Warranty Repairs - Bahrain VAT
- Mar 14, 2020
- 2 min read
Updated: Aug 13, 2020
The NBR has issued a public clarification (VAT/PC/20/1) on the VAT treatment of repairing goods that are under a warranty.
General rule is that repair services should not be viewed as a separate supply for VAT purposes if VAT has previously been paid on the warranty.
Supply between dealer and customer
If a dealer supplies repair services under warranty, the supply from the dealer to the customer is out of scope for VAT purposes.
Supply between manufacturer and dealer
Warranty cost included
Where a manufacturer reimburses a dealer for repair costs and the cost of warranty was included in the sale price of the goods:
Any reimbursement from the manufacturer to the dealer without a mark-up is out of scope for VAT purposes.
Where a reimbursement from the manufacturer to the dealer includes a mark-up, the margin is subject to VAT at the standard rate (where the repair relates to tangible goods in Bahrain).
Warranty cost not included
Where a manufacturer reimburses a dealer for repair costs but warranty costs were not included in a goods’ price, any warranty repair services constitute a separate supply for VAT purposes, subject to VAT at the standard rate.
Third-party repairs
If a third-party conducts repairs under warranty, the third-party repairer is making a separate supply of services. VAT applies according to normal VAT rules.
Extended warranties
The supply of an extended warranty is a supply of services subject to VAT at the standard rate:
Where an overseas manufacturer provides an extended warranty, the dealer must account for VAT under the reverse charge mechanism.
Where a local manufacturer provides an extended warranty, the manufacturer accounts for VAT at the standard rate.
Where a dealer provides an extended warranty to a customer, the dealer accounts for VAT at the standard rate.
Goods sold prior to VAT's imposition
Where warranty repairs are made to goods sold prior to the impostion of VAT, the VAT treatment of any repair services provided under warranty applies as if the goods were supplied after the imposition of VAT
Recovery of VAT
Any input VAT incurred by a dealer when providing warranty repair services should be fully recoverable.
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