This article is written by Vikas Panchal, Business Head at Tally Solutions in the Middle East, a leading international accounting and compliance software provider.
Bahrain introduced a 5% value-added tax (VAT) in the Kingdom from January 1st, 2019.
The tax registration in the country is split across phases and requires businesses to enrol across each phase based on their threshold. As such, the larger businesses with annual supplies exceeding BHD 5,000,000 ($13.25 million) are mandated to register in the first phase, whereas businesses with the annual supplies value exceeding BHD 500,000 ($1.32 million) are mandated to register in the second phase.
Similarly, businesses whose annual supplies exceeds BHD 37,500 ($99,375) are mandated to register in the third phase. In addition, voluntary VAT registration is available for businesses even if the annual supplies are less than the mandated registration threshold limit. While it is voluntary, and entrepreneurs can register if their annual supplies exceed BHD 18,750 ($49,687). Benefits of registering under VAT are immense and it is recommended that businesses that have not yet enrolled, start immediately to assess the impact of tax on their operations.
Upon registering under VAT, businesses are given a VAT number which can be displayed on invoices, letterheads, websites and other forms of business stationery. While early registrations help businesses add VAT to the sale price of goods and services when they sell to commercial and non-commercial consumers, it can also help in claiming the Input VAT – a mechanism by which a VAT registered business can deduct input tax from the output tax for a period and remit the balance tax payable to the National Bureau for Revenue.
VAT is a simple process, and The National Bureau for Revenue (NBR) has introduced several knowledge and process guides to make registration seamless and accurate. As such, with the help of NBR, early registered businesses can prepare well in advance and ensure that the process is completed easily, eliminating the risk for unnecessary delays, and incorrect information, which may lead to hefty fines or rejection.
Most businesses in the UAE that started their VAT planning and implementation projects early fared much better and had a seamless transition to VAT. The UAE’s experience in implementing VAT has not only offered progressive learnings but also set a framework for others to adopt and implement. One of the key take-away’s has been the country’s constant efforts to educate the citizens on VAT and its processes through workshops and seminars. This not only encouraged businesses to adopt the new law but also offered a clear understanding of the new tax regimen.
In addition, most businesses in the UAE turned to tax and financial experts to make informed choices about VAT. With digital being the core focus of the new VAT system, businesses had an opportunity to update their manual operations and transition to an automated, accurate and transparent accounting system.
While it is clear that uncertainties will exist around the VAT implementation, together with the experience of the UAE and Saudi Arabia, there is a lot that businesses can do to prepare well. Adapting automated solutions is the first step to simplify tax compliance and determine the path to successful implementation of the law. VAT is a part of business and not an underlying force that manages the operations. As such, it is recommended that businesses assess their IT infrastructure and system capabilities to ensure that all aspects of VAT compliance are well addressed.
The businesses can refer to the below due dates to register under VAT in a timely and orderly manner.