Value Added Tax or VAT as it is normally called will be a reality soon in Bahrain. Many articles are being published in local media as well as consultation seminars are being held on Bahrain VAT requirements. There is quite good information but it is not all the information. While consultants concentrate on the process we at 9T9 IT feel responsible to offer a system that will work in compliance to the requirements.
Fortunately, we have direct experience with implementation of VAT functions in our ERPNext for clients in Saudi Arabia and the United Arab Emirates. Based on our experience here are some of the answers to frequently asked questions. This FAQ assumes that business has annual supplies and imports exceeding BD 37,000/- ($100,000/-) and this would be the threshold for Bahrain business to be VAT compliant. Business having lower threshold are encouraged to have systems and processes in place to ensure they are able to quickly produce information if there is change in VAT policy.
How does VAT accounting work?
This is best answered with an example. Company purchases/imports an item for BD 100/-. It pays 5% as VAT at the time of purchase that is BD 5/-. The company then sells the item for BD 125/- on which it collects 5% VAT which is BD 6.250/-. The company is now liable to pay the difference of this amount which is BD 1.250/- to the tax authority.
In my financial chart of accounts where should the VAT account reside?
The account is usually created in current liabilities. All debits and credits occur in this account, the difference of which becomes payable. However, your accountant or auditor may have a different view which can be accommodated in our ERPNext.
How do I track VAT of each sale?
The buyer would need to give their unique VAT ID number to the supplier. This information is added into the buyer information page on first sale. For subsequent sales it is not needed as the information is available in the ERPNext.
How do I report the VAT?
The reporting followed in KSA & UAE is on a monthly basis. The VAT collector has to submit all invoices on which VAT is collected. This is deposited along with the total collected amount. Example VAT collections of Feb 2018 has to be submitted before end of March 2018.
How would VAT be charged by system while making a sales?
The system would charge the appropriate VAT on all items on net price of the product or service.
What is meant by net amount?
Lets say the total real cost of your product is BD 100/-. Usually, system would charge 5% VAT on BD 100 which is BD 5/-. But you give discount of BD 10/- on this invoice. Hence, the system understands that the cost to customer is BD 90/- and it charges VAT of 5% on BD 90/- which is BD 4.5/- only.
My business also has products which are VAT exempted, how will ERPNext not charge VAT on sales of these items?
In ERPNext rules can be written for VAT exemption on an item. Even if your business makes sale of VAT exempted products, coupled with items on which VAT is levied under one invoice, VAT will only be levied on items that are taxable and system will ignore charging VAT on exempted items.
My business also supplies to industries that maybe VAT exempted like Education, Health etc. or exports internationally?
In ERPNext we can write rules to exempt charging VAT for such industries or international customer altogether. Whenever a sale to such industry or customer is done the system would not levy any charge even though the product maybe VAT chargeable.
My business would have many purchase invoices which requires filing and space at my office. How will ERPNext help me digitialise it?
In ERPNext multiple files can be uploaded as attachments. You can scan the paid invoice and upload it to the journal entry and/or purchase order inside the system. This can be retained perpetually as against the UAE government rule of maintaining invoice for minimum 5 years.
Which language is to be used to create and submit invoices to the government?
In UAE the government accepts invoices in English however in Saudi Arabia it needs to be in Arabic.
Does ERPNext print invoices in Arabic as well?
Yes, while the default language is English all invoices can also be printed in Arabic.
Is there a standard template that needs to be filled to submit to tax authority?
The tax authority would have a template for reporting. This can be filled and submitted along with payment.
Will ERPNext create this template?
Yes, ERPNext can be customized to create this report on a set frequency.
Is ERPNext being used in non-GCC countries that have VAT?
Yes, it is being used successfully in countries that have very complex taxation laws. It is completely compliant to Goods & Services Tax of India and Singapore.