Life After VAT: Now that you are registered, what next?
Well, first of all, congratulations on successfully registering your business for VAT. For most establishments, it might have been a difficult and complicated task especially if your accounting books were not in order ahead of time.
Now that you are registered though, business cannot continue as usual. Being a VAT registered company/establishment essentially means that you are now responsible for handling funds that essentially belong to the government. You are given a great responsibility and are required to rise up to the challenge in order for you to be able to continue doing business in Bahrain – and avoid the hefty penalties.
First things first though, you need to make sure that you are issuing your invoices properly. By that I mean you are issuing your invoices on time and in the proper format while accounting for VAT appropriately. Articles 52 and 53 of the VAT Regulations specify the requirements of “VAT Invoices”. There are essentially two kinds of invoices, the Standard VAT Invoice and the Simplified VAT Invoice. The latter can only be issued in case the product or service has been delivered to a non-registered person or in case the total value of the invoice is less than 500 BD. I encourage you to download the VAT Regulations here and review the requirements yourself. This may mean that you will need to upgrade or even change your accounting or POS systems since not all systems can comply with these requirements. Moreover, some systems can only accommodate for 2 decimal places in the currency which may cause a problem since Article 55 of the VAT Regulations states that VAT calculations must be rounded to the nearest Fils, which is in the 3rd decimal place. In case you need someone to help you assess your systems, look no further than H.A. Consultancies. As far as I know, they are the experts on such matters.
On the other hand, you will need to make sure that your suppliers also give you correct VAT invoices since you will be claiming back whatever VAT you paid them in your quarterly or monthly return. If their invoices are incorrect or not compliant with the requirements of the VAT Regulations, you might find yourself unable to claim back the VAT you paid.
As for issuing the invoices on time, well, that is a bit easier. You have 15 days from the date of performing the service or delivering the product to issue the invoice. However, VAT may be due prior to the date of your invoice since according to the regulations, it is due on the sooner of performing the service or delivering the product, receiving the payment, or issuing the invoice. Therefore, in case you received an advance payment, VAT will be due on that portion of the advance even if you did not deliver the product or service yet. Moreover, VAT is due even if you did not receive a payment from your customer. Therefore, it would be smart to take advantage of the 15-day leeway in case you have delivered a service/product towards the end of a reporting period.
All of this might be overwhelming at first and you might need to get some guidance from a professional accountant (call us in case you need any help). However, once you get your procedures in order, complying with the VAT requirements can induce more stringent control over your business resulting in a maximization of profits and a reduction of losses.
Munther Al-Arayedh, CPA
Capital Profits Accounting Services