Rounding off Rules for VAT in Bahrain-Complete Guidance

Rounding off Rules for VAT in Bahrain

In this Article we discuss Rounding off Rules for VAT in Bahrain. The tax invoice plays a crucial role for the supplier as it may give the date of supply, thereby determining the tax period in which the output VAT is to be paid. On the other hand, the customer will need the VAT invoice for the recoverability of the input VAT as per Bahrain VAT Law.

One of the most common issues that arise during the implementation of the VAT regime is connected with rounding off in the invoices. How to round off the VAT amount calculated to the nearest fils is the biggest trouble faced by most the companies especially retail stores which sells items whose value is as low as BD 0.050 or even less!!!

Some of the common issue faced due to round off is the following:

  1. The invoice Value added to the VAT amount calculated comes to such a figure (e.g., BD 1.233) which is impossible to collect from the customer without round off.
  2. Linewise rounding off may lead to collecting Nil VAT for an item. (E.g., if an item cost BD 0.050, VAT amount would be 0.0025, if the electronic system captures only 2 decimal places then the VAT amount, in this case, leads to 0.00)
  3. The Sales amount would not match with the Output VAT figure in the Trial Balance.

Is there any specific  Rounding off Rules for VAT in Bahrain?

Definitely. Article 55 of the executive regulations of the Bahrain Value Added Tax law says that the fraction of a fils may be rounded off to the nearest fils in accordance with the mathematical rounding. (i.e. to the nearest three decimal points)

For e.g, In case the VAT amount calculated comes to BD 0.0397, then this amount shall be rounded off to BD 0.040 and be collected from the customer.

How to calculate VAT when calculating the VAT amount on a single supply whose value is very low in an electronic transaction?

The answer to this question is simple.

Let us look at this situation through illustrations.

Illustration 1:

 Take for example the following case of ABC W.L.L., a telecommunication company who is subject to VAT in Bahrain and charges BD 0.009 per transaction to its customers.

ItemValue Before Tax (in BD)VAT amount (at 5%) (in BD)
B0.0090.00045
VAT amount after Round off0.000

Yes, in this case by applying mathematical round off the VAT amount collected from the customer amounts to “NIL” per transaction though the item is taxable.

Is not charging VAT amount for a transaction is a violation of the law?

Well, in this case, it is not a violation since we are actually applying the Rule specified in Article 55 of the Executive Regulation of the Bahrain VAT Law. That is, using mathematical round off rules for the transaction.

Illustration 2:

Take, for example, the case of a supermarket where there is an item “C” whose value is BD 0.050.

ItemValue Before Tax (in BD)VAT amount(at 5%) (in BD)
C0.0500.0025
VAT amount after Round off0.003

In this case, the VAT amount charged should be BD 0.003 after rounding off. (i.e. to the nearest three decimal points)

How to round off to the nearest fils when there is more than one taxable supply in an Invoice on electronic transactions?

As per Rounding off Rules for VAT in Bahrain, rounding off to the nearest fils when there is more than one taxable supply in the Invoice, “Total Invoice rule” must be applied. That is The VAT amount on each line item which is unrounded should be totaled and then Rounded off to the nearest fils using mathematical rules of rounding i.e. to the nearest three decimal points. This is explained by the following illustration.

Please note that once this rule is applied, it must be applied consistently.

Illustration 3

Let us take the case of ABC hypermarket which sells multiple products. An example of an Invoice would be:

Item descriptionInvoice Value before VAT (in BD)VAT amount 5% (in BD)
A0.0020.0001
B0.0300.0015
C0.0500.0025
D0.0090.00045
E0.0700.0035
Total0.161
Total amount of VAT0.00805
Vat amount after rounding off0.008

How to round off to the nearest fils when the unrounded amount of VAT per line item has more decimal places that your accounting system can record in an electronic transaction?

When the unrounded amount of VAT for each line item has more decimal places than what your accounting system can record, then the company must use “Subject to VAT supply rule” while rounding off the transaction.

Please note that this rule can only be applied when it is impossible to apply the “Total Invoice rule” due to the limitation of the system while recording the decimal places. Again, if the organization chooses to apply this rule then it must be applied consistently throughout.

Let us look at taking the same illustration above and try to understand the “Subject to VAT supply rule” better.

Illustration 4

Item descriptionInvoice Value before VAT (in BD)VAT amount 5% (in BD) (Before rounding off)VAT amount after Rounding
A0.0020.00010.000
B0.0300.00150.002
C0.0500.00250.003
D0.2250.01130.011
E0.0700.00350.004
Total0.377
Total amount of VAT0.019

 

VAT Services in Bahrain

Emirates Chartered Accountants in Bahrain Branch provides everything you need to run a smooth flow of your business. Our wide range of professional services comes with a cost-effective and tailor-made option that is preferred by businesses all over. Our team of professionals is well versed in the Bahrain VAT Law as well as the UAE VAT Law. They are also equipped with practical experience of implementing VAT in UAE  and VAT in Bahrain.

Our wide range of services includes:

We’d be happy to support you – Call us!

For TAX Service in Bahrain

Mr. Bichin

+973 3619 8998

br@emiratesca.com

For TAX Service in UAE

Mr. Navaneeth

+971 55 889 2750

nav@emiratesca.com



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