01-Jan-2022 Bahrain VAT Rate increased to 10%

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Value Added Tax was introduced in the Kingdom of Bahrain in 2019 at a standard rate of 5% on all supplies and imports, with the exception of supplies that are subject to VAT at the zero-rate or exempt from VAT.

Introduction:

With effect from 1 January 2022, the standard rate of VAT will be changed to 10%.   

 

For the purposes of applying the transitional provisions, the two following dates should be taken into consideration: 

1. Law Enforcement Date:  the enforcement date mentioned in the Amended VAT Law published in the Official Gazette, which is 24 December 2021. 

2. Effective Date of the VAT rate change:  the date on which the new VAT rate will be effective, which is 1 January 2022.   

 

In general: 

  1. VAT at 5% will apply on standard rated supplies made before 1 January 2022.
  2. VAT at 10% will apply on standard rated supplies made on or after 1 January 2022.
  3. VAT at 5% will apply on standard rated imports made before 1 January 2022. 
  4. VAT at 10% will apply on standard rated imports made on or after 1 January 2022.
  5.  

Supplies are categorized into two parts i.e. One-Off Supplies and Continuous Supplies for applicability of Transitional Rules. Below is the tabular chart easy understanding of Transitional VAT Rate.

 

 One-off supplies

Contract entered intoDate of SupplyVAT Rate
Before 24th December 20211st January to 31st December 20225%*
On or after 24th December 2021On or after 1st January 202210%**

*If, however, changes are made to the contract before the supply is made, or if the supply is made on or after 1 January 2023, Transitional Rule 1 will not apply, and the supply will be subject to VAT at 10%. 

**If the supplier issues a VAT invoice before 1 January 2022, he should account for VAT at 10% on the invoice. Where the supplier receives consideration for the supply before 1January 2022, he should account for VAT at 10% on this consideration.  He should also issue a VAT invoice showing VAT at 10% by the 15th day of the month following that in which he received the consideration.

 

Continuous supplies

Contract entered intoDate of SupplyVAT Rate
Before 24th December 2021Upto to 31st December 20225%*
On or after 24th December 2021On or after 1st January 202310%**

*If a contract entered into before 24 December 2021 is changed or renewed after that date, then 10% VAT Rate will apply on the supplies made on or after the contract is amended / renewed.

**VAT at 5% will apply on the value of goods and services delivered before 1 January 2022; VAT at 10% will apply on the value of goods and services delivered on or after 1 January 2022.

 

Supplies which are subject to the zero-rate (e.g. basic food, construction of new buildings, oil and gas, healthcare, and education) or exempt from VAT (e.g. real estate and certain financial services) will be unaffected. The zero-rate or exemption will continue to apply to these supplies in the normal manner.

 

What is the meaning of Change / amended to the Contract as per Transitional Rules?

For the purposes of these transitional rules, a contract will be regarded as having been changed or amended where a change to the contract terms results in the supplies or consideration being subject to VAT at 5% instead of 10%. This includes, but is not limited to:

 

1. Extending the duration of the contract so it applies to additional goods and/or services;

2. Including additional supplies of goods and/or services within the terms of the contract; and

3. Increasing the consideration payable under a contract which would otherwise qualify 10% of VAT

 

Further NBR has also stated that changes which do not impact the contract like other changes (e.g.  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.

 

Based on the above discussions Taxpayers has to make necessary changes in there accounting system / ERP to adhere to the transitional rules for change in VAT Rate within a very limited time period.

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