Bahrain VAT rate change: Transitional provisions

Since January 01, 2022, the Government of Bahrain changed the VAT rate from five per cent to 10 per cent on standard rated supplies in Bahrain

By VAT Compliance by Mahar Afzal

Published: Sun 9 Jan 2022, 2:05 PM

Last updated: Sun 9 Jan 2022, 2:06 PM

Since January 01, 2022, the Government of Bahrain changed the VAT rate from five per cent to 10 per cent on standard rated supplies in Bahrain. Before proceeding, it’s important to know that impact of the VAT rate change would be only on the existing standard rated supplies.

(1) Supplies made before the effective date

If the standard rated goods or services have been supplied before the effective date of the VAT rate change, which is January 01, 2022 (‘effective date’), then five per cent VAT would be applicable on such supplies. It doesn’t matter that invoice has been issued after the effective date and/or amount has been received after the effective date of the applicable changes.

(2) Supplies made after the effective date

If the standard rated supplies are being made after the effective date, then businesses will be required to assess the contract signing date related to those supplies.

(i) Contract signed before enforcement date

Where the contract was signed before the Law enforcement date which is December 24, 2021 (‘enforcement date’), supplies are being made after the effective date and there is no amended in the contract, then registered businesses will keep applying five per cent till December 31, 2022, and after that VAT rate would be 10 per cent on such standard rated supplies. However, if the contract has been amended or renewed any time after the enforcement date, then 10 per cent VAT would be appliable on all standard rated supplies supplied after the amendment or renewal date of the contract.

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Amendment in the contract includes extending duration, additional supplies, and increasing consideration payable. Other changes like the method of delivery which do not impact the original timing, consideration or quantum of supplies to be made, will generally not be regarded as a change or amendment for the purposes of the transitional rules.

(ii) Contract signed on or after enforcement date and before effective date

Where the contract was signed on or after the enforcement date and before the effective date, then it’s important to identify, supplier is making continuous supply or one-off supply. Continuous supply means a supply on an ongoing basis over a period of time which may involve periodic payments of consideration or the issue of multiple invoices, and one-off supply is a supply made typically at a point in time which is not a continuous supply.

Standard rated continuous supplies will attract a VAT rate of 10 per cent. One-office supplies where suppliers have not received any advance from the customers and/or issued tax invoice in their name between the enforcement date and effective date, it will also be subject to VAT of 10 per cent on the due date. However, if the supplier, has received advance and/or issued invoice during this period in the name of the customer for one-off supply, then supplier will be liable to report the VAT at the rate of 10 per cent in December 2021 Return. Where numbers were reported based on the advance received only, then supplier will be liable to issue a VAT invoice showing VAT at 10 per cent maximum by the 15th day of the following month. i.e.; January 15, 2022.

The cases where continuous supplies are falling between two certain periods with two different VAT rates, then NBR will be required proper evidence of valuation for each period. NBR expects that the valuation methodology will be that normally used by the VAT payer. If a different methodology has been used, the VAT payer will need to demonstrate that it was not used to reduce or minimize the VAT payable under the contract

(iii) Contract signed on or after effective date

Where supply is being made and contract has been signed on or after the effective date, then normal VAT rules will apply and every standard rated supply would attract 10 per cent VAT.

Mahar Afzal is a managing partner at Kress Cooper Management Consultants. The above is not an official, but a personal opinion of the writer. For any queries/clarifications, please write to him at compliance@kresscooper.com.