GCC Indirect Tax Weekly Digest

Bahrain developments

NBR publishes VAT Public Clarification on place of supply of telecommunications services

The Bahrain National Bureau for Revenue (NBR) has published a VAT Public Clarification on the place of supply of telecommunications services.

The Public Clarification has been published to amend the 'use and enjoyment' rules, which determine the place of supply for certain telecommunications services, to align them with the International Telecommunications Regulations (Melbourne, 1988), which is also known as the Melbourne Agreement and to which Bahrain is a party.

Article 18 of the Bahrain VAT Law, sets out that the place of supply of telecommunications services will be Bahrain if they are used/enjoyed in Bahrain.

From 1 February 2021, the rules will be amended as follows:

• For telecommunications requiring the customer to be physically present at a specific location (e.g. a wi-fi hotspot), the place of use and enjoyment is that specific location, and therefore there is no change in the place of supply rules
  for such services.

• For all other telecommunications services, the place of use and enjoyment is the place of residence of the customer, which the supplier should determine by reference to the customer’s IP address, SIM card country code, billing address, bank account location, or other commercial information. Where any of these are in Bahrain, the place of residence will be Bahrain, unless the customer provides satisfactory evidence to the supplier that their actual place of residence is in another country. However, where the country code of the customer’s SIM card is Bahrain, the place of supply cannot shift from Bahrain.

Evidence of actual residence in another country must include at least two documents such as residence permit, ID card, bank statement, or tax return showing the same address for the customer in another country. The Public Clarification sets out the supplier’s responsibilities for validating such documents.

As a result of this amendment, charges made by Bahraini resident telecommunications providers (telcos) to non-resident telcos under roaming agreements will be out of scope of Bahraini VAT. In addition, non-resident telcos will not be required to register or account for VAT in Bahrain on services provided to non-Bahraini resident customers visiting Bahrain, as these will be out of scope of VAT.

Further, Bahraini resident telcos will be required to charge VAT at 5% on roaming services supplied to Bahraini resident customers when they are overseas, because the place of supply will be the place of residence of the customer.

This digest is for information purposes only and should not be construed as advice. It does not necessarily cover every aspect of the topics with which it deals. You should not act upon the contents of this alert without receiving formal advice on your particular circumstances.