VAT: IMPACT ON BUSINESSES IN BAHRAIN

One of our resident VAT experts, Adnan speaks about how VAT can have an impact on businesses in Bahrain by highlighting the following key points:-

  • Impact on Revenue
  • Procurement and Input Tax
  • Contracts & Policies
  • Record Keeping, IT & ERP Systems
  • Compliances

He also emphasized that Affiniax can help in the following ways :-

  • VAT impact assessments
  • Advise on tax-efficient structuring/
  • Drafting of Sample Tax Invoices & Tax Credit Notes
  • Registering and filing VAT returns

BAHRAIN VAT: LARGE FIRMS TO REGISTER BEFORE JANUARY 1, 2019

As part of the first phase of VAT registrations, the Ministry of Finance in Bahrain has announced that companies with taxable revenue exceeding BHD5M per annum are required to register by 20th December 2018. The effective date of registration will be 01st January 2019.

It is not clear whether applications received on or after 20th December 2018 will be penalized for late registration. It is recommended, however, to follow the deadlines to avoid any unnecessary complications.

For the purpose of VAT registration, a new government entity has been established with the name of National Bureau for Taxation (NBT). NBT is now accepting applications for VAT registration.

In the second phase of VAT registration, companies with Taxable revenue between BHD500,000 and BHD5 Million will be required to register by 20th June 2019 and the effective registration date will be 01st July 2019.

In the third phase, companies with taxable revenue between BHD37,500 and BHD500,000 will be required to register by 20th December 2019 and the effective date of registration will be 01st January 2020.

As such, persons with taxable revenue above BHD37,500 should prepare themselves from now to avoid any last minute delays. This is because updating AccountingFinancial, Human Resources and internal policies can be a time consuming process in light of the new VAT legislation.

It is expected that more guidance will be announced in the coming days and weeks. The Executive regulations to the VAT Decree Law is expected to be announced by the mid of January which should allow much more clarity.

VAT IN UNITED ARAB EMIRATES: PROFIT MARGIN SCHEME

The Federal Tax Authority (‘’FTA’’) issued a public clarification on Article 29 (VATP002) of the Executive Regulation of the Federal Decree-Law No. (8) of 2017 on Value Added Tax, few months ago. This has been further clarified by the FTA at an awareness session recently organised at the Abu Dhabi Chamber of Commerce and Industry in order to raise awareness among the taxable persons.

Profit Margin Scheme is a scheme that may allow the Registrant, in any Tax Period, to calculate and charge tax based on the profit margin earned on the taxable supplies and not based on the value of these supplies.

The profit margin is the difference between the purchase price of the Goods and the selling price of the Goods, and the profit margin shall be deemed to be inclusive of Tax.

What kind of goods are eligible to be supplied under Profit Margin Scheme?

  • Second hand goods, meaning tangible moveable property that is suitable for further use as it is after repair;
  • Antiques i.e. goods that are over 50 years old;
  • Collectors’ items i.e. stamp, coins, currency and other pieces of scientific, historical or archaeological interest.

What are the key conditions to apply the Profit Margin Scheme?

  • Only those goods which have previously been subject to VAT before the supply in question may be subject to the profit margin scheme. As a result, used goods acquired prior to the implementation of VAT or goods which have not previously been subject to VAT for other reasons are not eligible to be sold under the Profit Margin Scheme. There needs to be sufficient evidence or information to justify that the good was subject to previously.
  • The goods must have been purchased from either:
    • A person who is not registered for VAT.
    • A registered business which has already applied Profit Margin Scheme on the same goods.
  • The taxable person made a supply of the goods where input tax was not recovered in accordance with Article 53 of Cabinet Decision No. 52 of 2017.

Under what cases the Profit Margin Scheme will not apply?

  • Used goods acquired prior to the implementation of VAT or goods which have not previously been subject to VAT for other reasons are not eligible to be sold under the Profit Margin Scheme.
  • Where a tax invoice or any other document mentioning an amount of VAT chargeable in respect of the supply has been issued.
  • Sufficient evidence or information is not available to justify that the goods have been subject to VAT previously.

