VAT in Bahrain  

What is VAT (Value Added Tax) in Bahrain?  

VAT (Value Added Tax) in Bahrain was introduced on January 1, 2019, which is an indirect tax charged for goods and services purchased and sold for business. Bahrain is the third member of the GCC (Gulf Cooperation Council) to implement VAT after UAE (United Arab Emirates) and KSA (Kingdom of Saudi Arabia). The NBR (National Bureau of Revenue) implements VAT in Bahrain. For businesses, it is important to understand VAT concepts and prepare accordingly. Here we discuss VAT rates, who can register under VAT, supplies under VAT law, and who are exempt from registering.  Accoxi, is a cloud-based accounting software that automates and simplifies your entire accounting process.  

Bahrain's VAT rate  

The GCC countries have implemented a standard rate of 5% VAT from January 1, 2019, onwards whereas the Kingdom of Bahrain has charged 5% VAT. Bahrain's VAT (Value Added Tax) has been raised from 5% to 10% from January 1, 2022, according to the NBR (National Bureau of Revenue), making the country charge the highest VAT rate among Gulf countries. Bahrain's VAT rate has been classified as standard rate, zero rate, and nil rate.    

Standard rate: 5% of the standard VAT rate is charged on supplies before January 1, 2022, and a 10% VAT rate will be applied from 1 January 2022. The increase in VAT of 10% affects goods and services imports, where registered suppliers must charge 10% VAT under the reverse charge mechanism for services imports.  

Zero rate: Businesses can claim VAT-related inputs and cannot charge VAT for exemptions, whereas zero-rates are subject to VAT, but their charges are 0%.   

Registration of VAT in Bahrain:  

Businesses must understand and comply with VAT requirements, which include providing tax invoices, keeping adequate records, and submitting frequent VAT returns. Bahrain’s National Bureau of Revenue (NBR) is the governing authority for VAT administration and enforcement. Accounting software like Accoxi provides powerful reports for analyzing business performance.  

The business must comply with Bahrain VAT registration rules. To start a business in Bahrain, you will need to create an account on the National Bureau of Revenue (NBR) website to register for VAT. You need to submit your VAT registration application online after creating an account. You must provide details about your company, such as its name, address, and turnover. The mandatory VAT registration threshold is BHD (Bahraini Dinar) 37,700, where businesses can charge and collect VAT, claim input VAT credits, and fulfill their tax obligations by registering for VAT. 

 Here are some mandatory registration deadlines.  

Who are exempted from registering VAT in Bahrain? 

The persons who make only zero-rated supplies are exempted from registering VAT in Bahrain. Examples of zero–rated supplies are newly constructed buildings, non- GCC countries where VAT is implementing.  

Who can voluntarily register under Bahrain VAT? 

Bahrain residents can voluntarily register for Bahrain VAT under these two methods.  

• If the person's annual supplies or expenses exceeded BHD 18,750 in the past year.  
•  If the person’s total worth of annual supplies or expenses in Bahrain increases by BHD 18,750 in future years.  

Bahrain VAT registration for non–residents  

When non-residents in Bahrain make taxable supplies, regardless of the supplies they make, they are required to register for VAT and pay it. They can register directly or through a tax representative.  

Things to know about VAT to keep your business and non-residential customers safe.  

 Here are some things to know about VAT:  

• VAT returns should be submitted quarterly. If your VAT return is not submitted on time it results in penalties.  

• If you are a non-resident business selling goods or services in Bahrain, you are required to register for VAT.  

•  Business must pay VAT for imported goods.  

• You might qualify for a VAT discount if your business trades beyond Bahrain.  

Bahrain VAT Returns  

 A Bahrain VAT Returned report must be submitted to the NBR at the end of each period with all relevant information. The VAT return consists of sales and purchases by businesses, which show the net value position of VAT. Information regarding your taxable supplies, input VAT (VAT paid on purchases), and output VAT (VAT charged on sales) must be provided.  

You will need to access your NBR account and submit your VAT return online to file it. Accurate records of VAT transactions, such as invoices, receipts, and credit notes, are crucial. This will help you submit your VAT returns accurately and avoid any penalties.  

VAT penalties in BAHRAIN  

The NBR has imposed penalties and fines for persons who violate the VAT rules.   

Late payment penalty: If a business fails to pay its sales tax on time, it will be subject to an additional penalty of 1% for each month or part of the month in which the payment is delayed. The penalty is calculated based on the unpaid VAT amount and the number of days the payment is late.  

Penalty for late filing: To avoid a late filing penalty, businesses must submit VAT returns on time. The company must submit its VAT return by the deadline. Failure to do so will result in an additional submission penalty.  

Penalty for incorrect returns: If a company files its VAT return incorrectly, it will be fined 2.5% to 5% of the net tax amount, with a minimum of 500 BHD and a maximum of 10,000 BHD. This penalty can be avoided by ensuring all transactions are recorded correctly and checking your VAT return before filing.  

Penalties for non-registration: A fine of BHD 10,000 will be imposed on businesses that fail to register when VAT registration is compulsory. It is mandatory to ensure that your business is registered for VAT if it meets the threshold requirements.  

 Bottom line:  

Businesses operating in Bahrain must understand VAT regulations, including tax rates, exemptions, registration, and compliance obligations. This is to ensure smooth operations and law compliance. With Accoxi, it is easy to register for VAT in Bahrain, as it is implemented with the Bahrain VAT rates and returns for all your business transactions.