and the value of supply is less than USD 100,000 the place of supply shall be the exporting Member State and the exporter will charge VAT on such supplies. It also states that where the recipient is not a taxable person and the value of supply is more than USD 100,000 the place of supply shall be the recipient country. In the latter case, the supplier shall be obligated to obtain VAT registration in the recipient country and discharge their VAT.
Lets summarize the 3 possible scenarios:
1. Import of good by taxable person. Herein no VAT to be levied by exporter. Importer to discharge Bahrain VAT under reverse charge mechanism (after VAT implemented in Bahrain).
2. Import of goods by non-taxable person and value less than USD 100,000. Herein exporter to levy VAT of exporting country on supplies.
3. Import of goods by non-taxable person and value more than USD 100,000. Herein exporter to obtain VAT registration from Bahrain. Exporter to collect and pay Bahrain VAT.
This forum provides an overview on application of VAT towards imports of goods and services into Bahrain from GCC Countries. The same logic applies when exporter is from Bahrain and importer from VAT implemented GCC Countries, such as UAE, KSA.
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