VAT: A Complete Guide to The Value Added Tax in Bahrain

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Nidhi Raghuvanshi

Senior editor

Parul Saxena

Chief editor

Last updated: May 21, 2021

From the first day of 2019, The Kingdom of Bahrain introduced the Value Added Tax (VAT). In this new taxation process maximum, a 5% tax will be implemented on goods and services. This process ensures that the manufacturer, wholesaler, and retailer will collect VAT from the consumer and submit it to the government. The kingdom gave authority to administer and gather VAT for NBR (The National Bureau for Revenue in the Kingdom of Bahrain).

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How does Value Added Tax function in a business transaction?

Many people find it challenging to grasp the aspect of VAT in Bahrain. For them, here is a simple example that will explain how this tax works.

  1. When a wholesaler purchases a product from the manufacturer, he pays 5% VAT on the price of the product. If the cost of the product set by the manufacturer is BHD100, he has to pay BHD105. The manufacturer will collect and submit this extra BHD5 to NBR.
  2. In the next stage, when the wholesaler adds his product margin and raises the price of the product at BHD200 for the retailer, the retailer has to pay BHD210 for the product. The wholesaler will collect and submit this extra BHD10 to NBR.
  3. At the final stage, when the retailer adds his profit margin and raises the price of the product at BHD300 for the consumer. At this point, the retailer has to pay BHD315 for the product. The retailer will collect and submit this extra BHD15 to NBR.

By this multi-levied taxation process, the NBR collects VAT at every stage of the transaction in the supply chain before it reaches the buyers.

Rates of Value Added Tax

The National Bureau for Revenue in the Kingdom of Bahrain (NBR) has structured different VAT rates for various items of goods and services. To simplify and encourage business & commerce, they have structured the VAT rates in three categories.

  • Standard rate

NBR has set a 5% tax rate for consumer goods & services. Regular items fall under this category, including clothes, makeup, car, electronics, etc. Commonly known as input tax, a VAT registered business establishment/owner can collect and submit this tax to NBR.

  • Zero rates

For a few household items, the NBR has set the VAT in Bahrain at 0%. Items falling under this category include basic food & grocery items, education & health fees, pharmaceutical items, construction equipment & supply, etc. Under this category, the end-buyer will not pay any tax on these items, and the VAT registered business establishment/owner gets a tax break for these goods & services.

  • Tax-Exempt

The NBR has kept a few items under tax exemption. It includes sales or lease of real estate at the designated location and fees of a few financial institutions. Under this category, the VAT registered business establishment/owner would not get the tax break for these goods & services, and the end-buyer will not pay any tax on these items.

Who is required to pay Value Added Tax?

According to the law, the following people are required to reimburse Value Added Tax or VAT in Bahrain,

  • In the Kingdom of Bahrain, any business establishment/owner, who issues invoices with tax.
  • Any taxable business establishment/owner who sells goods or services in Bahrain.
  • The consumer who purchases goods or services in Bahrain.
  • Importers following the Unified Customs Law should also pay VAT in Bahrain for importation.

VAT Registration in Bahrain 

Registration of VAT in Bahrain is a process, where business establishment/owner enlists themselves to NBR. After registration, the business establishment/owner gets a VAT number assigned by NBR. Each VAT number is unique. If a single person owns three different businesses, each business would be registered separately, and a unique VAT number will be issued for the three businesses. According to the law, any business establishment/owner who exceeds the specified threshold must reimburse Value Added Tax or VAT in Bahrain. NBR formed three categories for business establishment/owner for enlisting. These categories are as follows,

  1. Mandatory VAT Registration
  2. Voluntary VAT Registration
  3. Non-Residents VAT Registration
  4. Tax group

What is Mandatory VAT Registration?

Under these following conditions, it is mandatory for the business establishment or owner to have to register themselves to NBR. In any financial year, if the annual business turnover goes over or is expected to go beyond BHD5,000,000, the business establishments/owners have to register themselves ( rule imposed since Dec 2018).

