Is it too early for companies in Bahrain to start preparing for VAT?
Given the speedy progress Gulf Cooperation Council (GCC) countries are making in rolling out their local value-added tax (VAT) legislations, compliance formalities will start affecting businesses even before the new consumption tax goes live in Bahrain, says KPMG.
Last week, the UAE’s Federal Tax Authority (FTA) announced that it will open online registration for tax purposes for businesses in mid-September.
In July, Saudi Arabia published its VAT law, issued the draft VAT regulations and announced the launch of the online VAT registration portal in August.
The Kuwaiti Council of Ministers recently approved the VAT draft law, paving the way for VAT implementation as scheduled in 2018.
Businesses need to register
According to the provisions in the GCC VAT framework agreement, businesses with annual supplies worth of $100,000, are required to register for VAT. The tax will be levied on the supply of goods and services at a standard rate of five per cent.
Philippe Norré, Head of Indirect Taxes at KPMG in Bahrain, says that by now companies should understand the impact of VAT on their operations and be currently working on optimising their processes and systems to ensure their VAT compliance in the immediate and longer-term future.
This will also help businesses to take control and achieve visibility beyond the VAT go-live date.
Detailed requirements will vary among GCC member states, but compliance fundamentals will remain the same. Businesses registered for VAT will need to record, assess and report VAT obligations as well as entitlements, according to the local regulations and submit them to the competent authority within a certain timeframe.
Inaccurate reporting of input VAT credits can lead to losses and business disruption. Failure to meet the compliance requirements can incur risks and penalty charges, including litigation from the concerned competent authority.
VAT in Bahrain?
Bahrain has not issued its domestic VAT law yet, but is expected to do so soon.
“The current absence of published domestic VAT legislation in Bahrain should not stop companies from getting ready as the underlying principles for VAT treatment are clear and known, whereby global indirect taxes best practice gives valuable insights. In addition to on-going compliance, early preparation can enhance continuous cash-flow, minimize VAT impact on the company’s finances, avoid exposure in ongoing supply contracts and streamline operations to manage VAT efficiently,” Norré explains.
The pre-implementation phase provides adequate time to ensure the relevant technology and resources are in place to comply with the new tax system.
“Businesses need to build systems and processes, and embed them within the existing processes, to help them manage tax reporting complexities. This will require a new set of skills and knowledge; therefore, companies need to invest in human resources and training before implementation begins,” he adds.