Bahrain set to implement VAT on 1st January 2019

In November 2016, the Gulf Cooperation member states agreed and signed a framework agreement for the introduction of Value Added Tax (VAT), outlining the unified set of principles allowing each state to exercise its discretion in various areas. Saudi Arabia and the UAE have implemented their VAT systems on 1st January 2018.

VAT implementation

On 7th October 2018, the parliament of Bahrain approved that the introduction of VAT will be effective from 1st January 2019. Bahrain released the VAT Law on 7th October 2018 via the Official Gazette website while regulations are expected to be published shortly.

In both the UAE and KSA, the introduction of VAT has been a swift and dynamic process. The UAE published its final VAT law and regulations in August and November 2017 respectively, where KSA did the same in July and September 2017. From that perspective, time for VAT readiness for businesses in Bahrain is comparatively lesser.

Implications

The introduction of VAT will be a big challenge for the local Bahrain market. Businesses from a largely non-tax environment will be required to meet significant obligations critical to the operation of the new VAT system.

In this regard, business would be required to make considerable modifications in their processes, systems, contracts etc. and to update its employees and other stakeholders.

Considering the remaining time (around two months) for VAT implementation, businesses would require to actively initiate their VAT preparations to reduce the risk of non-compliance and penalties.