In more detail

Bahrain VAT Financial Services Guide – Version 1.3 (effective 6 August 2024)

Section 2.7.2 Interchange fees – enhanced

International interchange – Payment Network Operator

The supply of interchange services is viewed as taking place between the issuing bank and acquiring bank, as such the acquiring bank and not the Payment Network Operator (PNO) is viewed as the customer for VAT purposes.

As such, interchange fee income charged by the issuing bank can only be zero-rated where the acquiring bank is a non-resident. Where the acquiring bank is resident in Bahrain, the interchange income is subject to VAT at the standard rate of 10%. The place of residence of the Payment Network Operator, does not impact the VAT application. VAT is applicable on the gross interchange income, irrespective of the fact that the issuing bank interchange fee income and expenses are settled on a net basis. It is the responsibility of the issuing bank to calculate the gross value of its interchange supplies made to apply the VAT to the appropriate amount.

Banks in Bahrain should treat the "Daily Settlement Reports" issued by the PNO's as the supporting documents for VAT compliance purposes, provided the reports contain at least the following information: 

1. Name and address of the bank to which the report is issued. 
2. A unique report identification number. 
3. The date of issue of the report and the date of supply. 
4. The period covered by the report (e.g. 1 January 2024 – 31 January 2024). 
5. A brief description of the amounts shown on the report. 
6. Sufficient detail to identify the total amount payable on local supplies. 
7. Sufficient detail to identify the total amount receivable on local supplies. 
8. Sufficient detail to identify the total amount receivable on foreign suppliers.

Local and GCC switch service

The National Bahrain for Revenue (NBR) has advised that banks may use the "Daily Settlement Advice Report/ Tax Invoice" issued by the local service provider as the supporting documents for VAT compliance purposes and should adopt the following tax treatment: 

• Local Section of the report: 
  • Treat the total debit amount of fees and commissions as standard rated purchases; and
  • Treat the total credit amount of fees and commissions as standard rated supply.
• GCC section of the report: 
  • Treat the total debit amount of fees and commissions as purchase subject to reverse charge; and
  • Treat the total credit amount of fees and commissions as zero-rated supplies.

The gross value of the debit and credit amounts should be considered when assessing the value of the supplies made.

Effective date of guidance

The effective date of the guidance provided by the NBR is 1 September 2024. This means that it is important for taxpayers to start treating interchange, both local and international, correctly in line with the guidance provided to prevent any instances of non-compliance.

Appendix F: fees vs penalties

The NBR has stated that as of 1 November 2024, all charges are considered taxable unless it is in relation to an indemnification of an actual damage (examples include court awarded damages, arbitration panel, or committee, or parties agree to settle the dispute by accepting payment).

All other charges by banks for late payment or early termination are subject to VAT at standard rate. Other examples of standard rated penalties include late returning of a hired car, any penalties for breaking a lease early.

The guidance on penalties have similarly been updated in the VAT General Guide Version 1.11 (updated 6 August 2024).

UAE Federal Tax Authority issued the Charities Guide (5 August 2024)

The UAE Federal Tax Authority (FTA) has issued a detailed list of all Charities which may recover input tax in accordance with Article 57 of the Federal Decree-Law No.(8) of 2017 on Value Added Tax, and its amendments, together with the effective date range (view here).

UAE Federal Tax Authority - Corporate Tax Public Clarification on First Tax Period of a Juridical Person (30 July 2024) 

The FTA has provided clarification on when the first tax period for a taxpayer begins through the provision of certain examples. The clarification provides guidance on scenarios includes (i) when a company established after 1 June 2023 is required to register (ii) where the management and control of a non-resident company is within the UAE, and (iii) multiple situations involving when a permanent establishment of a non-resident entity is triggered in the UAE and when a registration obligation arises.

The document also addresses the timeline for tax deregistration if a juridical person ceases business activities during the first tax period. The cessation of a Taxable Person’s Business or Business Activities, whether by dissolution, liquidation, or otherwise, during its first Tax Period does not impact its obligation to register for Corporate Tax (i.e., a Taxable Person is still required to register for Corporate Tax even where the cessation takes place after the start of the first Tax Period). Post registration, the Taxable Person is required to file for a UAE Corporate Tax return for the period from commencing its Tax Period upon until its ceasing business / enters into liquidation. Upon ceasing business / entering liquidation, a notification is also required to be made to the FTA as well as deregistering from UAE Corporate Tax within three months.

Oman Personal Tax Developments 

The Shura Council has recently moved forward with the Personal Income Tax (PIT) draft bill, presenting it to the State Council for approval.

As per various sources, the proposed bill outlines a PIT rate ranging from 5% to 9% on income exceeding USD 100,000 for expatriates and on net income over USD 1,000,000 for Omani nationals. Official confirmation and specifics regarding the bill's implementation remain pending.

Kuwait Corporate Tax Developments

The UAE and Kuwait have finalised their government ratification process and a Double Tax Agreement is expected to come into force from 1 January 2025. The provisions of the double tax treaty are generally in line with OECD / UN model provisions.

In addition, it is our understanding that the Kuwaiti government has proposed a corporate income tax reform. There has been no formal provisions proposed by the Kuwaiti government currently, however it is expected that such reform would extend the application of corporate tax to all businesses operating in Kuwait (rather than only to non-Gulf foreign companies and non-Gulf foreign shareholders as is currently the case) and could be implemented as soon as early 2025.

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Please reach out to a member of the MENA tax team if you have any questions or would like to discuss how the above could impact you. We continually monitor all tax updates and developments within the region to ensure we are best equipped to support you and your business.