Bahrain: VAT rate increase to 10%; treatment of imports during one-year transitional period

“Frequently asked questions” (FAQs) clarifying application of the transitional rules on the import of goods and services

FAQs clarifying application of the transitional rules on the import of goods and services

The standard rate of value added tax (VAT) increased to 10% (from 5%) with a one-year transitional period, effective 1 January 2022.

Under the transitional rule, supplies made during 2022 pursuant to a contract signed on or before 23 December 2021 are subject to VAT at a rate of 5% until the contract expires, is renewed or is amended (whichever is earliest).

Initial guidance issued by the National Bureau for Revenue (NBR) covered supplies of goods and services made during the transitional period. No specific guidance was previously available regarding application of the transitional rules on imports of goods and services. The NBR updated a set of “frequently asked questions” (FAQs) clarifying application of the transitional rules on the import of goods and services.

The updated FAQs (17.3, 17.4 and 17.5) clarify that the VAT rate of 5% will continue to apply on imports of goods and services made on or after 1 January 2022 under contracts signed on or before 23 December 2021, until the earlier of 31 December 2022 or when there is a change in the contract.

Import of goods

Date of pre-clearance

Date of release from customs

Applicable VAT rate

KPMG observation

On or before 23 December 2021

On or before 31 December 2021

5%

No additional information to be submitted to the NBR.

On or before 23 December 2021

On or after 1 January 2022

5%

On or after 24 December 2021

On or before 31 December 2021

5%

On or after 24 December 2021 and on or before 31 December 2021

On or after 1 January 2022

5%

This will apply if the import is under a contract* with the overseas supplier dated 23 December 2021 or earlier.

Importers may be required to submit a copy of contract with the overseas supplier to the NBR.

On or after 24 December 2021 and on or before 31 December 2021

On or after 1 January 2022

10%

This will apply when the importer cannot provide sufficient evidence that the import relates to contracts signed on or before 23 December 2021.

Payment of additional VAT

VAT registered importers – Declaration to be made in the VAT return for the period in which the goods are released. NBR to release additional guidance on the declaration mechanism.

Non-VAT registered importers – Email must be sent to vatpayment@nbr.gov.bh along with a copy of the customs declaration and receipt.

*For guidance on what will be considered as a contract, refer to FAQ 17.7 on the NBR portal.

Import of services

Imports of services must be accounted for under the reverse-charge mechanism which entails an output VAT obligation with a corresponding input VAT recovery (subject to input tax recovery rules).

The transitional rate of 5% will apply (unless the service is zero-rated or exempt from VAT) on services imported during 2022 calendar year under contracts signed on or before 23 December 2021 until the expiration, renewal or amendment of the contract, whichever is earliest. For services imported during the 2022 calendar year under contracts signed on or after 24 December 2021, the VAT rate of 10% will apply.

Businesses in Bahrain that receive services from non-resident suppliers will need to segregate invoices for such services to prove that the correct rate of VAT has been applied on these transactions.

Read a January 2022 report [PDF 118 KB] prepared by the KPMG member firm in Bahrain

 

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