With the application of VAT in Bahrain since January 2019, tax is becoming a greater challenge for businesses in the region. This is especially true in the context of complex business structuring or restructuring where the VAT treatment and the related deduction entitlement for VAT on costs has not yet been well tested and / or fully clarified by the local tax authorities.

Transactions of this nature are generally high value increasing the risk of high penalties in the event of error. The penalty regime for non-compliance includes both fixed penalties and tax geared/time geared penalties.

Businesses should thread carefully, ensuring to give due consideration to the form of (re)structuring being undertaken and the associated VAT treatment / VAT deduction entitlement. Clarity should be sought from tax experts / tax authority, where required, to mitigate risk in this self-assessment exercise.

Early identification of any VAT within the structure which will be a real cost to the business will allow this cost to be taken into consideration when assessing its options, including the process for agreeing contract pricing for any merger, acquisition or disposal.