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Supply Under VAT

Supply Under VAT

What is Supply Under VAT?

Supply can be defined as a transferral of ownership of goods, or acquiring the right to use the goods as an owner. All supplies that are not considered to be a supply of goods are considered a supply of services.

Types of Supply

There are four different types of supply under VAT:

Supply of Goods
Selling of goods from one party to another, or the transferral of rights of ownership, is known as supply of goods.

Supply of Services
Supply that does not involve the selling of goods is known as supply of services.

Supplies Made or Received on Behalf of a Taxable Person
Supply in which a person manufactures or acquires goods on behalf of another taxable person falls into this category. In this case, the person receiving or making the supplies is considered to be the buyer and seller of the goods under the VAT Law of Bahrain.

Deemed Supplies
Goods and services that are made or given away for non-profit purposes are known as deemed supplies. A taxable person is said to be making or giving away deemed supplies if:

Components of Supply

There are three components of supply that are used to calculate the total amount of tax applicable on a transaction:

Place of Supply
The place of supply tells you whether the supply takes place inside the Kingdom of Bahrain or outside of it, for VAT purposes.

Place of Supply for Goods
The place of supply of goods is the Kingdom of Bahrain if:

Place of Supply for Services
If the registered supplier resides in the Kingdom, the place of supply will be the Kingdom. If a registered tax payer from another VAT-implementing state utilizes the services of a registered supplier from the Kingdom, then the place of supply for such services will be the place where the taxable customer resides.

Place of Supply for Other Services
The place of supply for services will be determined based on the following scenarios:

For the following services, the place of supply will be the location where the service takes place: 

Time of Supply
This component of supply determines when the tax due is payable and which tax period the transaction falls under.

VAT is due on the earliest of the following:

The time of supply of goods and services will be determined based on the following conditions:

Conditions Time of Supply
Goods sold under the supervision of the seller The date on which the goods were transferred
Goods sold without the supervision of the seller The date on which the consumer takes ownership
Goods that require separate assembly or installation The date on which the goods are assembled or installed

For general services, the time of supply will be determined as follows:

Primary and Secondary Services

There are two kinds of services of supplies that you should be familiar with, primary and secondary.

A primary service is the service that you actually want and are paying for. Any other service provided besides the primary service is a secondary service. You should note that both these services will have a separate time of supply which means that the time of supply of the primary service does not affect the time of supply of the secondary service.

For example, say you provide interior services to a customer and after the service is completed, the customer requests you for an alteration in the service. The first service that was completed will be the primary service and the alteration on the service will be the secondary service. The altered service will have a separate time of supply since it is considered to be a new service altogether.

Time of Supply of Primary and Secondary Services
After the implementation of the primary service, any other service that is provided will be considered to be a secondary service.

The time of supply for these additional services will not affect the primary services’ time of supply, i.e., the secondary service will have a separate time of supply.

The time of supply for goods and services that contain periodic payments or consecutive invoices will be the earliest of the following:

Value of Supply
The value of supply is the total amount of money that the seller collects from the consumer of the goods or services.

Determining the Value of Supply
The value of supply is calculated based on the total amount of payment due for the goods or services, exclusive of tax. This amount includes all expenses made, along with excise tax, but it does not include VAT.

The following sample situations illustrate how the value of supply is calculated:

The tax payer is allowed to calculate the value of supply on certain goods and services based on the profit margin mechanism, as long as it is approved by the Authority.

Amendments to the Value of Supply
Amendments can be made to the value of supply if:

Deemed Supplies

Deemed supply describes goods and services for which there is no remuneration received. These goods may be bought for business purposes, but are given away to the end consumer at no charge.

Goods and services are considered to be a deemed supply in any of the following cases:

Exceptions to Deemed Supplies

Composite Supplies

Goods and services are considered to be composite supplies if the two or more components that make up the sale of the product can be sold only as a set and not individually.

Principal Supply: The principal supply is the main component of the composite supply. This is the part of the product that the customer is mainly interested in, and the remaining part of the composite supply just adds an extra value to the product. Every composite supply has a principal supply.

For example, consider a mobile phone. Out of the box, you’d get cables, wall adapters, and sometimes, even a protective case. This is considered to be a composite supply, because these peripherals and accessories cannot be used without purchasing the mobile phone itself. Here, the mobile phone is the principal supply.

Mixed Supplies
Goods and services are considered to be mixed supplies if there are two or more products that are sold together, but can also be sold individually.

Supplies Made Through Agents
Suppliers who make or receive goods and services on behalf of a client, under their own name, will be considered to have made the goods or services themselves.

In the case where a supplier supplies goods and services under the name of and on behalf of a client, the supply will be considered to be made by the client, for tax purposes.

Disclosed Agents
Disclosed agents are suppliers who act on behalf of a client. Customers know that they are dealing with an authorized agent who is acting on behalf of the client.

Disclosed agents need the following documents to prove that they act on behalf of the client:

Transactions Between a Head Office and its Branches
Transactions that are carried out between a head office and its branches, or between two or more individual branches, will not be taxable since these transactions are considered to be within a single legal entity.

Disbursements and Reimbursements

A disbursement is a situation in which a person makes a payment on behalf of another person and later recovers the money.

For example, say your employer asks you to pay a supplier an amount of money. The client sends an invoice to your employer, you pay the invoice, and your employer refunds the amount you paid back to you. Because you are merely acting as an agent between your employer and the client, neither the payment you make nor the amount you recover from your employer falls within the scope of VAT.

Reimbursements of Expenses
A reimbursement occurs when a person makes a payment on behalf of another person, but is directly invoiced for it, making them a principal in the transaction.

For example, say you attend a meeting in another country for work purposes. The hotel invoices you directly for your stay, and you pay the invoice. In this situation, you can request a reimbursement from your employer. Because you are the person who is invoiced and hence, the payment and reimbursement fall within the scope of VAT.

Market Value
The market value of goods and services will be determined according to the fair price in the market, assuming a transaction between two independent parties on the same date as the time of supply.

The following free competition conditions apply:

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