One of the major challenges that businesses will face in Bahrain is to comply with the various rules and regulations of the Value Added Tax. It is important to prepare a structured VAT Audit for companies to follow the compliance rules of the government. So, let's dive into the details of VAT in Bahrain and the penalties for noncompliance.

The Kingdom of Bahrain has introduced VAT there from 1 January 2019. This system was introduced in order to increase and even out the public finances that are strike tough by the go down in oil prices that also pushed Bahrain’s dinar to its lowest in more than a decade.

Under the Value Added Tax system, the burden will be on the registered company to calculate the tax payable by proper accounting of the Output VAT collected and adjusting against the Input VAT paid. Non-compliance to the rules and regulations of VAT can lead to the levy of severe penalties and punishments. In order to assist the business units in becoming common with the compliances of VAT here, we have outlined all of the requirements.

What is VAT in Bahrain?

The VAT is a tax on consumption, not income or profits. The GCC countries have agreed with a standard VAT rate of five percent. The supply of goods and services can be exempt, zero-rated or standard-rated (five percent), or out of scope. The mandatory registration threshold is the equivalent of US$100,000 – as set out in the GCC VAT treaty. The voluntary registration threshold is the equivalent of US$50,000. Registered businesses account for VAT on the price charged for the goods or services they supply and pay it to the tax authority on a regular basis.

Registered businesses should (where the supplies they make are either standard- or zero-rated or out of scope with recovery) be able to recover the VAT they have incurred in the course of making those supplies. Registered businesses that make supplies that are exempt from VAT cannot recover the VAT they have incurred in the course of making those supplies.

Registered businesses may not be able to recover the VAT they have incurred on certain purchases that are deemed to have a private element. Registered businesses that make supplies that are predominantly zero-rated are likely to be in a VAT refund position. Businesses that make both exempt and taxable supplies can only recover a proportion of their input VAT.


VAT Registration Requirements in Bahrain

Not all business unit in Bahrain is required to obtain VAT registration in Bahrain. Rather there is a precise turnover principle that is stated for the mandatory and voluntary registration. Vat registration criteria in Bahrain are as follows:
Mandatory Registration Threshold Limit- All the business units whose annual turnover is above BHD 37,700 approx is mandatorily required to obtain the VAT registration.
Voluntary Registration Threshold Limit- If the annual turnover of the business entity is below BHD 37,700 but over BHD 18,850 it is at the discretion of the business to obtain the registration or not.
Group Registration
Two or more taxable legal people resident in Bahrain can also come together to register as a VAT group.
Penalties for VAT non-compliance in Bahrain
In order to ensure compliance by the businesses of the laws stipulated the provisions of penalties to be levied are made. The monetary and imprisonment punishments that can be levied in specific cases as follows:
1. Fault in the register under the VAT regime will attract a penalty of up to BHD10,000.
2. Fault in providing the tax authority with information it requests the penalty up to BHD5,000 will be levied.
3. Further, the below-mentioned acts will be considered as tax evasion, and could result in imprisonment-
a) Failure to register for VAT within 60 days of the registration deadline
b) Failure to pay VAT within 60 days of the payment deadline
c) Failure to provide a tax invoice
d) Charging VAT on non-taxable items
e) Unrightfully recovering input VAT


In order to avoid the levy of hefty penalties and punishment due to non-compliance, it is important for every business unit to be familiar with VAT compliance in Bahrain requirements. The Ministry of Finance, Kingdom of Bahrain has undoubtedly stated that there will be no relaxation in charge of penalties for non-compliance so companies and businesses in Bahrain are advised to be VAT compliant as soon as possible.

Businesses have obstacles while planning for VAT, just as they do with any new regulation. BMS Auditing in Bahrain has a specialized staff of VAT Consultants. Our experienced VAT team in the Lower Gulf, in collaboration with international VAT experts across the BMS network, has been advising and implementing strategies to assist organizations in meeting their VAT obligations and reducing VAT liabilities, particularly for clients who do not have full VAT recovery.

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