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Bahrain: VAT and transfers of going-concern; zero-rated VAT for expenses prior to building permit

Bahrain: VAT and transfers of going-concern

The Bahrain National Bureau for Revenue released a guide addressing the value added tax (VAT) treatment of transfers of a going-concern. Separately, the tax authority clarified that certain expenses incurred prior to obtaining a new building permit may be zero-rated for VAT purposes.


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Transfers of going-concern

VAT is normally charged on the sale of business assets. However, if a business is transferred as a going-concern, then such a supply is outside the scope of VAT. A transfer of a going-concern is not treated as a supply of goods or services; therefore, no output tax is chargeable on the business sale and this limits any impact on cash flow for the purchaser. For a business sale to be treated as a transfer of a going-concern, certain conditions need to be met.

Read a September 2020 report prepared by the KPMG member firm in Bahrain

Zero-rated VAT on pre-permit expenses

The National Bureau for Revenue clarified that certain expenses incurred prior to obtaining a new building permit may be zero-rated. In Bahrain, new building construction services are zero-rated. To apply the zero rate, contractors and sub-contractors must obtain a certificate (or a certified copy of the original certificate) prepared by the main contractor, or the property owner, that the building meets the criteria to be a new building.

The National Bureau for Revenue updated a VAT real estate guide to clarify that expenses incurred for obtaining a building permit (for a new building) from the Ministry of Works, Municipalities, and Urban Planning will be subject to VAT at a zero- rate without the possession of a new building certificate. The updated guide provides a list of eligible expenses, including:

  • Provision of an original survey certificate and a layout plan certificate
  • Engineering drawings of the plan
  • Engineering drawings of the fronts and section
  • Construction drawings of the foundations

When there are any further amendments or additions to be made to the application, the expenses for such amendments and additions will also be subject to VAT at the zero rate even in situations when the application for the building permit is rejected or the building has not been constructed after issuance of building permit.

VAT at the standard rate of 5% will apply on drawings not required by the municipality.

These rules are effective from 1 October 2020.

Read a September 2020 report [PDF 181 KB] prepared by the KPMG member firm in Bahrain

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