The Value Added Tax (VAT) Law in Bahrain had been published and VAT has been introduced in Bahrain on 1 January 2019. The Bahrain VAT Law differs from the VAT rules of the United Arab (UAE), in particular around the zero-rating and VAT exemption provisions. So it is advised to learn about the Bahrain VAT in detail for the businesses of Bahrain.
Bahrain VAT in detail
The Bahrain VAT Law has now been published and sets out the general principles for the application of VAT in Bahrain. In line with the Unified GCC Agreement for Value Added Tax (VAT), VAT has been implemented in Bahrain on 1 January 2019.
It is expected that the VAT Executive Regulations also has been published in the before implementation and provided more detail on specific areas of the Law. However, the Law sets out a number of differences from the VAT Laws that have been already been implemented in the UAE.
Some of these key differences relate to the zero-rating and VAT exemption provisions in the Law. In particular, it is expected that Bahrain will apply the zero-rate on basic food items, the construction of new buildings, education and healthcare services, local transport services, as well as oil and gas and derivatives.
The sale and lease of real estate as well as certain financial services (i.e. those with an implicit fee) and life insurance/reinsurance will be exempt from VAT. Financial services provided for an explicit fee including account management, certain trade finance services, and fund managers will be subject to standard rate VAT. Standard rate VAT will also apply to non-life insurance/reinsurance. A separate decree establishing a new tax authority in Bahrain has also been published.
READ ABOUT THE IMPACT OF VAT ON GCC REAL ESTATE AND INVESTMENT MARKET
THE CARRY OFF
With the VAT implementation was confirmed to be 1 January 2019, businesses with activities in Bahrain will need to consider the implications of the law on their business and ensure that they are ready to comply with the Bahrain VAT requirements are to be followed and filed on before the first tax period.
VAT rates in BAHRAIN
Generally, Bahrain follows the terms of the Agreement, including the harmonized standard VAT rate of 5%, but has a wider range of zero and reduced VAT rates to provide subsidies to the less well off in society.
The current rates are:
| Rate Type | Which goods or services |
|---|---|
| 5% Standard | From 1 January 2019: All other supplies of goods or services, including imports, in accordance with the Unified VAT Agreement. |
| 0% Zero | Basic foodstuffs; domestic and international transport; new properties; healthcare; exports of goods and services; high-value metals; oil and gas; education; and medicine and medical equipment. |
| 0% Exempt | Sale and lease of real estate; and financial services. |
BAHRAIN VAT COMPLIANCE
Bahrain VAT registration
The compulsory VAT registration threshold in Bahrain is BHD 37,000 per annum. Voluntary registration for businesses below this threshold is permitted, although this has its own minimum threshold of BHD 18,850 per annum.
There is scope for related businesses to apply for a single, Group VAT registration.
There is no threshold for non-resident businesses, which must register prior to their first supply. Foreign registrations may be either direct or via a local Fiscal Representative.
Bahrain VAT invoices
- Date of invoice (and date of supply if different)
- Unique, sequential invoice number
- The tax ID number of the supplier
- Name and address of the supplier and customer
Description and quantity of the goods supplies; nature of services provided Gross, VAT and net values of supply VAT rate applied, and the explanation was not the standard rate.
Invoices must be issued within 15 days following the month of supply of the taxable goods or services.
Bahrain VAT Returns
Registered must submit their periodic returns each month. Returns must be filed by the last working day of the month following the reporting period.
Penalties for non-compliance
The following penalty regime for non-compliance is in place, with financial penalties and potential prison terms:
BD10,000 for failure to register for VAT within 60 days of the required date Failing to issue a VAT invoice within 15 days of the month following the taxable supply Failing to submit a VAT return and/or pay any VAT due by the end of the month following the reporting month.
KNOW MORE ABOUT PENALTIES FOR VAT NONCOMPLIANCE IN BAHRAIN
LAST MINUTE HIGHLIGHT OF VAT IMPLEMENTATION IN BAHRAIN
Sales of cars and jewelry in Bahrain have reportedly rushed forward by up to 40% in the last days of December.Sales of cars and jewelry in Bahrain have pitched by up to 40 percent in the last days of December, as buyers seek to sudden up big-ticket items before the launch of VAT on last week of December, it has been reported.Local media informed that top supermarkets, furniture stores, and consumer electronics retailers have also seen a barb in demand for TVs, home theatre systems, digital cameras, and furniture.
Media reported that one car dealership had to station staff at the General Directorate of Traffic to process paperwork due to huge demand. The rush comes ahead of the launch of five percent VAT which will see the price of a car that costs BD10,000 rise by BD500 VAT experts, told the GDN a spike in consumer spending before the VAT deadline had been expected. They added it was likely to be followed by a short-term drop in spending in the wake of the new tax.
Bahrain will apply zero-rate VAT on basic food items, some construction services, education and healthcare services, local transport services and the oil and gas sector.Bahrain has also exempted from VAT the sale and lease of residential and commercial real estate – as well as certain financial services such as loans.
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Frequently Asked Questions (FAQ)
1. What is the tax law in Bahrain?
Taxes on income, sales, capital gains, and estates are typically nonexistent in Bahrain. However, in some circumstances, both domestic and international companies that work in the oil and gas industry or make money from the extraction or refinement of fossil fuels, often known as hydrocarbons, may have to pay taxes.
2. Is the VAT rate increasing to 10 in Bahrain?
According to reports, Bahrain's National Assembly adopted a bill to increase the regular VAT rate from 5% to 10%, effective January 1, 2022. The Council of Ministers had passed the bill in September 2021 in an effort to raise more revenue.
