Barter Exchange is a system of exchange where participants in a transaction exchange goods or services for other goods or services instead of using money as a mode of consideration. Barter exchange may include an exchange of goods in return of services, exchange of goods in return of goods or exchange of service in return of service.
For the purpose of understanding applicability of VAT on Barter Exchange in Bahrain, we should analyze do goods or services transferred in exchange qualify as taxable supply?
A taxable supply is defined in the VAT legislation as a “Supplies on which Tax is imposed, whether at the standard or zero rates and from which related Input Tax may be deducted, in accordance with the provisions of this Law”.
Supply is defined as “Any form of Supply of Goods or Services in exchange for Consideration in accordance with the provisions of this Law”.
The following conditions would generally need to be met for taxable supply:
- there needs to be a supply of goods or services;
- the supply has to be for consideration; and
- the supply made should attract tax and eligible to the deducted input tax credit.
|Conditions for taxable supply||Analysis|
|There needs to be a supply of goods or services;||Since barter exchange involves the transfer of goods or services from one person to another, it falls under supply.|
|The supply has to be for consideration;|
Consideration is all that is received or expected to be received by the taxable Supplier from the Customer or from a third party in exchange for a Supply of Goods or Services, inclusive of Tax.
|Since barter exchange offers another good or service in return, it qualifies as consideration received in non-monetary form.|
|The supply made should attract tax and eligible for the deducted input tax credit||If Supplies on which Tax is imposed, whether at the standard or zero rate, and from which related Input Tax may be deducted, in accordance with the provisions of this Law are part of exchange process then it will qualify as a taxable supply.|
Considering all the above three conditions, VAT will be applicable to such supply
Value of supply
If all or part of the Consideration is non-monetary, the value of the Supply shall be calculated as the total of the cash portion and the Fair Market Value of the non-monetary portion of the Consideration, inclusive of all the expenses, excluding Tax.
Therefore, the non-monetary value of goods or service received in barter exchange will be taken as consideration received for the purpose. The VAT will be charged on this consideration.
|Condition||Value of Supply|
|Barter exchange within Bahrain||The fair market value of goods or services exchanged will be taken as a consideration. The VAT will be charged on consideration.|
|Barter exchange from outside Bahrain|
Taxable supplies may either be subject to
- the standard rate or
- zero rates of VAT.
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