Source gov.bh
NBR issued a FAQ on the transitional measures related to the VAT rate increase from 5 to 10% per Jan 1, 2022
7. Transitional provisions relating to the adjustment of the basic ratio of value Added
17.1 What are the recent changes to the value added applied in the Kingdom of Bahrain?
The basic percentage of value added has been changed from 5% to 10% effective January 1, 2022.
This change will not have an impact on supplies that are zero-rated (such as basic food commodities, new building construction, oil and gas, healthcare and education) or that are exempt from value-added (such as real estate and some financial services), but will continue to apply the zero-rate or exemption. .
17.2. What is the effect of changing the percentage of value added?
Effective January 1, 2022, supplies of goods or services made on or after January 1, 2022 will be subject to 10% value added, unless the supply is zero-rated, exempt or falls within the transitional provisions set out below.
(Please refer to the Transitional Provisions Guide to Adjusting the Basic Ratio of Value Added for more information)
17.3. Does the new value added percentage affect the import of goods and services?
Yes, the value added of 10% is applied to the import of goods as of January 1, 2022 unless the supply of those goods is subject to the zero-rate or exempt from value added. The value added of 5% shall be applied to the import of goods before January 1, 2022, unless it is subject to the zero percent rate or is exempt from value added.
The value added of 10% shall also be applied to the import of services as of January 1, 2022, unless the supply of those services is subject to the zero-rate or exempt from value added. As of that date, persons registered for value added purposes must apply the 10% reverse charge mechanism to the import of these services.
17.4. What is the value added treatment for supplies made before January 1, 2022?
The 5% value added will apply to any supply subject to the standard rate added value that takes place before January 1, 2022, even if a value-added invoice has been issued or the amount due for these supplies has been paid on or after January 1, 2022.
17.5 What is a contract for the purposes of transitional provisions?
Any binding written agreement based on an offer that was subsequently accepted, and which has the legal effect of supplying goods or services at an agreed price (including in cases where the price is determined on the basis of a specific formula or where the price is variable due to stated reasons such as early payment for example).
The electronic signature of one or more parties will be accepted in the case of contracts that require the signature of all parties in order to be valid.
In addition to the above, each of the following will be considered a contract for the purposes of the transitional provisions:
- A value-added invoice that has been paid in full or in part. The contract date for purposes of transitional provisions will be the later date between the invoice date and the payment receipt date.
- A written or electronic purchase order (for example by e-mail) that has been accepted by the supplier in writing or by electronic means, or has been paid in full or in part, and the purchase order must be dated and include details of the goods or services to be supplied and the consideration must appear payable. The contract date for the purpose of transitional provisions will be the later date between the date the purchase order is issued and the date either payment is accepted or payment is received (in full or in part).
- Other documents that clearly show an offer and acceptance whereby one party becomes obligated to supply certain goods or services to another party (ie the supplier and the customer) for a specified consideration.
In general, framework or master agreements that do not reflect the parties reaching a final agreement on all matters, such as consideration to be paid or an obligation to supply goods or services, will not be considered a contract for the purposes of transitional provisions. For example, the following will not be considered contracts for the purposes of transitional provisions:
- A master supply agreement that specifies the terms and conditions for the supply of particular goods or services such as pricing and delivery agreements, but requires a purchase order (or other agreed document or procedure) for each actual supply of goods or services, to be fulfilled. In this case, the contract will only arise when a purchase order is issued and accepted and the contract date will be the date the purchase order is issued or accepted (if later)
- An agreement that includes provisions that allow the customer to choose from a list of goods or services without specifying a major component of the supply, such as consideration to be paid, quantity of goods or services, etc. In such a case, the contract will only arise when the parties agree on the missing major component and the contract date in this case is the date of agreement on the major component.
17.6. What is considered a “contract modification”?
It is important to consider whether a contract change was made on or after December 24, 2021 as such a change would mean that transitional provisions would not apply. The change includes, but is not limited to:
- Contract extension
- Change the type of supplies
- Inclusion of additional supplies within the terms of the current contract
- Increase in the consideration payable for supplies that would otherwise be subject to value added by 5%
Amendments that do not affect the amount or value of supplies to be made under the contract such as modifications in the method of delivery or method of payment will not generally be considered as a contract modification.
Please refer to Section 5 of the Handbook of Transitional Provisions Related to Amending the Basic VAT Ratio for more information on what constitutes a contract modification.
17.7. My contract includes an increase in the value-added percentage. Does this mean that the transitional provisions will not apply?
No, the transitional provisions will apply even if the contract includes a clause providing for an increase in the value-added percentage
