Since January 01, 2022, the Government of Bahrain changed the VAT rate from five percent to 10 percent on standard-rated supplies in Bahrain. Before proceeding, it’s important to know that impact of the VAT rate change would be only on the existing standard-rated supplies.
(1) Supplies made before the effective date
If the standard-rated goods or services have been supplied before the effective date of the VAT rate change, which is January 01, 2022 (‘effective date’), then five percent VAT would be applicable on such supplies. It doesn’t matter that invoice has been issued after the effective date and/or amount has been received after the effective date of the applicable changes.
(2) Supplies made after the effective date
If the standard-rated supplies are being made after the effective date, then businesses will be required to assess the contract signing date related to those supplies.
(i) Contract signed before the enforcement date
Where the contract was signed before the Law enforcement date which is December 24, 2021 (‘enforcement date’), supplies are being made after the effective date and there is no amendment in the contract, then registered businesses will keep applying five percent till December 31, 2022, and after that VAT rate would be 10 percent on such standard-rated supplies. However, if the contract has been amended or renewed any time after the enforcement date, then 10 percent VAT would be applicable on all standard-rated supplies supplied after the amendment or renewal date of the contract.
Amendment in the contract includes extending duration, additional supplies, and increasing consideration payable. Other changes like the method of delivery which do not impact the original timing, consideration, or quantum of supplies to be made, will generally not be regarded as a change or amendment for the purposes of the transitional rules.
(ii) Contract signed on or after enforcement date and before the effective date
Where the contract was signed on or after the enforcement date and before the effective date, then it’s important to identify, the supplier is making the continuous supply of one-off supply. Continuous supply means a supply on an ongoing basis over a period of time which may involve periodic payments of consideration or the issue of multiple invoices, and one-off supply is a supply made typically at a point in time that is not a continuous supply.
Standard-rated continuous supplies will attract a VAT rate of 10 percent. One-office supplies where suppliers have not received any advance from the customers and/or issued tax invoices in their name between the enforcement date and effective date will also be subject to VAT of 10 percent on the due date. However, if the supplier, has received an advance and/or issued an invoice during this period in the name of the customer for a one-off supply, then the supplier will be liable to report the VAT at the rate of 10 percent in December 2021 Return. Where numbers were reported based on the advance received only, then the supplier will be liable to issue a VAT invoice showing VAT at 10 percent maximum by the 15th day of the following month. i.e.; January 15, 2022.
In the cases where continuous supplies are falling between two certain periods with two different VAT rates, then NBR will be required proper evidence of valuation for each period. NBR expects that the valuation methodology will be that normally used by the VAT payer. If a different methodology has been used, the VAT payer will need to demonstrate that it was not used to reduce or minimize the VAT payable under the contract
(iii) Contract signed on or after the effective date
Where supply is being made and the contract has been signed on or after the effective date, then normal VAT rules will apply and every standard rated supply would attract 10 percent VAT.
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