As of 1 January 2022, the standard rate of VAT will increase from 5% to 10%.

For the purposes of applying the transitional provisions, the two following dates should be taken into consideration:

1. Law Enforcement Date: the enforcement date mentioned in the Amended VAT Law published in the Official Gazette, which is 24 December 2021.

2. Effective Date of the VAT rate change: the date on which the new VAT rate will be effective, which is 1 January 2022.

In general:

• VAT at 5% will apply on standard rated supplies made before 1 January 2022.

• VAT at 10% will apply on standard rated supplies made on or after 1 January 2022.

• VAT at 5% will apply on standard rated imports made before1 January 2022.

• VAT at 10% will apply on standard rated imports made on or after 1 January 2022.

One-off supplies

Transitional Rule 1: Contracts for one-off supplies entered into before 24 December 2021 where the date of supply is on or after 1 January 2022

Supplies related to contracts for one-off supplies of standard-rated goods and services made before 24 December 2021 where the supply takes place before 1 January 2022 will be subject to VAT at 5%.

Under Transitional Rule 1, the 5% rate will also apply on one-off supplies of standard-rated goods and services where a contract for their supply was entered into before 24 December 2021, even where the supply is made on or after 1 January 2022.

If, however, changes are made to the contract (see discussion at section 5 below) before the supply is made, or if the supply is made on or after 1 January 2023, Transitional Rule 1 will not apply, and the supply will be subject to VAT at 10%.

Transitional Rule 2: Contracts for one-off supplies entered into after 24 December 2021 where the date of supply is on or after 1 January 2022

Transitional Rule 2 applies where, under a contract entered into on or after 24 December 2021, but before 1 January 2022, a supplier issues a VAT invoice or receives consideration for a one-off supply of standard-rated goods or services to be made on or after 1 January 2022. Under Transitional Rule 2 the 10% VAT rate will apply on such supplies.

If the supplier issues a VAT invoice before 1 January 2022, he should account for VAT at 10% on the invoice. Where the supplier receives consideration for the supply before 1 January 2022, he should account for VAT at 10% on this consideration. He should also issue a VAT invoice showing VAT at 10% by the 15th day of the month following that in which he received the consideration.

Continuous supplies

Transitional Rule 3: Contracts for Continuous Supplies entered into before 24 December 2021 where some or all of the supply occurs on or after 1 January 2022

The following apply for contracts for standard-rated continuous supplies entered into before 24 December 2021 where some or all of the supply occurs on or after 1 January 2022:

• The 5% VAT rate will apply on the value of goods and services delivered before 1 January 2022;

• The 5% VAT rate will continue to apply on the value of goods and services delivered on or after 1 January 2022 and before 1 January 2023;

• The 10% VAT rate will apply to the value of goods and services delivered on or after 1 January 2023.

If, before 1 January 2023, a contract to which Transitional Rule 3 would otherwise apply expires and is renewed, Transitional Rule 3 will not apply with effect from the date of expiry.

If a contract entered into before 24 December 2021 is changed or renewed after that date, Transitional Rule 3 will cease to apply and the procedures in Transitional Rule 4 described in section 4.2 should be applied. This will mean that the 10% VAT rate will apply on the value of goods or services delivered after the date the contract is changed or renewed (or on the value of goods or services delivered on or after 1 January 2022 if the contract was changed before that date).

See section 5 below for guidance on when a contract will be regarded as having been changed for the purposes of applying the transitional provisions in accordance with this guide.

Transitional Rule 4: Continuous supply contracts entered into before 1 January 2022 where Transitional Rule 3 does not apply

This rule applies to contracts for standard-rated continuous supplies which cover a period including 1 January 2022 and which were entered into:

1. On or after 24 December 2021; or

2. Before 24 December 2021 but which have been changed or amended on or after that date, but before 1 January 2023.

For supplies made under these contracts:

• VAT at 5% will apply on the value of goods and services delivered before 1 January 2022;

• VAT at 10% will apply on the value of goods and services delivered on or after 1 January 2022 under:

– Contracts described under 1 above; and

– Contracts described under 2 above which have been changed or amended before 1 January 2022.

• For contracts under 2 above where the amendment or change takes place after 1 January 2022, VAT at 10% will apply on the value of goods and services delivered from the date the contract is amended or changed;

Transitional Rule 4 does not affect the VAT due date applicable to supplies. Therefore, a VAT due date on the value of supplies delivered before 1 January 2022 (or the date the contract is changed or amended, if later) will not automatically arise under this rule; a VAT due date will arise on the date of the next invoice, the receipt of consideration or completion of the services (unless one year elapses from the previous VAT due date in which case a VAT due date will apply on the one year anniversary of the previous VAT due date).

Changes to contracts

For the purposes of these transitional rules, a contract will be regarded as having been changed or amended where a change to the contract terms results in the supplies or consideration being subject to VAT at 5% instead of 10%. This includes, but is not limited to:

• Extending the duration of the contract so it applies to additional goods and/or services;

• Including additional supplies of goods and/or services within the terms of the contract; and

• Increasing the consideration payable under a contract that would otherwise qualify under the transitional rules while compensating the customer in another manner (e.g. discount on another supply, providing a cash rebate).

The intention of the parties in making the change is not relevant and will be disregarded by the NBR.

Other changes (e.g. the method of delivery) which do not impact the original timing, consideration or quantum of supplies to be made, will generally not be regarded as a change or amendment for the purposes of the transitional rules.

Valuing goods and services for Transitional Rules 3 and 4

Where Transitional Rules 3 or 4 apply, suppliers will need to value the amount of goods and services delivered under contracts for continuous supplies which cover a period including a certain date (e.g. 1 January 2022, or the date of amending a contract). In these circumstances, suppliers will need to produce evidence of the valuation conducted to the NBR on request.

The value of contracts where the nature or quantity of goods or services supplied do not fluctuate over time (e.g. insurance contracts, gym memberships) will be treated as arising evenly over that period of time. Hence, their value before and after the relevant date can be computed, for example, on a time basis. Days or months are acceptable, but the normal practice of the supplier should determine which are used to compute the value of supplies on a time basis.

Where the nature or quantity of goods or services supplied fluctuate over time (e.g. construction or renovation, consulting services), the value of the goods or services provided must be valued based on the actual amount of goods or services delivered before and/or after the relevant date(s). The methodology to determine the value will vary depending on the nature of the goods and services and the applicable contractual terms. For example, it may be appropriate to use a “percentage of completion” methodology for certain construction or infrastructure projects. Ongoing consulting projects could be valued based on the time spent by the relevant consultant, or reference to completing deliverables under the contract.

Generally, the NBR expects that the valuation methodology will be that normally used by the VAT payer. If a different methodology is used, the VAT payer will need to demonstrate that it was not used to reduce or minimize the VAT payable under the contract.

Source: Kingdom of Bahrain National Bureau of Revenue