The National Bureau for Revenue (NBR) in Bahrain has issues technical guide in relation to Input VAT Recovery on costs relating to motor vehicles and mobile phones where there is both business and personal use.
NBR comes up with two method for calculating the Input VAT Recoverable on Motor Vehicles and Mobile Phones used for both Business and Non-Business purpose.
The first method talks about to allow Input VAT Recovery on proportionate basis based on actual usage for business and personal. To apply this method, Taxable Person must keep and maintain written logs and records which shall evidence the usage.
The second method which is also known as “Simplified Method” allows to calculate Input Vat Recovery based on estimated percentage given by NBR.
In case of Motor Vehicle, Fixed VAT Input Recovery shall be 40% on all the costs. In case of Mobile Phones, Fixed VAT Input Recovery shall be 40% on all the costs.
Once the simplified method is applied by the taxable person, then such method must be applied for minimum period of two years and for all the assets in the relevant category.
Further the taxable person may opt for anyone method for the both or one method for Motor Vehicle and another for Mobile Phones or vice-versa. However, if simplified method is applied, the it must be for two years.
The apportionment method used to determine business and personal use should be carried out on a fair and reasonable basis, by reference to actual usage and under written policies and procedures. However, the NBR has introduced an alternative simplified method using a fixed percentage.
Below is the detailed clarifications and methods issued by NBR through technical FAQs for treatment of VAT Input Recovery for Motor Vehicle and Mobile Phone:
1. Can I claim input VAT related to mobile phones and vehicles used for both business and non-business purposes?
Where a motor vehicle or mobile phone has been provided to an employee, which may be subject to personal use (e.g. to commute to or from work, making or receiving personal phone calls), the input VAT claimable in respect of vehicle or phone costs must be allocated between business and personal use. This apportionment should be carried out on a fair and reasonable basis, by reference to actual usage and under written policies and procedures. Alternatively, a simplified method may be used.
2. How do I apportion input VAT on vehicle costs between business and personal use? Apportionment of input VAT for vehicles should be by reference to distance travelled for business and personal purposes and should be evidenced by written logs documenting each journey.
When computing the allowable input VAT on the purchase costs of a vehicle, a business will need to estimate the expected business and personal use. An adjustment will be required at the end of each VAT year to reflect the actual business and personal use.
3. How do I apportion input VAT on mobile phone costs between business and personal use? Apportionment for phones should be by reference to the cost of personal use; written records should be maintained setting out how this is calculated.
No input VAT is available for any phone related expenses where there is no bill (e.g. prepaid phone credit). The input VAT on such expenses must be disallowed in its entirety. When computing the allowable input VAT on the purchase costs of a mobile phone, a business will need to estimate the expected business and personal use. An adjustment will be required at the end of each VAT year to reflect the actual business and personal use. No input VAT can be claimed in respect of mobile phone costs where the actual business usage of the phone does not exceed 50%.
4. Is there a simplified method?
The NBR will accept a fixed percentage Input VAT recovery for both vehicles and mobile phones provided to employees which are used for business and non-business purposes:
- Motor vehicles – Fixed Input VAT recovery rate of 40% on all costs
- Mobile phones – Fixed Input VAT recovery rate of 60% on all costs
A business may choose to use both simplified methods or opt to use only one (i.e. for motor vehicles, but not for mobile phones or vice versa).
If a business intends to use one of the fixed input VAT recovery rates, it will be obliged to use it for all assets in the relevant category. This means:
If the business chooses to use the 40% recovery rate for motor vehicles, all motor vehicles with personal use must be subject to 40% fixed recovery rate.
If the business chooses to use the 60% recovery rate for mobile phones, all mobile phones owned by the business with personal use must be subject to the 60% recovery rate).
Mobile phones that do not have business use exceeding 50% are not eligible for the simplification measure as no input VAT can be claimed in respect of expenses incurred on such phones.
A business that opts to use one or both of the simplified methods does not need to notify the NBR.
5. How long must I continue using the simplified method if I choose to apply it?
The vatable person must use the fixed recovery rate for a period of two years before moving to an actual basis for computing input VAT recovery.
If there is a significant change to the business during those two years, the vatable person may apply to the NBR to change to an actual basis prior to the end of the two years. The NBR will have full discretion as to whether to approve or deny the request.
6. Do I need to obtain approval from the NBR prior to applying the simplified method?
There is no requirement to obtain pre-approval from the NBR to use the fixed input VAT recovery rates, nor is there a requirement to inform the NBR that the business is using them.
The NBR reserves the right to disqualify any person from using the simplification measure where it forms the view that it is being abused.
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