KPMG in Bahrain provides comments on the implementation of VAT on 1 January 2019.
The government of the Kingdom of Bahrain has published the Value Added Tax (VAT) Decree-Law No. (48) in the official gazette. The Law was published after both the Shura Council and Parliament voted in favor of the VAT bill to be introduced on 1 January 2019 in line with GCC Unified Agreement for Value Added Tax (VAT).
The law governs the application of the Value Added Tax (VAT) in the Kingdom of Bahrain and it consists of 79 articles.
The Decree-Law covers the following VAT issues: tax scope and rate, supply, tax registration and deregistration, rules pertaining supplies, zero-rates and exemptions, calculation of due tax, tax period, tax returns, payment and reclaiming of tax, violations and penalties.
The following is a summary of key articles in the law:
Mandatory tax registration
The taxable person which is resident in the Kingdom, shall be required to register in the Kingdom for tax purposes in the following cases:
- If the value of the import or supply it performs in the Kingdom during the twelve months preceding the end of any month during the year exceeds the mandatory registration limit.
- If it is expected that the value of the import or supply operations it undertakes in the Kingdom during the next 12 months will be limited to the required registration limit.
- The person who is not resident in the Kingdom shall be required to register in the Kingdom for tax purposes regardless of the value of his supplies, as long as he is obliged to pay the tax in the Kingdom. He must either register directly or through the appointment of a tax representative after the approval of the Authority to act on behalf it with all the rights and obligations.
The mandatory registration threshold as outlined in the GCC Framework Agreement is SAR 375,000 or the equivalent in the local currency (i.e. BD 37,500)
- Two or more legal persons liable to register for tax purpose in the Kingdom may be registered as a single tax group upon their request and after the fulfillment of the conditions and procedures specified by the Regulations.
- All members of the tax group would be jointly liable for the tax liabilities of that group.
Place of Supply of Goods
The place of supply goods shall be in the Kingdom in the following cases:
- If the economic ownership of the goods is transferred to the customer in the Kingdom;
- If the goods are in the Kingdom at the time of their transfer or delivery in the cases of supply with the transport or transmission whether transferred or transmitted by the supplier or to the customer's account.
- If the installation or assembly of goods supplied has been in the Kingdom
Place of Supply of Services
- The place of supply of services is located in Bahrain if the supplier is a resident of Bahrain and where the customer is not a taxable person
- Where the customer is a registered taxable person in an implementing state, the place of supply of services would be in the customer's place of residence.
- Reverse charge would apply on imports of good into the country are applicable subject to an application being made and approved by the National Tax Authority.
Zero Rated Supplies
- Export of goods;
- Supply of goods to or within one of the outstanding conditions for customs duties stipulated in the unified customs law;
- Transport of passengers and goods from or to the Kingdom, which begins in the Kingdom or ends in or passes through its territory, and includes the services and supply of means of transport linked with it;
- Supply or import of medicines and medical equipment, in coordination with the concerned medical authorities in the Kingdom;
- Re-export of movable goods temporarily imported into the Kingdom for the operation, repair, maintenance or conversion and this included any services added to it;
- The supply of services from a taxable person resident in the Kingdom in favor of a customer who is not resident in the territory of the implementing countries and benefit;
- Supply or import of gold, silver and platinum investment (99% purity);
- First supply after extracting gold, silver and platinum for trade purposes;
- Supply and import of pearls;
- Domestic transport sector;
- Oil & gas sector;
- Supply of education services;
- Supply and import of food commodities, referred to Article )31( from the GCC Unified Agreement;
- Supplies that shall be exempt from tax are:
- Financial services;
- Supply of residential real estate through a lease contract;
- Import of Goods into the state, where the final destination of the goods is exempt from tax or subject to the tax at the zero rate;
- Import transactions of goods exempted from customs duties in accordance with the conditions and controls stipulated in the unified customs law (law), as follows:
a. Diplomatic exemptions
b. Military exemptions
c. Personal luggage and used household appliances brought by citizens residing abroad and foreigners coming to stay in the Kingdom for the first time
d. Goods returned
e. Personal luggage and gifts that are accompanied by passengers within the limits specified by the executive regulations of this law
f. Supplies for persons with special needs within the limits specified in the executive regulations of this law.
- For the purposes of the application of Article 76 of the law, a supply to a government entity may be subjected to a zero-rate should the contract be entered into before 31-Dec-2018. The zero-rate would be applicable until 2023.
- The evasion of the tax shall be punishable by imprisonment for a term not less than three years and not exceeding five years, and a fine not less than the amount of the tax due and not exceeding three times of the value of the tax due and they have to pay the due tax.
- The penalty provided for in the first paragraph shall be doubled in case of repetition of the crime within three years from the date of the final judgement to condemnation.
- Without prejudice to the criminal liability of the natural person, a legal person shall be punished criminally if any of the tax evasion offenses is committed in his name or for his account or for his benefit and shall be double the maximum of the fine prescribed in the first paragraph.
- Lawsuit of tax evasion are considered when referred to the courts as a matter of urgency. In all cases, the crime of tax evasion is considered as a crime against honor or integrity.
Some other important points that were highlighted include:
- This Decree-Law has been in the official gazette and shall be into effect on January 1, 2019.
- The Executive Regulations of this Decree-Law shall be issued after 15 days.