Mubeen Khadir, Head of Tax, Keypoint Group details the impact of VAT on businesses in Bahrain.
Whether or not your business has a taxable turnover above BD5m, VAT is now a fact of life for all businesses in Bahrain. Businesses that have already gone live from 1 January 2019 know that VAT impacts businesses in often unsuspected ways. Are you a business with a taxable turnover below BD5m but above BD500,000? If you haven’t already voluntarily registered, you must do so by 20 June 2019 with your VAT registration date effective from 1 July 2019. That suggests two straightforward themes for this month’s article: how much time will it take to get ready for VAT – and what does ‘getting ready’ involve? Leading practice suggests four steps to VAT implementation:
1. Identify VAT’s impact
Your key decision makers – not just your head of finance – need to identify and agree the impact VAT will have on existing practices, systems and policies. Some organisations have tried to do this in-house. Others have taken the more practical step of appointing a VAT consultant who will typically send a questionnaire, ask for information, or conduct interviews to develop a clear understanding of your business. Having done that, the VAT consultant is in the right place at the right time to advise you on where, how, when and how much VAT will impact you.
2. Design a VAT solution
Once impacts have been identified, your team needs to determine the processes, documents, systems and policies that must – or should – be amended to comply with the VAT process. Often, a combination of changes will be required to address a single impact. Sometimes there is more than one way of complying with a particular VAT rule. In these instances, you need to weigh up potential options and make a decision that is both pragmatic and commercially sound. If you have appointed a VAT adviser, the adviser can review proposed changes with you. Bear in mind that VAT is a new law and interpretation of the legislation is still evolving – such as the recent suggestion by the NBR that only the address included in a company’s CR can be used on a valid tax invoice. Awareness of the legislation is good – awareness of changes to the legislation – or how the legislation is being interpreted and implemented – is even better!
3. Implement your VAT solution
Once proposed changes have been decided and agreed, the process of implementing those changes begin. In the implementation phase, if you decide to engage external support, your VAT adviser plays more of a support and review role, guiding you and reviewing changes as they are implemented. Most VAT advisers will offer technical training through a combination of formal seminars and informal discussions with relevant divisions throughout this phase. VAT implementation is a significant change management issue and most companies have found that education – through formal and informal knowledge transfer – is a critical part of a successful VAT implementation.
4. Comply with VAT legislation
In theory, you should be VAT-ready after the implementation phase. However, your finance teams will face both practical and unforeseen challenges once VAT goes live and they are likely to need support when preparing their first VAT return. Most VAT advisers will review the first VAT return prepared by a business prior to submission to the tax authorities to identify areas needing rectification. A good VAT adviser will be able to recommend additional changes that may smooth the compliance process.
How long does this take?
No business has ever complained of having too much time to get ready for VAT. There are always unforeseen hurdles and issues that delay readiness. Besides, there is no downside to being ready before VAT goes live. Businesses across the GCC have used any extra time to:
• Proactively communicate with vendors, customers and other stakeholders outlining what your business will do about VAT and what you expect them to do. For example, vendors have to include customer details on their tax invoices. You could send them your official business name, VAT registration number and address so they can update their records in advance
• Review pricing strategies
• Operate upgraded systems in parallel with existing systems and processes to iron out bugs
• Prepare mock VAT returns
Our experience suggests that a business typically needs somewhere between two and eight months to get ready for VAT, depending on the complexity of your business and your IT systems and how VAT implementation is prioritized. For many businesses in Bahrain, VAT implementation is less than four months away. We are all aware of the penalties and sanctions in Bahrain’s VAT legislation – starting your VAT implementation now makes excellent commercial and reputational sense.