Bahrain: Reimbursements subject to VAT and non-taxable disbursements

Bahrain: Reimbursements subject to VAT

The National Bureau for Revenue issued guidelines for purposes of determining whether a transaction is a taxable reimbursement or a non-taxable disbursement for value added tax (VAT) purposes.


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Under the VAT regulations in Bahrain, when an expense is incurred directly by a business in the course of making supplies to its customer, the expense generally is to be treated as a reimbursement subject to VAT.

However, when a third party provides the supply directly to a customer but a business pays the amount to the third party on the customer’s behalf, both the payment to the third party and the repayment by the customer are disbursements and, therefore, outside the scope of VAT. Thus, the regulations recognize that many businesses incur expenses on behalf of their customers as well as related parties.

Under the guidance issued by the tax authority, in order to determine whether a transaction is a taxable reimbursement or a non-taxable disbursement, a taxable person must consider the following:

  • Does the taxable person contract with the supplier in its own name or is the contract between the supplier and the other person?
  • Is the taxable person considered as having received the goods or the services from the supplier?
  • Who is legally liable to pay the supplier (i.e., in default of payment, from whom does the supplier collect)?
  • Who is the “bill to” person on the invoice issued by the supplier? Is the invoice issued in “care of” the taxable person?
  • Does the taxable person record the payment to the supplier as an expense and the refund from the customer as income in its profit and loss account, or does the taxable person simply record a receivable in his balance sheet which is credited when the refund is received?

KPMG observation

The guidance may seem straightforward, but in practice not all situations are clear-cut, and questions often arise as to whether VAT is to be charged at the standard rate or zero rate or whether the supply is to be treated as an exempt supply.


Read an October 2020 report [PDF 258 KB] prepared by the KPMG member firm in Bahrain

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