GCC Indirect Tax Weekly Digest
January 7, 2019
Bahrain has become the third Gulf Cooperation Council (GCC) country to implement Value Added Tax (VAT). On 1 January 2019, the Bahrain VAT Law and Regulations (collectively the ‘Bahrain VAT legislation’) came into effect. All businesses making taxable supplies in Bahrain are now required to be fully compliant with the VAT legislation.
MoIC begins conducting inspections of businesses
The Bahrain Ministry of Industry, Commerce and Tourism (MoIC) announced that it is actively carrying out intensive inspections of businesses all over Bahrain. Businesses are being monitored to ensure that VAT is applied correctly. The MoIC explicitly stated that penalties for violations include fines, closures, and referral to the Public Prosecution office.
The Bahrain government has adopted a comparatively more severe penalty regime than the other GCC countries that have already implemented VAT.
As per Article 64 of the Bahrain VAT Law, tax evasion will be punished by imprisonment for not less than three years, in addition to significant financial penalties. Article 63 of the Bahrain VAT Law, which lists the acts considered tax evasion, includes the following:
- Failure to apply for registration within 60 days of the applicable deadline;
- Failure to submit a tax return or pay the tax due within 60 days of the applicable deadline;
- Violating the rules of deduction for input tax;
- Incorrectly obtaining a tax refund in whole or in part while being aware of it;
- Providing artificial records or invoices with the intention of avoiding payment of tax;
- Not issuing tax invoices where required by the Bahrain VAT Law;
- Applying VAT on non-taxable supplies; and
- Failing to maintain records and tax invoices.
Further, as per Article 60 of the Bahrain VAT Law, an administrative penalty not exceeding 5,000 BHD will be imposed for acts such as failing to comply with the conditions and procedures for issuing a tax invoice, or ‘breaching any other provision of the VAT Law or the Regulations.’
NBT publishes VAT registration guide
The National Bureau for Taxation (NBT) has published the Bahrain VAT registration guide. The guide provides an overview of the rules relating to VAT registration in Bahrain, action required by businesses to comply with these rules, and guidance on how to complete the VAT registration application.
The guide addresses the definition of a taxable person, and provides criteria for determining if an entity meets the definition. Further, it provides guidance on the conditions for mandatory and voluntary VAT registration, with a breakdown of the deadlines for businesses obligated to register based on the value of their annual supplies.
As discussed in the previous section, the NBT will apply significant financial and criminal penalties for non-compliance with the VAT registration rules, and thus businesses should ensure they are fully aware of their obligations.
Customs Affairs announces personal imports/gifts exemption threshold
According to Bahrain News Agency, Bahrain Customs Affairs, which is coordinating with the NBT, has announced that personal imports and gifts for individuals with a value of less than 300 BHD will be exempt from VAT.
The announcement should be read in conjunction with Article 83(A) of the Bahrain VAT Regulations, which specifies the conditions for the exemption of personal imports.
Cabinet approves MOFNE memorandum exempting 1,400 government services
According to the Bahrain News Agency, the Cabinet has approved a memorandum submitted by the Ministry of Finance and National Economy exempting 1,400 government services from VAT.
Further information regarding which specific government services are to be exempted, and from which date, is not yet available.
KSA GAZT publications
This guide provides further clarity to suppliers of telecommunications services. It provides further detail and examples on the definition of telecommunications and electronic services, and includes sections on, the practical application of the place of supply rules for telecommunications and electronic services, applying VAT on services provided to non-residents, promotional issues, the treatment of vouchers, date of supply rules, and the importation of goods.
The telecommunications industry’s offerings commonly include bundled supplies composed of both goods and services components (commonly referred to as ‘composite supplies’), which may affect their VAT treatment. The new telecommunications guide provides commentary on important factors to differentiate a composite supply from a single supply (a distinct supply of either goods or services), and considers this in the context of special cases such as carrier billing.
Electricity and utilities guideline
This guide includes VAT details relevant to suppliers in the electricity and utilities industry. It includes sections on place of supply rules for supplies of electricity, gas, oil, or water through a pipeline distribution system; imports and exports via a distribution system; VAT treatment for the local electricity generation sector; common issues in distribution and retail utility contracts (such as discounts, adjustments security deposits, and bad debts).
Moreover, the guide summarizes the place and time of supply rules particular to supplies common in the electricity and utilities industry. The guide also addresses common arrangements in the local electricity sector and their VAT implications in KSA.
Recreation and entertainment guideline
This guide addresses topics relevant to suppliers of recreation and entertainment services, including place of supply rules, the treatment of entry and attendance fees, special cases (e.g., for sports clubs, sponsorship and advertising, donations, among other cases), and the treatment for hotels, restaurants and catering services.
The guide is useful for suppliers in the recreation and entertainment industry, in order to have additional clarity with respect to the VAT obligations of their activities, especially as many recreation and entertainment services fall under a special case treatment in terms of place of supply rules, catering services in various venues have practices not common in other industries (e.g., the receipt of tips), and hotels may be involved with hotel operators in agent-principal relationships affecting the VAT treatment of their supplies.
This digest is for information purposes only and should not be construed as advice. It does not necessarily cover every aspect of the topics with which it deals. You should not act upon the contents of this alert without receiving formal advice on your particular circumstances.