Bahrain introduced VAT on 1 January 2019. The standard rate will be 5%. Certain goods and services will be subject to a zero-rate (0%) of VAT and others will be exempt from VAT.
Generally, VAT applies at 5% if a supply of goods and services is made:
As a tax on consumption, VAT is paid and collected at every stage of the supply chain, with end consumers of goods and services bearing the cost.
The National Bureau for Taxation (NBT) is the government body responsible for the implementation and administration of VAT in Bahrain. The NBT is responsible for the registration of taxpayer and their tax liability, the validation of VAT return filing and the related assessment, the payment of refunds and collection of any amount due, the auditing and processing of any appeal and the monitoring and enforcement of compliance. The NBT is a department of the Ministry of Finance and National Economy of Bahrain and works closely with it.
The NBT set some transitional rules to follow during the 2019 year of implementation. These rules are:
It is also important to note that Bahrain does not currently recognize any other GCC member states as the Implementing States for the purpose of VAT. Until further notice, any transaction involving another GCC member state is treated, for VAT purpose, as a transaction involving a non-Implementing State.
Only taxable persons are authorized to charge VAT on their supplies. A “taxable person” is: “A Person carrying out an Economic Activity independently for the purposes of generating income and who is registered or obliged to register for Tax purposes in accordance with the provisions of this Law.
There are cases where VAT registration is mandatory and cases where a VAT registration can be applied for on a voluntary basis. (For the year 2019, kindly refer to the Section 19 of VAT General Guide v1.1 issued by NBT, which provides further details on the 2019 transitional rules applicable for VAT registration of residents in Bahrain.)
When you are resident in Bahrain and meet the criteria to qualify as a taxable person, you are required to register for VAT if:
If you exceed the mandatory registration threshold under one of the above, you must apply to the NBT for VAT registration within 30 days starting from the last day of the month where you exceeded the mandatory threshold or within 30 days prior the first day of the month where you expect to exceed the mandatory threshold. Late application for registration may result in the application of penalties.
If you only supply goods or services which are subject to the zero-rate of VAT, and you do not receive services or goods for which you are liable to account for standard rated VAT under the reverse-charge mechanism, you can apply to the NBT for an exception to register for VAT if your zero-rated supplies exceed the mandatory threshold for registration.
If you apply for an exception from VAT registration and this is approved by the NBT, you will not be considered as a taxable person. You will not be entitled to charge VAT on your supplies and you will not be able to recover the VAT incurred on your business expenses
If you are a non-resident taxable person, you must register for VAT in Bahrain as soon as you start making taxable supplies in Bahrain where no one else is liable to account for the VAT due on your supplies. You must apply to register for VAT with the NBT within 30 days of his first supply in Bahrain for which he is required to pay tax. A late application may result in the application of penalties.
A taxable person can still decide to register for VAT on a voluntary basis even if their supplier does not exceed the mandatory threshold provided that:
A person who is not required to register for VAT and which does not qualify for a voluntary registration cannot register for VAT in Bahrain. As a result, that person may not charge VAT on its supplies or recover the VAT incurred on business expenses
For a taxable person, the following are transactions that fall within the scope of VAT:
“Out of scope” transactions are those which either do not meet the criteria to fall within one of the categories above or are specifically excluded from the VAT scope by a provision of the VAT Law. A taxable person should not account for VAT on an out of scope transaction.
The below are examples (non-exhaustive) of transactions that do not fall within the scope of VAT:
A taxable person, or its tax representative (where applicable), is required to retain the following documents:
It is advisable to also keep records of the following:
The records and documents relating to tax should be kept either in Arabic or in English.
A taxable person must maintain the relevant records for a period of five years after the end of the tax period to which they relate or from the end of the tax period where the adjustment period ends (for capital assets). Records which relate to real estate must be kept for a period of 15 years after the end of the tax period to which they relate.
The NBT may notify the taxable person to retain these records for a longer period, without this additional period exceeding five years.
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