After nearly two years of experience with VAT in Bahrain, significant changes were made in 2020. The changes are a result of VAT guides and public clarification issued by the National Bureau for Revenue with respect to things like rules and procedures for obtaining refunds, VAT guidance for the retail and wholesale sectors, telecommunication services, warranty repair services, and so on.
Recently a tax evasion crime unit was established by the Attorney General in Bahrain. This unit is affiliated with the Financial Crimes and Money Laundering Prosecution, which aims to reinforce the executive procedures regarding application of the provisions of the VAT to tackle cases of tax evasion.
The ESR guidelines were introduced in Bahrain in response to its international commitment to the OECD Framework on Base Erosion and Profit Sharing (BEPS). The ESR guidelines seek to uncover the reality of a corporate structure which, to be considered valid, must have both a substantial purpose aside from reduction of tax liability and an economic effect aside from the tax effect. In Bahrain, the Ministry of Industry, Commerce and Tourism (MoICT), and the Central Bank of Bahrain (CBB) have been entrusted with the task of administrating and regulating the ESR compliance. Currently, ESR filing is only applicable to certain entities whose business activities fall under a list of activities published by MoICT or CBB (for CBB-regulated entities).
The country is now gearing up for the second filing of ESRs. The deadline to file the return with MoICT and CBB is 31 March 2021 for Bahraini entities having a financial year end of 31 December 2020.