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07 November 2016

Bahrain Approves the Introduction of VAT in 2018

Finance Ministers of the GCC States attended a meeting in Jeddah, Saudi Arabia on 16 June 2016 to discuss the introduction of a GCC-wide VAT regime.

Following the meeting, the GCC Chairman, Bahrain’s Finance Minister, Sheikh Ahmad bin Mohammed Al-Khalifa, announced that the Ministers had approved the introduction of GCC VAT, according to reports, although certain procedural aspects would be subject to future discussion.

If such agreement is formalised it is anticipated that GCC States, including Bahrain, will have until 1 January 2018 to implement their respective VAT regimes.

The introduction of VAT in Bahrain will affect both businesses, which will have to adapt their systems and processes to enable them to collect, record, report and pay VAT to the Bahraini Government, and individual consumers, who will (indirectly) bear the burden of the increase in the prices of goods and services.

While little has been confirmed regarding the specifics of implementation, it is expected that, in order to ensure that VAT does not overburden individual consumers, certain categories of goods and services, such as basic foodstuffs, healthcare and education will be exempt from VAT or carry either a “zero-rate” or reduced rate of VAT. In the UK, for example, where a VAT regime is long- established, exempt categories include sport and culture, financial services and insurance.

Most food items, medications and books are zero-rated for VAT and other items, including residential domestic electricity and gas, heating and energy saving equipment, are charged to VAT at the reduced rate of 5%. Goods and services not falling within the exempt, zero-rated or reduced rate categories are charged at the 20% standard rate. Further information regarding the introduction of VAT in the GCC is expected following the next meeting of the GCC Financial and Economic Cooperation Committee in October 2016. It is expected that in the coming months draft legislation and guidance that will govern the implementation of VAT will be published and public awareness raised.

Whilst the terms of the GCC VAT agreements have yet to be confirmed, the likely rate(s) of VAT are thought to be in the region of 3% to 5%. Should this level of tax be confirmed, it will represent a very moderate VAT charge in comparison with some other, established systems of VAT, such as those of the EU member States.

What is certain is that following implementation the Bahraini Government will have access to a significant and stable revenue stream, and will have joined a system of indirect taxation that is commonly accepted around the world.

Specialist Courts for Commercial and Investment Disputes Introduced

At a press conference on 22 August 2016, the President of the Supreme Judicial Council and Chancellor of the Court of Cassation, Salim bin Mohammed Al-Kuwari announced the launch of two new Bahraini courts on 1 September 2016.

The new courts will operate alongside the domestic civil courts and the Bahrain Chamber for Dispute Resolution (BCDR), handling disputes that do not meet the current threshold requirements of the BCDR Court (Value of claim exceeds BHD 500000 and involves either an international commercial dispute or a party licensed by the Central Bank of Bahrain). They will specialise in arbitration claims, bankruptcy and insolvency claims, and disputes relating to shares, bonds, securities, commercial agencies and intellectual property.

A further indication of the positive steps being taken in the Kingdom is the announcement by Mr Al-Kuwari of the launch of a new system of continuing training and develop- ment for members of the judiciary.

Under the new system, judges will have the opportunity to undertake training in specialist areas of law pertaining to commercial and investment disputes. As part of this training, a group of Bahraini judges travelled to several US states to acquaint themselves with the current practice in these states’ courts, and a further group of Bahraini judges are to visit the UK commercial courts in the latter part of 2016.

These developments are further examples of the progressive and modernising steps that Bahrain is taking as part of its Economic Vision 2030 and accompanying National Development Strategy (2015-2018), which set out the future path for the development of the Bahraini economy, Government and society in accordance with the principles of sustainability, competitiveness and fairness.

The introduction of more specialised courts and enhanced professional development for the judiciary shows Bahrain’s commitment to the advancement of the Rule of Law. Optimising the efficiency, effectiveness and technical ability of the Bahraini Courts ensures that disputes will be resolved quickly and fairly, enhancing the public confidence in the legal system. Bahrain’s focus on consolidation and improvement in these areas will benefit not only its citizens and other residents in the Kingdom, but will also likely attract significant foreign trade and investment. In so doing, Bahrain will ensure that it maintains its competitive edge, both in the MENA region and globally. 

This article was originally published by LexisNexis. For more information, please contact Thomas Catto on +973 17 133209.