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Transition to VAT

Transition to VAT

Since this is the first form of taxation in Bahrain, most of the concepts may seem complex and unfamiliar. To help clear things up, we’ll be explaining the different transitional provisions for VAT that have been prescribed by the National Bureau for Revenue (NBR). In this guide, you will be reading about:

Transitional provisions for the supply of goods and services

The NBR of Bahrain has issued the following transitional provisions for the supply of goods and services:

Transitional provisions for contracts

For contracts that have been signed with and without the Government, the NBR has issued separate transitional provisions as follows:

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

Implementing states

An implementing state according to VAT law is a GCC member state that has implemented VAT throughout the country, abiding by the official VAT framework. Supplies that are moved between different implementing states are called intra-GCC supplies. Until the Electronic Service System for VAT is up and running, these intra-GCC supplies will be treated as imports and exports.

GCC member states that have not implemented VAT yet are called non-implementing states. Moving supplies between and implementing and a non-implementing state is considered a transaction with a state outside of the VAT Council’s region.

Continuous supplies

A transaction in which goods and/or services are repeatedly supplied to a particular buyer is called a continuous supply. This type of supply is usually done with a contract that specifies details like the cost, frequency, and amount of the supply. The transition to VAT has clashed with the dates of several contracts, meaning part of the contract has been completed before VAT implementation and the rest is applicable to VAT. The transitional provisions for cases like this state that VAT only needs to be charged for the services performed during the VAT period.

For example, consider a maintenance service contract from July 2018 to July 2019. Part of the services of the contract were done before VAT was introduced, and the remaining services were done after VAT. Under the transitional provisions, only the services performed after the implementation of VAT are required to be taxed at the rate of 5%.

As per the latest update by the National Bureau for Revenue, the VAT rate has increased from 5% to 10%. Along with this VAT increase that is effective from January 1, 2022, new transitional provisions have been introduced. These provisions will permit businesses to continue with 5% VAT for a certain period, provided that the conditions listed are fulfilled.


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