The NBR has updated its VAT Financial Services with a section on cryptocurrencies.
Introduction Crypto assets are virtual or digital assets or tokens operating on a blockchain platform, protected by cryptography. There are four types of tokens recognized in Bahrain. These are set out below together with their VAT treatment.
Payment Tokens Payment tokens (cryptocurrencies such as Bitcoin) are virtual currencies intended to be used as a means of payment for acquiring goods or services or as a means of money or value transfer. The VAT treatment for these tokens is as follows: a. Tokens received by miners for their mining activities are outside the scope of VAT. This is because mining is not an economic activity as there is an insufficient link between the service provided and any consideration received. From a practical perspective, there are no customers capable of receiving the mining service;
b. The exchange of tokens for legal tender or other tokens, and vice versa, are supplies of financial services exempt from VAT;
c. The use of tokens to acquire goods or services does not result in a supply of the token, and is outside the scope of VAT as the token only represents a means of payment;
d. The supply of goods and services remunerated in payment tokens should be treated in the same way as those remunerated in traditional currencies, and should follow the treatment set out in the VAT Law and Regulations;
e. The VATable amount of a transaction is the consideration received by the supplier. If this is expressed in payment tokens, the VATable amount should be the equivalent amount in Bahraini Dinar at the time of the transaction;
f. Any charges over and above the value of the payment tokens made for arranging a transaction in payment tokens will be exempt from VAT, except where the consideration for the service is expressly determined as a fee, commission or commercial discount, in which case the supply will be subject to VAT;
The exchange rate used to convert supplies denominated in payment tokens into Bahraini Dinars for VAT compliance purposes will be the rate published on the CBB website. Where this is not available, a VATable supplier should use an exchange rate available on the open market, and the source of the rates should be used consistently by the VATable supplier for the translation of all transactions involving payment tokens.
Utility Tokens Utility tokens are tokens that are intended to provide access to a specific application or service, but are not accepted as a means of payment for other applications. These tokens are similar in nature to vouchers and should be treated in the same way for VAT purposes. Where the tokens can be exchanged for goods or services which are subject to the same VAT rate, the token will be a single purpose voucher with its date of supply being its issue date. VAT will be due based on the consideration paid for the token at the date of supplying the token. In all other cases (multi-purpose vouchers), VAT will be due on token at the date of supplying the goods or services which are exchanged for the token on the basis of the value of the consideration paid for the token, or the face value of the token where the value of the goods or services is not specified.
Asset Tokens Asset tokens represent assets, such as a debt or equity claim on the issuer. They promise a share in future company earnings or future capital flows, and are analogous to equities, bonds or derivatives. These tokens are exempt supplies of financial services, unless supplied for an additional explicit fee, commission or commercial discount above the market value of the token, in which case they will be supplies subject to VAT. Hybrid Tokens Hybrid tokens are those that have features of one or more of the other three types of tokens. The VAT treatment of such tokens needs to be determined on a case-by-case basis, and, depending on the specific circumstances, may be a single composite supply or multiple supply of goods and/or services.
In all cases mentioned above, exempt supplies are capable of being zero rated under Article 73 of the VAT Executive Regulations.
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