How can we help?

Further, we can help you assess the eligibility of Profit Margin Scheme on the goods under question and advise on the implications and provide guidance in relation to the documentary requirements which need to be maintained to ensure compliance.

9 KEY POINTS TO BECOMING A PROACTIVE ACCOUNTANT

As a business owner we often feel if we had that something extra, something better and something clearer to take an informed decision. And that ‘SOMETHING’ often depends on the proactive approach from your Accountant. As a business owner and as a Chartered Accountant, I understand the limitations that we come across at both ends.

Our profession advocates a constant training to be provided not only for technical aspects but also for strong interpersonal skills, organisational competence and intellectual ability. So what are these characteristics? What makes someone stand out?

Here are 9 points that I think is important to understand the responsibility of a Proactive Accountant:

1. Stay updated all the time

Accountants must constantly stay up to date with the profession. Attending refreshers, going to conferences/ seminars and in house training is a must. Technological advancements are also evolving at a furious pace, so these also must be kept up with. Continual personal development is a must, not an option!


2. Story behind the numbers : The Bigger Picture

Providing a data generated report is easy. Staying on top of all the figures and paperwork is more important. At the very least, they need to understand where these numbers are coming from and what does it mean for the business. Good accountants will have a much shorter list of targeted questions that are developed specifically to aid their understanding which allows them to focus on the big picture.


3. Importance of Time

Every business needs management reports at regular intervals if not at real time. If these reports come after 2 months, it is like a post mortem report – you can read through it but cannot change anything.


4. Inter-dependability and Accountability at each level

It is important to make every effort to do the right thing. Every process in an organisation is linked to Accounts Department somehow. Accountants need to have exceptionally well people skills as they typically work in coordination with different departments within an organisation. They have the opportunity to work with different types of professionals and personalities. Therefore, they are required to be
generous with what they know; sensitive to other’s needs and be supportive of their team’s goals. We all succeed when we work together as a Team.


5. Decision making, critical reasoning & analytical ability

Business owners want their accountants to be strong and helpful in decision making, however decision making can be hard. There is always a tendency to put off decisions by procrastinating and concluding that you need more information, only to later conclude that you need even more information. A good accountant should always determine what is relevant and what is not.


6. Trust factor

The information that accountants work with is highly confidential in nature. This is why trust and professionalism are important traits that they must always abide by. Not only is this the right and ethical way to go about their businesses but having a reputation for trustworthiness will win plaudits in the long run. I firmly believe that we trade on our knowledge and ability, but we only get these opportunities through
demonstrating our commitment to client confidentiality.


7. Solutions seeker, not fault finders

Great leaders have the desire to help others succeed. Don’t find faults in the system, find a solution that helps the organisation to overcome an obstacle. Leadership characteristics can be taught but leadership must be exhibited day in and day out.


8. Commitment

Companies are looking for motivated, dedicated individuals for long-term employment. There is no short-term solution, neither for business owners nor for an Accountant.


9. Enjoy what you do

This last one might appear strange, but I firmly believe that we all need to enjoy what we are doing. There is no fun in 9-6 job unless you have a good working environment, surrounded by people who are happy and joyful. Work takes up so much of our time and it is in my opinion that mere monetary rewards will not keep someone in a career they do not enjoy. Whilst no one should expect to be smiling all day, every day it is important we have some fun along the way.

The characteristics of a proactive accountant starts with the basics of sound technical ability and solid ethical foundation. These are considered as a baseline and the Accountant needs to grow beyond the “rules and regulations” mind-set of our profession. Attaining and maintaining the characteristics mentioned above require a personal commitment but are crucial to the accountant’s long-term success. Have you got what is takes to be a good accountant?

