The National Bureau for Revenue (NBR) of Bahrain announced guidance on Value-Added Tax treatment in certain areas. Most significant of them included simplified annual value-added tax (VAT for small businesses, updated guidance on the Bahrain VAT treatment of educational supplies and the instructions on the apportionment of input VAT for financial institutions.
Value of Related Party Transactions: NBR has updated the guidance on the computation of market value associated with related party transactions. It is estimated in comparison to the goods or services identical or similar to the ones involved in the transaction, in an open market between the market participants. If this is not possible, the market value of related party transactions can be calculated using the methodologies in the OECD guidelines.
NBR has also affirmed that pre-approval of the calculation method put forward by the taxpayer will not be entertained.
Classification of Business Activities: Taxpayers are instructed to mention the nature of their business based on the United Nations Economic and Social Council’s classifications in order for them to register for VAT purposes. NBR has also provided guidelines for determining the nature of the business.
Apportionment of Input VAT for Financial Institutions: The guidelines regarding the deduction and apportionment for financial instruments have been issued.
The VAT regime of Bahrain uses ‘turnover’ or value of supplies’ method for apportionment. The calculation steps under the method are as follows:
NBR also confirms that the profit or loss of financial institutions from the transactions on a marginal basis should be taken as an ‘absolute value’. This should be included in the computation of the value of supplies for the apportionment calculation.
The VAT on Educational Services Guide:
All goods and services which aids in providing educational services are zero-rated. This will also be applied to online educational courses. The following goods and services are ‘not’ included under this regime:
The VAT on the cost incurred by the educational institutions can be recovered in full (VAT on the cost of exempt goods or services cannot be recovered).
Simplified Annual VAT Returns For Small Businesses: To make the return filing less complex, VAT registered small businesses (with annual supplies less than US$265,000) will only be required to submit a simplified one-time annual VAT filing document. This will soon be implemented.
