As Bahrain’s VAT system matures, the tax authority (the National Bureau for Revenue or NBR) has become more active with reviews and audits.
Sooner or later, taxpayers should expect to be asked to respond to questions from the NBR.
Mistakes and errors happen – especially where VAT returns are submitted without review – and penalties will follow.
The penalties can be significant – fines of up to 25 per cent of the tax due if returns are submitted and paid late, and up to BD5,000 for issuing incorrect tax invoices.
If a taxpayer fails to register for VAT, the NBR can impose a fine of BD10,000.
What are your options where you receive a VAT penalty or fine? What can you do if you receive a VAT assessment that you do not agree with?
If you disagree with an assessment, you can appeal to the NBR’s internal review and appeals section (R&A).
It is free to appeal to the R&A – you don’t even have to pay the assessment amount before appealing – but you must appeal within 15 days of receiving an assessment.
Because the R&A is free, it is the recommended first stage of appeal for any VAT issue or assessment.
If the appeal to the R&A is unsuccessful, or the 15-day deadline is missed, taxpayers can appeal to the VAT Appeals Review Committee (VARC).
Appeals to the VARC must be made in Arabic, and the assessment or penalty must be paid, along with the appeal fee, before the VARC will accept the application for review.
A penalty of BD10,000 is often too much for a company to pay upfront, so obtaining a favourable result at the R&A before appealing to the VARC may be a commercial imperative.
If a taxpayer does appeal to VARC, they will have to attend a hearing to present a detailed written submission.
Expert VAT advice is should be obtained when developing - or at the very least reviewing - any written submission.
The VARC is the last appeal stage before the courts, so it must be taken seriously.
VAT is now business as usual in Bahrain, and taxpayers should approach VAT matters in the same way they would approach financial audits and compliance with commercial registration obligations.
The penalties for non-compliance can be harsh and companies should develop a strategy for liaising with the NBR.
The author heads Keypoint’s tax advisory function in Bahrain