Know everything about the transition to VAT in Bahrain: FAQs

What are the transitional provisions under VAT?

Transitional provisions are rules specified by the NBR to help taxpayers with the transition to VAT. The NBR has provided transitional provisions for imports, supply of goods and services that took place after the VAT law came into effect. Transitional provisions are also applicable for contracts signed before 1st of January, 2019.

What are the transitional provisions for supplies of goods and services?

• The date of supply for supplies of goods and services will be treated as after 1st of January, 2019 when:

  • Goods are delivered after 1st of January, 2019.

  • Services are completed after 1st of January, 2019.

• Supplies that are delivered after the 1st of January, 2019 or after the date of registration are taxable, regardless of whether the corresponding invoices and/or payments were approved before those dates.

• If the invoice issued for a supply does not include any tax amount, then the supplier must issue a separate tax invoice including the tax amount to be paid.

What are the transitional provisions for contracts that were signed with the Government before the implementation of VAT?

Supplies listed in contracts signed with the Government before 1st of January, 2019, that would normally be taxed at the standard rate of VAT, are instead taxed at the zero rate. All government contracts will remain zero-rated until they are renewed or until the 31st of December 2023, whichever comes first. Any changes made to the contract will also be considered a renewal.

What are the transitional provisions for contracts that have been signed with entities other than the Government, before the implementation of VAT?

Supplies mentioned in contracts that have been signed with entities other than the Government are taxed at the standard rate of VAT from 1st of January, 2019. If the contract states that the amount to be paid is exclusive of tax, then the supplier may go ahead and collect VAT. If the contract does not state anything related to VAT, then the supplier can either collect VAT if the other party is registered, or consider the amount mentioned in the contract to be inclusive of tax.

The following formula can be used to calculate the amount of VAT to be paid for a tax-inclusive supply, when it is subject to 5% VAT: Amount of VAT (5%) = Total amount to be paid for the supply/21

What is an implementing state?

When a GCC member state has implemented VAT nationwide, in compliance with the official VAT framework, it is called an implementing state. Supplies made between implementing states are called intra-GCC supplies, and will be treated as import or export supplies until the Electronic Service System under VAT law is ready to be used.

A GCC member state that has not implemented VAT is called a non-implementing state. Any supplies supplied to or received from non-implementing states are considered transactions with states outside of the Council’s territory.

What is a continuous supply? How is it affected by the transition to VAT?

A continuous supply is a supply of goods and/or services that is repeatedly provided or on a periodic basis. A continuous supply is only considered complete when the contract comes to an end, or one party involved in the contract decides to end it.

Suppose that a one-year maintenance service contract is signed in July 2018 and ends in July 2019. This means that a part of the services are done before VAT has been implemented, and the rest is done after. Therefore VAT needs to be charged for the services done between the 1st of January, 2019 to the last date of the contract in July 2019.