In any financial year, if the annual business turnover goes over or is expected to go beyond BHD500,000 to BHD5,000,000, the business establishments/owners have to register themselves to NBR (imposed since June 20th, 2019). 

If the turnover is within the range of BHD 37,500 to BHD500,000, those business establishments/owners have to register themselves to NBR by December 20th, 2019.

What is Voluntary VAT Registration?

Voluntary registration for VAT in Bahrain is for those business establishments/owners whose annual business turnover goes over or is expected to go beyond BHD 18,750. Under this, the entities are not required to be registered but, if they believe it is profitable or beneficial to be registered for VAT in Bahrain, they can proceed.

What is a Non-Resident VAT Registration?

The Non-Resident of Bahrain must comply & register with NBR if they want to do business or financial transactions of any kind in Bahrain. According to their convenience, they can either appoint a tax representative or register directly to NBR for VAT in Bahrain. It is required to register within 30 days from the first payable supply.

What is a Tax Group VAT Registration?

Under this provision, two or multiple business establishments/owners can enlist themselves at NBR as a Tax Group. For all tax obligations that arise from the activity of this group will be considered as a single entity, and the Tax Group members will remain liable for it. NBR always holds the right to delist the Tax Group if the terms, conditions, and procedures don’t satisfy the standards for VAT in Bahrain.

Who gets an exemption from VAT registration?

Business establishments/owners can request NBR for an exemption from VAT registration if the annual turnover gets below zero-rated. After verifying the request, NBR may exempt the business establishment/owner from VAT registration.

Invoice for Value Added Tax in Bahrain?

Invoicing is an essential aspect of VAT in Bahrain. According to the law, every business establishment/owner registered with NBR should follow specific guidelines at the time of generating the invoice. An invoice should contain the following pieces of information,

  • A unique number for each invoice.
  • The date of the invoice.
  • It should contain the supplier’s name and address.
  • The invoice must include the supplier’s Tax ID number.
  • Customer’s name and address.
  • Nature of the services or quantity and description of the goods.
  • The net and gross value of the transaction.
  • The VAT amount included in the procurement of goods and services.

Note: The business establishment/owner must generate/issue the invoice within 15 days of the financial transaction.

Submitting VAT returns in Bahrain

The business establishment/owner registered with NRB should submit their VAT returns to the authority within the designated time. The duration of the tax period may differ for each business establishment/owner.

The VAT return deadline for 2020 is as follows,

  • For entities with an annual turnover above BHD 3 million, the taxpayer must submit the VAT return monthly.
  • For entities with annual turnover below BHD 3 million, the taxpayer must submit the VAT return quarterly.

The business establishment/owner registered with NRB should always maintain the accounting books, tax invoices, and transaction records of their businesses. If required, the authorities might request for the invoices and accounting books to conduct a complete audit, if they believe there is any fraud. Under those audits, the entity is liable to produce all the above stated financial records of their business.

The procedure of Tax payments and Refunds

After filing the tax return, the business establishment/owner should reimburse the amount due to the NBR. The NBR holds the right to allow a taxable business establishment/owner to defer tax payments. A business establishment/owner may get a tax return in a specific condition, including.

  • Extra tax paid by the business establishment/owner.
  • Tax paid on diplomatic and military missions by international organizations and foreign governments.
  • Tax paid on Zero rates and Tax Exempted goods and services.
  • Tax paid by international travelers during their stay in the country.

Penalties for Value Added Tax

NBR can impose financial and imprisonment penalties for individuals and business establishments who violate rules and regulations. Any tax evasion or providing misinformation of any magnitude falls under this category. In such cases, the NBR can fine up to 200% of the evaded tax amount and sentence up to 5 years of imprisonment.

To avoid such penalties, it is advised to follow the NBR guidelines at the time of tax return filing. 

Understandably, the concept of VAT in Bahrain is confusing, especially for businesses, which are not present in Bahrain but takes shipments or services from Bahrain entities. In such cases, it is advisable to hire a reputed tax advisor to self-audit your business transactions to understand which slab of VAT your business falls under, the requirements and liabilities of your business, and so on.

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