Following extraordinary sessions held at both the lower and upper houses of the Bahrain National Assembly on Sunday and yesterday respectively, the Council of Ministers and the Shura Council have approved the bills for the unified GCC VAT Agreement and the draft VAT law.  The law establishing Bahrain tax authority, the National Agency for Gulf Taxes, has been approved. The draft VAT law has also been published in Arabic.

VAT will be imposed in Bahrain at the standard rate of 5% in accordance with the unified GCC VAT Agreement effective from 1 January 2019, making Bahrain the third GCC country to implement VAT after the UAE and KSA.

According to the draft VAT law, the VAT regulations, which are expected to contain the detailed application of the law, will be published within 15 days of the effective date of the law (i.e. by 15 January 2019).

Key Features of the Bahrain VAT system

Under the draft VAT law, the key features of the VAT regime in Bahrain are as follows:

VAT Registration – The mandatory and voluntary registration thresholds in Bahrain are based on the unified GCC VAT Agreement.  Companies that exclusively make zero rated supplies may be excepted from the requirement to register.  Every company or person carrying on an economic activity in Bahrain will have to estimate their expected annual revenue starting from 1 January 2019 to determine if they are required to register.  The registration timetable will be based on the value of taxable supplies with larger taxpayers required to register first.  The detailed timetable will be announced shortly.

Zero rated supplies – Bahrain has followed the UAE’s approach with a wide list of supplies that will be zero rated.  The export of goods and services, international transportation of goods and passengers, the supply of investment grade precious metals, the supply of specified medicine and medical equipment were required to be zero rated under the unified GCC VAT Agreement. In addition, Bahrain will also be zero rating preventative healthcare services, supply of pearls and precious stones, construction of new buildings, education services, local transport services.  Unlike the UAE and KSA, Bahrain will also zero rate 94 items of food in accordance with the unified GCC VAT Agreement.

Exempt Supplies – Similar to the UAE and KSA, Bahrain will exempt the supply of margin based financial services as well as the supply of bare land.

Government supplies – Supplies by the government will be taxable unless they are in its capacity as a public authority.

VAT Group – Will allow companies in the same group to register as a tax group enabling a single company to file a VAT return for the entire group.

VAT Returns – VAT returns will be required to be submitted within a month following the end of a tax period which will be a minimum of one month.

Books and Records – Are required to be maintained.

What do businesses in Bahrain need to do?

Based on our experience of assisting clients with VAT implementation in the UAE and KSA, businesses typically require between three and six months in order to be ready for VAT.  Given that there is less than three months remaining for the implementation of VAT in Bahrain, businesses should begin their preparation for VAT immediately.  The key areas that you need to focus on to implement VAT within your business are as follows:

1. Project Plan: budget for VAT implementation (e.g. consultants, training, resources, IT systems), set up VAT steering committee and assign responsibilities
2. Raise Awareness: educate and train employees on impact of VAT on accounting and reporting processes
3. VAT Impact Assessment:  undertake VAT impact assessment, assess transitional provisions and classify and map VAT treatment of all business transactions
4. Cash flow: assess cash flow impact and working capital requirements
5. IT Systems: analyse existing accounting systems capability for VAT reporting and consider upgrade or new system
6. Pricing: consider impact of VAT on pricing and demand
7. Contracts:  review current contracts with suppliers and customers and include VAT clauses in new contracts
8. Processes:  determine changes required to existing accounts payable processes and documentation including invoices and record keeping
9. Customer & Supplier Management: communicate with existing suppliers and customers to notify them of impact of VAT and negotiate with new suppliers and customers
10. Compliance:  establish whether required or able to register for VAT and register on time

As the largest law firm in the Middle East and with strong VAT expertise and significant experience of VAT implementation in both the UAE and the Kingdom of Saudi Arabia, across all industry sectors, Al Tamimi & Company is well placed to assess the impact of VAT on your organisation and assist you with all VAT requirements in Bahrain.

Please click here to access an introduction to VAT Implementation in Bahrain and our wider VAT offering.

Please do not hesitate to contact Al Tamimi’s Tax Team if you require any assistance.