Deemed Supply in Bahrain VAT-How Do You Calculate VAT on It?

Deemed Supply in Bahrain VAT is generally, when goods or service is supplied without any consideration (For example, Issue of Sample goods for free), it is outside the scope of Bahrain VAT law

But in some cases, this general rule is broken, and the supply of goods or services provided for free or an event not involving supply to a third party would be treated as a deemed supply. In such a case, the taxable supplier is required to charge VAT on the supply even if it is issued without any consideration.

What is supply as per Bahrain VAT law?

For the purpose of VAT, the supply is any form of supply of goods or services for a consideration, in accordance with the provision of the Bahrain VAT Law. The following are the criteria to treat a supply as a taxable supply:

1. The supply should be made for consideration.
2. The supply should be made by a taxable person.
3. The supply should consist of the supply of goods or services.

What are the conditions that would treat the goods and services supplied for free as deemed supply in Bahrain VAT?

A supply of goods or services would be treated as deemed supply or a taxable person would be considered as having made a deemed supply in Bahrain VAT only in the following cases:

1. He changes the use of goods that was procured earlier. That is the taxable person who after claiming the Input VAT on the goods paid earlier, would later use it for a purpose other than his economic activity or may have used the goods to make non-taxable supplies.

For example., Mr. A who is running a supermarket buys 10 clocks on 29^th June 2019 for selling in his supermarket and claims the Input VAT on the same while filing the return on 21^st July 2019.

On 1^st August he takes one clock from the bundle and fixes at his home.

In this case, the clock is used for personal use instead of economic use and therefore, it is treated as deemed supply in Bahrain VAT, though there is no actual sale of a clock.

2. The taxable person may have de-registered for VAT while stile having the possession of the goods were Input VAT was claimed earlier. The taxable person will be deemed to have made deemed supply at the time of de-registration for VAT.
3. Where the taxable person has provided service free of cost and has claimed the input VAT incurred on the expenses incurred while providing such services.
4. Where goods are provided without charging any consideration on them and Input VAT has been claimed on such goods, then the taxable person is deemed to make the supply of such goods and services.

What is the exception to deemed supplies?

Low-value gifts and samples provided free of Cost to the customers.

Gifts and samples are often provided to customers by a company to promote their product and for the customers to assess the overall quality of the product. Such low-value gifts may or may not result in the final consumption of the product.

In this case, the samples or gifts provided may not be treated as a deemed supply.

When are low-value gifts and samples provided treated as a deemed supply?

Under the following instances the Free of cost goods provided to the customers would be treated as Deemed Supply in case either of the following conditions is met:

1. The total value of goods supplied to a single customer exceed BD 50 in a year. In this case, the amount over and above BD 50 would be taxable as deemed supply if the company has claimed the input VAT paid for the item issued as free of cost goods.

OR

2. The total value of goods or services issued by the company as free of cost in a year exceeds BD 1000. In this case, the value over and BD 1000 would be taxable as deemed supply.

How to calculate the VAT on deemed supply?

Normally the VAT amount on a taxable transaction is calculated on the basis of 5% on the Invoice value of the transaction. But in case of deemed supply, the invoice value of the transaction is generally zero. Therefore, how to calculate the VAT amount on deemed supply is to be ascertained.

As per Article 28 of the executive regulation of the Value Added Tax, the Value of a deemed supply would be calculated as follows:

1. For the deemed supply of goods, the value of deemed supply would be the actual purchase price of the goods. That is the VAT amount is to be calculated at the rate of 5% on the actual purchase price of the goods. If the purchase price of the goods is unknown, then the VAT amount will be calculated on the total cost as at the date of supply.
2. For the deemed supply of services, the basis for calculating tax would be the total actual cost incurred for the supply of service.

What if the purchase price or total cost of the goods cannot be ascertained?

In such a case, the company finds it difficult to ascertain the value of deemed supply as above, then the Fair market value of goods or services provided as on the date of supply would be the value of deemed supply for the calculation of VAT.

In case the economic activity ceases operation, the fair market value of goods on the date of deregistration would be the basis of calculation of VAT.

Any other instance which does not form part of the scope of supply and deemed supply will be considered to be out of the scope of Bahrain VAT Law.

Looking for VAT Services in Bahrain?

Emirates Chartered Accountants Bahrain offers an exclusive range of VAT Services in the Kingdom of Bahrain. The Tax Department has practical experience of implementing VAT in Bahrain & VAT in UAE  and are professionally well versed with the Bahrain VAT laws and its compliances.

Services we provided in Bahrain:

• VAT Registration
• VAT Training 
• VAT Implementation 
• VAT Return Filing
• VAT Consultancy 
• Accounting for VAT Compliance