Introduction of value-added tax or VAT impacts a country's economy and industries. Additionally, the effects of VAT also extends to the import and export of goods and services. In consideration of this, UAE has local or import/export business ties with Bahrain.
Introduction of the VAT, makes most businesses realize that their entire business economy including their vendors, suppliers, and customers whether located in or outside the country forms a part of their business. The primary reason for this is that in the VAT, companies cannot take decisions single-handedly and have to be taken bilaterally as a buyer can dispute the applicability of VAT. It can be, therefore, said that VAT intensifies the dependency between the supply chain, especially in cases of outbound supply of goods.
In these transactions there are two elements to be vetted, that is whether the supply qualifies as an export from UAE and whether the transaction qualifies as an import in Bahrain. Therefore, it is wise for business entities in UAE to have business interests in Bahrain, so as to initiate early dialogue on the possible impact, identify potential issues and documentation requirements to avoid discrepancies with customers in relation to the VAT.
With regard to the import of goods, VAT is payable at the time of import of products, unless the facility of deferment has been provided. With the introduction of the VAT, imports in Bahrain could attract VAT, which makes it important to determine the applicability of VAT on goods being imported in Bahrain. It is also necessary for determining the procedural aspects like the declaration of the VAT registration number linking of VAT number with customs.
If an entity in Bahrain charges a business in UAE for provided advertisement services, the question will arise as to whether Bahrain VAT will be applied or not.
Additionally, there could be difficulties in identifying the location of a supplier of service. For instance, a consultancy firm has offices in UAE and Bahrain, enters into an agreement to provide services to a Client in Bahrain. However, the complication arises as to the fact that the Bahrain office of the consultancy only provides service support. Here the question arises as to whether the supplier is the company located in UAE or Bahrain, which is necessary to determine the liability to pay VAT.
It is also important to note that even with a GCC VAT agreement, most of the GCC countries are customizing the VAT law to the requirement of their respective economies. This further raises additional complications for entities having a multi-state presence.
With all the above factors considered, businesses having a presence across the GCC will have to determine how the introduction of VAT will affect the dynamics of their market.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.