Vat In Bahrain: What You Need To Know

As of January 1st, 2019, Bahrain has implemented a 5% Value Added Tax (VAT) on all taxable goods and services. This makes it the third Gulf Cooperation Council (GCC) country to introduce VAT, following the UAE and Saudi Arabia. The standard VAT rate is 5%, but there are also zero-rated and tax-exempt categories. For instance, basic food items, education, health services, local transportation, and oil and gas are zero-rated, while certain supplies related to real estate and financial services are tax-exempt. The National Bureau for Revenue in Bahrain is responsible for VAT collection and administration.

VAT in Bahrain was implemented on 1 January 2019

On 1 January 2019, Bahrain introduced a Value Added Tax (VAT) of 5% on goods and services, in line with the Unified GCC Agreement for Value Added Tax. This made it the third of the six Gulf Cooperation Council (GCC) member states to implement VAT, following the 2016 Unified VAT Agreement for the GCC states.

The VAT law in Bahrain differs from that of the United Arab Emirates (UAE), particularly regarding zero-rating and VAT exemption provisions. Bahrain applies a zero-rate on basic food items, the construction of new buildings, education, healthcare services, local transport services, and oil and gas and derivatives. The sale and lease of real estate, as well as certain financial services and life insurance/reinsurance, are exempt from VAT.

Businesses with activities in Bahrain had to consider the implications of the law and ensure compliance before the first tax period. The National Bureau for Revenue (NBR) is the government entity responsible for implementing and collecting VAT in Bahrain. The NBR has released a VAT Rate Change Transitional Provisions Guide to explain the transitional rules and clarify when to apply the new standard rate.

The compulsory VAT registration threshold in Bahrain is BHD 37,000 per annum, with voluntary registration permitted for businesses below this threshold. There is scope for related businesses to apply for a single, Group VAT registration. Non-resident businesses must register before their first supply, and may register directly or via a local Fiscal Representative.

The standard VAT rate in Bahrain is 5%

The Kingdom of Bahrain implemented a Value Added Tax (VAT) of 5% on taxable goods and services on 1 January 2019. This standard VAT rate applies to all taxable supplies, with some exceptions that are either zero-rated or exempt from VAT.

The VAT in Bahrain is an indirect tax levied on all taxable goods and services. Registered sellers collect VAT from buyers on behalf of the government. The VAT is transaction-based, meaning it is imposed on every single transaction in the supply chain until the good or service reaches the consumer.

The standard VAT rate of 5% applies to the total value of all taxable goods and services, unless they fall into a zero-rated or tax-exempt category. Registered business owners can recover the tax paid on these goods and services (known as input tax).

Zero-rated goods and services include basic food items, education, health (including pharmaceuticals and medical supplies), real estate (construction of new buildings), local transportation, and oil and gas (and their derivatives). For these, the VAT rate is 0%, and the final consumers do not pay any tax.

Certain supplies, such as financial services, bare land, and buildings, are exempt from VAT in Bahrain. However, these are subject to conditions prescribed in the Bahrain VAT regulation.

It is important for businesses to understand the different VAT rates and their applicability to ensure they charge the correct VAT rate.

Zero-rated supplies include basic food items, education, health, and local transportation

Bahrain introduced Value Added Tax (VAT) in 2019, following the 2016 Unified VAT Agreement for the Gulf Cooperation Council (GCC) states. The standard rate of VAT in Bahrain is 5%, but there are some supplies that are zero-rated and others that are tax-exempt. Zero-rated supplies are taxable supplies charged at a rate of 0%. This means that while businesses can claim input VAT deductions, the final consumers will not pay any tax.

Zero-rated supplies in Bahrain include basic food items, education, health, and local transportation. Basic food items that are zero-rated include all categories of yoghurt, fresh cheese, fresh or chilled beef, sheep or goat meat, olive oil, and various types of fruits and vegetables.

Education services and related goods and services, from kindergarten to higher education, are also zero-rated. In the health sector, the supply of preventive and basic healthcare services, medicines, and medical equipment is zero-rated. Additionally, the local transportation sector is zero-rated, which includes transportation services for passengers and goods to, from, or within the Kingdom of Bahrain.

Certain supplies are VAT-exempt, including the sale of real estate and financial services

The Kingdom of Bahrain implemented a Value Added Tax (VAT) on January 1, 2019. The standard rate of VAT is 5%, but this was increased to 10% with effect from January 1, 2022. Certain supplies are exempt from VAT, including the lease or sale of real estate and financial services.

Real Estate

The sale or lease of bare land and buildings is exempt from VAT in Bahrain. This includes the provision of a designated space within a shopping mall, retail, or entertainment area that serves the same purpose as a standard shop. However, the provision of space for retail or promotional stands will be subject to VAT at 10% if the person providing the space is a VATable person.

Financial Services

Financial services specified in the VAT regulations will be exempt from VAT, but only if they are not conducted in return for explicit fees, discounts, commissions, rebates, or any similar returns. Otherwise, they will be taxable at 5% VAT. The specific types of financial services that will be exempted in Bahrain will be known once the VAT Regulations are released.

The National Bureau for Revenue in the Kingdom of Bahrain is responsible for VAT collection and administration

The Kingdom of Bahrain implemented a Value-Added Tax (VAT) on January 1, 2019. The National Bureau for Revenue (NBR) in the Kingdom of Bahrain is responsible for VAT collection and administration. The NBR has digitalized VAT collection processes, signatures, and taxpayer guidance, eliminating manual processes and paper usage.

The NBR has released a VAT Rate Change Transitional Provisions Guide to explain the new VAT rates to taxpayers. The standard VAT rate in Bahrain is 5%, but there are also zero and reduced VAT rates for certain goods and services. For example, basic food items, education, health, construction of new buildings, local transportation, and oil and gas are subject to a zero-rated tax. Certain supplies related to real estate and financial services are VAT-exempt.

The NBR provides guidance on the different VAT rates applicable to taxable goods and services in Bahrain. The standard rate of 5% tax is levied on the total value of all taxable goods and services unless they fall under a zero-rated or tax-exempt category. Registered business owners can recover the tax paid on these goods and services as input tax.

The NBR also outlines the requirements for VAT registration and submission of VAT returns. Resident taxable persons must register for VAT if their total supply value in Bahrain exceeds the mandatory threshold. The timeline for registration depends on the annual turnover in sales. Taxpayers must submit VAT returns to the NBR by the last day of the month following each tax period, even if they have not made any supplies or received any imports during that period.

Frequently asked questions