The aim of this article is to understand the applicability of VAT on gifts distributed or samples given free of cost in Bahrain.

The Taxable Person is deemed to have performed a Supply where the Taxable Person deducts the Input Tax relating to the Goods and Services (where the input tax credit is claimed) referred to in the following cases:

  1. The use or surrender of Goods forming part of his assets for purposes other than carrying out Economic Activity.
  2. Changing the use of Goods for the purpose of making non-Taxable Supplies.
  3. Retaining Goods on the date of deregistration despite the cessation of Economic Activity.
  4. The disposal of Goods free of charge, unless used as samples or gifts for the purposes of his Economic Activity within the threshold (covered under exceptions to the value of Deemed Supply below)
  5. Providing Services without Consideration.

Exceptions to Deemed Supplies

A Deemed Supply shall not occur in the following cases:

  1. Where Input Tax on Goods or Services related to Deemed Supplies is not deducted in part or in full.
  2. Where the Supply of Goods or Services is exempt from Tax.

The tax shall be due on Deemed Supplies of -Goods and Services on the date of Supply, surrender, disposal or change in the use of such goods, or on the date of deregistration, on a case-by-case basis.

Value of Deemed Supply

The value of Deemed Supply is calculated based on the purchase value or the actual cost of Goods or Services supplied. If the purchase or the actual cost cannot be determined, the Fair Market Value of the Goods or Services is used.

  1. For a Deemed Supply of Goods, the purchase price shall be the basis for imposing the Tax. If the purchase price is not known, the total actual cost as at the date of the Supply shall be used.
  2. For a Deemed Supply of Services, the total actual cost incurred by the Taxable Person shall be used as the basis for imposing Tax on the provision of such Services.
  3. Where the purchase price or the total actual cost as stipulated in Point 1 and 2 above cannot be determined, Tax will be imposed on the basis of the Fair Market Value of the Goods or Services.

The value of a Deemed Supply where the Economic Activity ceases shall be the Fair Market Value of the Goods held by the Taxable Person at the date of his deregistration.

The Market Value shall be determined in accordance with the fair price tradeable in the market between two independent parties under similar circumstances at the same date as the date of the Supply and in accordance with the following free competition conditions:

  1. Neither the Supplier nor the Customer is subject to any kind of commercial pressure;
  2. Both the Supplier and the Customer independently work to achieve what is in their best interest;
  3. The transaction is made within a reasonable period of time.

Exceptions to the value of Deemed supply

  1. Supplies of Goods provided without – Consideration shall not be treated as Deemed Supplies if the Taxable Person Supplies free gifts or samples, provided that their Market Value does not exceed fifty Dinars exclusive of Tax, per recipient, during a year.
  2. The threshold of annual Supplies of gifts, – samples and Goods that a Taxable Person may provide without Consideration is one thousand Dinars during the year.
  3. Samples disposed of without – Consideration must be a specimen of a product intended to promote the sale of the product and which allows the characteristics and quality of that product to be assessed without resulting in final consumption, except where the final consumption is essential to the promotion of such product.

Key takeaways:

  1. Supply of gifts and samples fall under deemed supply
  2. The VAT is payable on the deemed supply
  3. If the input tax credit is not claimed on goods that are supplied as gifts or samples, then it will not form part of the deemed supply
  4. The VAT will be levied on gifts or samples only if the taxable value crosses the threshold limit of 50 BHD (excluding VAT) per recipient or 1000 BHD during the year to all.

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The entire contents of this article is solely for information purpose and have been prepared on the basis of relevant provisions and as per the information existing at the time of the preparation.. It doesn't constitute professional advice or a formal recommendation. The author has undertook utmost care to disseminate the true and correct view and doesn't accept liability for any errors or omissions. You are kindly requested to verify & confirm the updates from the genuine sources before acting on any of the information's provided herein above.

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