VAT in Bahrain for Real Estate Sector
VAT in Bahrain for real estate secotor, as per the Bahrain VAT law and its executive regulation the sale of rela estate (including residential, commercial, and land)is exempt from VAT
What is Real Estate?
As per Vat law real estate includes,
- Any area of land over which individuals can claim rights.
- Any building or structure permanently attached to the land
- Any fixture that makes a part of the land or the building permanently attached to the land.
Are real estate transactions subject to VAT?
Sale, Lease or rental of real estate (regardless of commercial purpose or residential purpose) is an exempt supply i.e. they are not subject to VAT in Bahrain.
Input VAT incurred on purchases that relate to making exempt transactions is not recoverable by the supplier.
Is all Real estate transaction exempt from VAT?
The following transactions are not considered a sale or rental of real estate for the purpose of VAT and therefore are taxable at the Standard rate i.e. 5%.
- Hotel accommodation including all hotel services provided by the taxable person. (VAT is calculated on the total consideration payable by the customer).
- Provision of Paid car parking for less than 1 month.
- Serviced office space where the customer does not have the right to use facilities on an exclusive basis.
- Rental of function rooms, halls or similar facilities for parties, weddings or other similar events.
- Any other services such as management services, utilities, telecommunications, internet, and television, etc provided by the supplier in addition to the rent of real estate will be taxable at a standard rate. (If no separate charge is made for such services and is provided as a part of the rent, then it will not be considered as a separate supply for calculation of VAT, therefore, would be exempt from VAT).
- The provision of permission to affix equipment or signage to land or buildings such as providing real estate for placing telecommunication towers, advertising boards, etc will be charged at Standard rate.
- Providing space for retail or promotional stands (e.g. at a shopping mall, retail or entertainment area) for a period of less than 1 month.
How To Calculate The Vat Liability In Case Of Labour Accommodation?
Labour accommodation is a facility where the housing for laborers is provided by the employer.
The VAT on the provision of Labour accommodation:
The labour accommodation provided by the employer will be an exempt supply if all of the following conditions are met:
- The building is fixed to the ground and cannot be moved without being damaged.
- The building is the labourer’s principal place of residence in Bahrain.
- The labourer is provided with a designed space that is exclusively for his own use (e.g., his own room or bed that he will sleep in each night) and this area is not changed on a frequent basis
In case of an exempt supply, any additional services provided and charged separately will be taxable at the standard rate.
What Is The Vat Implication On The Employer?
Vat paid on expenses incurred by the employer to provide labour accommodation for free or less than the market value cannot be recovered. But in case the labour accommodation is provided to employees for better performance of their role or execution of duties such as
- Accommodation provided to employees who work on an oil rig or vessel for the duration of the working period or shift
- Accommodation located in a remote area which is provided for the duration of a specific
Project where it is not feasible to transport the employees from an inhabited area to the workplace in remote area on day to day basis.
- Temporary accommodation for a short number of days provided immediately prior to an employee being deployed to a remote location or immediately after such deployment to enable the employee to be efficiently transported to or from his place of work.
So, the Vat incurred by the employer on providing the above accommodation and related services (e.g., utilities), but excluding food, entertainment, and the internet, will be regarded as a business expense and can be recovered by the employer.
What is VAT implication of Storage and Warehousing?
Where the customer has exclusive right to access the storage or warehousing facility and store goods it will be an exempt supply. All ancillary services such as security, lighting, ventilation, etc will be exempt unless a separate charge is made for the same.
Where the goods to be stored are first provided to the service provider and then stored at the discretion of the service provider then this service will not be an exempted supply of real estate and therefore can be taxed at the standard rate.
The safety deposit box is not an exempted supply and therefore will be taxed at the Standard rate.
What is the Tax due date for supply of Real estate?
In the case of real estate, the supply of services includes all agreements which allow a person to occupy or use real estate without transfer of ownership in the property.
The tax due date for a supply of services will be the earliest of the following:
- The date of issue of a tax invoice or equivalent document
- The due date of payment of the amount specified in the tax invoice
- The date of receipt of payment
When payment is due in installments, the due date of the installments and date or receipt of the installments will need to be considered.
What are Transitional Rules in Real Estate?
If a supply of goods or services relating to real estate begins before the effective date of VAT (i.e., 1 January 2019) but continues after the effective date a taxable person will need to determine the value of the supply after 1 January 2019 and raise a tax invoice for the exempt supply.
Example:
Company ABC who is registered for VAT leased commercial property in Bahrain to Company XYZ on 1 August 2018. The lease was for a 12-month period from 1 August 2018 to 31 July 2019, and full payment for the lease was made by the company on 1 August 2018.
As seven months of the lease fall after the VAT implementation date (i.e., 1 January 2019), a tax
the invoice should be raised for the exempt supply from 1 January to 31 July 2019.
For more information please refer the document issued by Bahrain vat authority
Emirates Chartered Accountants offer VAT Services in the Kingdom of Bahrain. Our tax officers are professionally equipped and well versed with the Bahrain VAT laws and have in hand experience of handling VAT in other GCC countries.
Our VAT Services in Bahrain are:
