GCC Indirect Tax Weekly Digest

Bahrain developments

NBR publishes manual on simplified VAT returns

The Bahrain National Bureau for Revenue (NBR) has published a manual on simplified Value Added Tax (VAT) returns.

The publication of the manual follows the NBR’s announcement earlier in the year that taxable persons with annual supplies of less than BHD 100,000 and who are not registered as part of a VAT group will be able to request to file a simplified VAT return, which may be due for filing on a monthly, quarterly, or annual filing period.

The manual specifies the process for requesting to file a simplified VAT return in the NBR portal, as well as the procedure for filing the simplified return. In addition, the manual provides example scenarios to illustrate how the simplified VAT return should be completed, and a frequently asked questions section to further clarify the process.

Eligible businesses may be able to streamline their VAT reporting process by utilizing the option to file simplified VAT returns.

COVID-19 Indirect Tax Management

Cash generation: Efficient input tax recovery and output tax deferral

Michael Camburn
Partner, Indirect Tax
Kingdom of Saudi Arabia & Kingdom of Bahrain Indirect Tax leader

This short blog looks at how you can improve your cash flow through managing your VAT efficiently. No laws will be harmed in this respect and all VAT will be accounted for on time. So what’s the point?

In a simple world far removed from VAT, accounting systems operate on a debit and credit basis, with entries being booked as and when invoices are generally issued or received with payments and collections following in line with the agreed commercial terms. The complications arise with, what can be, complex governance and sign-off procedures around both areas.

If we now consider a world where VAT needs to be applied to transactions, things become challenging. The requirement to remit VAT will apply in most commercial transactions whereby on the AR side of things, the existence of a tax point on the invoice means that the business will need to pay over the VAT typically no later than, at the most, 60 days after the invoice is issued (consider 1 April – 31 May). If the customer hasn’t paid within this time period, it is still a requirement for the supplier to have to account for the VAT.  Unfair that it may be, but unless the business is using a cash accounting scheme (typically for smaller taxpayers and not available in all jurisdictions), then the VAT needs to be paid over to the tax authorities. If we look at AP, then the question similarly arises as to whether VAT is being recovered optimally due to the governance processes that may be in place at the business.

What to do? On AR, is it possible to delay the issuance of an invoice, even by a few days to take the invoice into the next VAT return period, thus buying an additional 30 days of ‘credit’ before the VAT needs to be paid over? Would it perhaps be possible not to issue a tax invoice up until such time that the amount has been paid and use the receipt of the cash to inform the tax point.  Turning to AP, are you sure that when an invoice is received it’s immediately booked into the ERP and the VAT ledger so it can qualify for VAT recovery as soon as possible? Or is the invoice parked in someone’s in-tray, awaiting a magnificent stamp and seal of approval to be applied? Is the cut-off date for month-end processing perhaps too early from a VAT perspective? Could you consider a possible accrual where you can reasonably estimate how much VAT is not being recovered and enter it onto the VAT return?

There is quite a bit that can be done to improve cash flows from a VAT perspective and to minimize the burden on capital requirements and liquidity during these challenging times. This short article highlights the art of the possible in given circumstances.

Focus on: The Energy, Resources and Industrials industry

James Hill
Director, Indirect Tax
GCC Indirect Tax ER&I industry leader

Many Taxpayers in the Energy, Resources, and Industrials (ER&I) industry utilize a wide range of VAT reliefs on their supplies of goods and services. For example, applying the zero-rate rate to exports, international transportation services, oil and gas, etc. as well as benefiting from a domestic reverse charge on qualifying supplies of hydrocarbons and special rules for the supplies of goods made within Designated Zone. This means that many taxpayers find themselves in regular repayment positions due to the input tax exceeding output tax in their VAT returns.

To date many Taxpayers have been hesitant to request a cash refund of the net VAT due from the Federal Tax Authority in order to minimise the likelihood of a VAT audit.  However, given the current economic situation and the fact that many Taxpayers have built up a large cash refund position, Taxpayers should seriously consider requesting a refund from the FTA in the coming weeks. 

It is normal for the FTA to ask questions and request sample documentation when reviewing a refund request.  Therefore, Taxpayers need to be adequately prepared and spend time reviewing the backing data and documentation before a submission is made to the FTA, obtaining expert opinion and support if required.  Although this may result in a small amount of administrative time and cost, the additional cash injection from the VAT refund could be extremely welcome in these challenging times. 

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.