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GCC framework ‘provides roadmap for VAT in Bahrain’

MANAMA, April 26, 2017

The release of the unified agreement for value-added tax (VAT) for the Gulf Cooperation Council (GCC) countries by Saudi Arabia paves the way for the implementation of VAT in 2018, said an expert.

It also provides companies in Bahrain with a sufficiently detailed framework to start preparation for VAT in 2018, manage risks and capture optimisation opportunities, said Philippe Norré, head of indirect taxes at KPMG in Bahrain.

In principle, VAT will be levied on the supply of goods and services at a standard rate of 5 per cent.  Certain supplies of goods and services are to be zero-rated or VAT exempt (not taxable but also with no right to recover VAT paid). Based on the Framework Agreement, each GCC member state (including Bahrain) will now need to issue its own domestic legislation to locally implement VAT.

Norré also anticipates that the government of Bahrain, having already prepared draft texts, will release its local law on VAT in time for implementation in 2018. This legislation will provide details on how Bahrain will interpret the GCC framework and deal with key matters where it has discretion.

These will include whether to treat certain supplies as zero-rated or VAT exempt.  The local law will include details on the conditions for VAT deductions, VAT grouping, transactions assimilated with taxable supplies, record and reporting requirements and further definitions to enable a correct VAT treatment by companies of their supplies and overall business environment.

“VAT will impact all businesses in Bahrain and outside Bahrain, either directly or indirectly. Today, companies need to think carefully about their procurement processes, operating models, customer and suppliers' alignment, legal structure and systems to be well prepared for this significant development that is set to change the business landscape. But the upcoming changes not only raise a need for risk management, they also allow companies to implement steps around cost, process and systems optimization", Norré added.

It is possible that VAT may increase the cost of doing business but revenues gained from VAT will be re-invested back into the economy and support long-term development. Bahrain has long been considered an attractive low-tax environment, especially for businesses looking to invest in the GCC region. Generally, the introduction of a broad based consumption tax at a low rate is not expected to deter investment into Bahrain, or the GCC region, he said. – TradeArabia News Service
 




Tags: Saudi Arabia | Bahrain | VAT |

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