It is common knowledge by now that the deadline for VAT registration is 20-Dec-2019 for Resident Taxable Persons who have Taxable Supplies of more than 37,500 BD. But what does that really mean? What are “Taxable Supplies”? And who are “Resident Taxable Persons”? What if your business does not generate revenue of more than 37,500 BD right now but is expected to do so in the future? What if you have multiple businesses under your name, do you have to register them all even if not all of them generate more than 37,500 BD in revenue? The list of questions can go on and on…
In this article, we will try to shed some light on the VAT registration criteria and hopefully answer some of these concerns.
First of all, we will need to explain what Taxable Supplies are since we will be using this term quite a lot in our discussion. As you might know, there are three categories of products/services under the VAT law, Standard Rate Products, Zero Rate Products, and Exempt Products. The table below explains the difference between the three.
Taxable Supplies is the sum of all Zero Rated and Standard Rated products/services sold by a Taxable Person. So, if you are a Taxable Person selling products/services that are Standard Rated and/or Zero Rated worth more than 37,500 BD, you will have to register.
Which brings us to our next question, who/what is a Taxable Person?
A Taxable Person is anyone performing an economic activity independently for the purpose of generating income and exceeding the mandatory VAT registration threshold. For this purpose, a taxable person may be
- Individuals (Natural or Legal Persons)
- Companies (Private & Public Limited)
- Businesses (Small, Medium, and Large)
- Partnerships & Associations
- Government (Ministries & Departments)
- NGOs & Clubs
Now that we got the basics out of the way, we can approach the real question, who should register for VAT?
The National Bureau of Revenue (NBR) has set forth extensive criteria according to which a Resident Taxable Person would be required to register for VAT and other criteria according to which VAT registration would be voluntary.
First of all, let us discuss when it would be mandatory for a Resident Taxable Person to register for VAT. In order to assess that, we will need to conduct two tests, the Historical Test, and the Future Test.
- Compulsory Registration by Historical Test
If at the end of a month, the resident person’s taxable supplies (excluding supplies of capital assets) over the previous 12 months exceeded 37,500 BD, that person would be required to register for VAT within 30 days from the end of the month when the limit was exceeded. So, for example, if a person assessed his sales of taxable supplies over the past 12 months on 30-Mar-2020 and discovered that they have exceeded the 37,500 BD limit, he would be required to register for VAT by 30-Apr-2020 at the latest.
- Compulsory Registration by Future Test
In case the taxable supplies were less than 37,500 BD over the past 12 months, the taxable person still needs to perform the Future Test. The Future Test looks at the total value of taxable supplies at the end of the month, plus the following 11 months to determine whether the level of taxable supplies exceeds the mandatory registration limit by the end of this future period. If the threshold (37,500 BD) will be exceeded, the person will have to apply for registration within 30 days prior to the month during which the value of his annual supplies in Bahrain is expected to exceed the mandatory threshold. For example, on 30-Mar-2020, a business owner forecasted his sales over the next 11 months and discovered that by November 2020, his sales, including sales made in March 2020, would probably exceed 37,500 BD. In this case, the business owner would be required to register his business by October 2020.
- Voluntary VAT Registration
For voluntary registration, existing traders can register even if their taxable supplies fall below the mandatory registration limits but it is not less than 18,750 BD in any 12 month period. However, in this case, either taxable supplies or taxable expenses can be taken into account.
To summarize, there are two types of registration, Mandatory and Voluntary. In both cases, a taxable person would need to perform two tests, a Historical Test and a Future Test, to determine whether or not he needs to register.
In case a taxable person has multiple businesses, some passing the Mandatory Registration criteria and others not, it might be feasible to go for a Group Registration. In this case, the taxable person would need to assess the amount of inter-company transactions to determine whether this could be a viable option. This exercise can be a bit more demanding and would require support from experienced accountants.
I hope this article helped alleviate some of the concerns with regards to registration. In case you have any inquiries, please feel free to contact us at Capital Profits Accounting Services on our landline (+973 17281717) or drop us an email on firstname.lastname@example.org.