UAE FOREIGN INVESTMENT LAW CHANGE

The UAE Government has now enacted Federal Decree-Law No. 19 of 2018 (“FDI Law”) in furtherance of its objective to allow increased foreign shareholder participation in UAE mainland registered companies beyond the current restriction of 49%. To date, foreign investors wanting to own UAE businesses wholly, or to have a majority stake, have been limited to registering their companies in UAE freezones or by limiting their operations to a branch/representative office. Free-zone registered companies and branch/representative offices have limitations to their trading and investment activities in the UAE. Previously foreign investors have often found structuring business for commercial activities in the UAE challenging.

The FDI Law does not represent a wholesale change to business investment in the UAE and, to avoid doubt, it does not allow 100% foreign ownership across all sectors of the economy. Rather, the FDI Law introduces a framework under which the UAE Government (acting through a newly formed FDI Unit and FDI Committee in addition to the existing licensing departments of the Department of Economic Development), may designate certain sectors of the economy as being available to more than 49% foreign ownership. These are deemed to be “priority” economic sectors and are in furtherance of Federal Decree-Law No. 18 of 2017 (an amendment to the UAE Commercial Companies Law) which gave scope to the UAE Cabinet to authorise foreign investors to have an increased shareholding in companies within certain sectors.

FDI Unit and FDI Committee

The FDI Law provides, in summary, for the establishment of:

  •  by decision of the Ministry of Economy, an FDI Unit, which shall, amongst various responsibilities, be charged with: (i) proposing FDI policies, priorities and programmes; (ii) building a base of investment data and information; (iii) consolidating and facilitating registration/licensing procedures for FDI projects;(iv) promoting/advertising the FDI environment; (v) preparing periodical reports on the FDI environment in the UAE; and (vi) attracting FDI to vital/strategic sectors; and 
  • by decision of the UAE Cabinet, a FDI Committee, charged with studying and recommending to the UAE Cabinet, amongst others things: (i) a list of economic sectors that may benefit from additional levels of foreign ownership (“Positive List”); and (ii) adding to the list of sectors that shall not be open to additional levels of foreign ownership (“Negative List”).

Positive List

  • The FDI Law does not explicitly define the economic sectors or business activities in which foreign ownership beyond the current 49% limitation may be permitted. Rather, it provides that a Positive List will be developed by the FDI Committee, based on certain key criteria including:
  • Strategic plans in the UAE
  • A return on investment for the UAE economy
  • The business’ approach to UAE innovation
  • Emirate national’s job and training opportunities
  • The impact on other Emirati owned businesses
  • The reputation and competence of the foreign investor
  • The investment into and the use of modern technology
  • Positive impact on the environment

The permission of foreign ownership is therefore based on discretion by the FDI and the award of the business licences will occur on a case by case basis. The FDI Law also provides that the conditions of investment will prescribe:

  • The legal form of entity which may be established
  • The percentage of capital capable of being owned, hence there may be a requirement for some Emirati national ownership of a minority investment;
  • the minimum capital to be invested (with any conditions or controls attaching to this investment); and
  • a prescribed Emirati workforce/employees to be engaged by the company.

Negative List

The FDI Law sets out a number of sectors/activities in the Negative List, which the FDI Committee shall be able to add to. Currently, the Negative List includes:

  • Exploration and production of petroleum products
  • Hajj and Umrah services (including labour supply and recruitment)
  • Insurance services
  • Banking & finance activities and payment/cash handling systems
  • Postal, communication and audio-visual services
  • Water and electricity services
  • Land and air transport services
  • Commercial agents services
  • Retail medicine (private pharmacies)

Other Welcome Measures

The FDI Law also provides assurances that profits generated in the UAE from any FDI investment, the proceeds from a liquidation of the investment and funds collected from the settlement of any dispute can be transferred out of the UAE, subject always to existing legislation. This would appear to give comfort and assurance to foreign investors that the UAE’s longstanding friendly investment culture will continue to apply.

Please contact Affiniax Partners for any advice with respect to registering a business with the new FDI entitlements.