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.
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:
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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