REVERSE CHARGE MECHANISM IN BAHRAIN

Reverse Charge Mechanism Under Bahrain VAT Law: Can a VAT payer opt for Reverse Charge Mechanism in Bahrain on Local supplies? The output VAT liability is triggered as soon as a transaction within the scope of the Bahrain VAT Law takes place. But who is supposed to pay the Output VAT due on such a transaction to the National Bureau for Revenue (NBR) is to be analyzed intimately. Generally, the supplier is suppose to pay output VAT to the NBR, but in certain transactions, reverse charge mechanism in Bahrain would be applicable and therefore the person liable to pay would be the customer. 

The principle here states that the output VAT that is due on transaction is to be paid by the person liable to the account for the VAT due on a transaction. 

Let’s understand principle of Reverse Charge Mechanism on local supplies in detail

General rule of determining the person liable to pay the Output VAT

According to the Bahrain VAT law, the general rule is that the person liable to pay the Output VAT on a supply is the supplier. And also it has to be specifically noted that any person who charges a VAT amount in the invoice is liable to pay such VAT to the NBR.

Who is liable to pay the VAT when the ‘special rule’ is applied?

Bahrain VAT law has listed out certain transactions under ‘special rule’ where the liability to pay the VAT is shifted from the supplier to the customer. So, customer will be liable to account for VAT and to disclose it in his VAT return. This is called “Reverse Charge Mechanism”. 

When is the Reverse Charge Mechanism applicable by default?

According to the Bahrain VAT law, the RCM is applicable by default under following situations:

1. In case of purchase of Standard rated services by a taxable person in Bahrain wherein the supplier of the service is a non-resident.

2. In case of purchase of Standard rated goods by a taxable person in Bahrain wherein the supplier of the goods is a non-resident.

Can the VAT be recovered under Reverse Charge Mechanism in Bahrain?

Under the Reverse Charge Mechanism, the customer would self-account for the output VAT. The Output VAT recorded is also input VAT for the customer. This input VAT can be recovered in his VAT return provided he meets the normal input tax recovery rules.

So, this is the Reverse Charge Mechanism in Bahrain, you can also take help of any

 VAT Consultant in Bahrain for more help.