Certain services typically performed by banks and similar organisations in connection with the operation of current, deposit or savings accounts. Services of operating bank accounts might notably include the following:
- Provision of debit cards
- Provision of cheque books
- Provision of statements and duplicate statements
- Charges for dishonoured cheques
- Transfers between accounts
- Processing direct debit and standing orders
- Issuing of certificates of balance
- Issuing of audit certificates
- Provision of special cheques (e.g., manager’s cheques)
- Access to e-banking
In principle, services of operating bank accounts follow the general place of supply rules applicable to services.
Operation of bank account services, when performed for consideration, are generally supplied for the payment of a fee or fee(s). Therefore, when supplied in Bahrain, they are subject to VAT at the standard rate of 5%, unless the conditions to apply the zero-rate of VAT (for export of services) are met.
Banks may charge a single fee for the operation of a bank account to cover a broad range of services. This fee and the services it covers would most likely meet the features to qualify as a single composite supply for VAT. This supply would also most likely qualify as a continuous supply of services for the purposes of the tax due date rules.
Single Composite Supply
A single composite supply is one, single indivisible supply of a mixture of goods and/or services. The supply is treated as a single supply and is subject to VAT at one rate which is applied to the value of the supply as a whole. You must not use apportionment where you make a single composite supply.
There will be a single composite supply where one or more elements of the supply comprise the principal component, with other elements being ancillary – i.e. not an aim in itself, but a means of better enjoying the principal component. The contractual nature and wider circumstances of such supplies will be taken into account.
In addition, there will be a single composite supply where there is a supply which has two or more elements which are so closely linked that they form a single supply and which it would be artificial or impossible to split.
A single composite supply will only typically exist where:
- Where the Supply includes a principal component and a component or other component necessary or essential for conducting the principal Supply,
- Where the Supply includes a principal component and a component or other component that are not considered as an aim in themselves, but a means of improving access to the principal Supply,
- Where the Supply includes two or more closely linked components where they form a single Supply, which would be impossible or unnatural to split,
- All components of the Supply are supplied by the Taxable Person,
- The Taxable Person does not separately determine the price of the components of the Supply, or impose a different price on each component.
There are some services that banks may only provide upon request and for which a specific fee per request is charged (e.g., provision of a special cheque, issue of a certificate). In principle these “on-demand” services should be considered as separate supplies of services and would most likely qualify as one-off supplies of services for the purposes of the tax due date rules.
Where you make multiple supplies, you must determine the correct amount of VAT to charge in respect of each of these supplies.
|If you make supplies and the individual supplies are:||Then you should:|
|Liable to VAT at the same rate||Calculate the tax that is due in the normal way|
|Not liable to VAT at the same rate||Work out the tax value of each supply in order to calculate how much tax is due|
Where the individual supplies are not liable to VAT at the same rate, you must use a method of valuing each supply which is fair and reasonable. This could include using the cost of each element of the supply as a proxy for assigning a value to each component of the supply. The value of each supply must be disclosed to the customer.
In any case, it is recommended that banks and financial institutions determine the correct VAT treatment of their respective services based on the specific terms and conditions applicable under the contracts with their customers.
Continuous supplies are typically supplies which cannot be considered as “finished” or “completed” until such a time that either the contract ends (if the contract is agreed for a specific duration) or one of the parties decides to terminate it (if the contracts is open ended).
Time of Supply of Continuous supply
The Supply of Goods or Services under any contract that includes periodic payments or consecutive invoices is the earliest of any of the following dates, provided that it does not exceed 12 months from the date of the provision of such Goods and Services:
- The date of issuance of any Tax Invoice or any other equivalent document.
- The date payment is due as shown on the Tax Invoice
- The date of receipt of payment
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.