Query:
Discuss VAT in Bahrain?
Answer:
VAT in Bahrain
1. Introduction
Value Added Tax (VAT) was introduced in the Kingdom of Bahrain on January 1, 2019, as
part of a broader Gulf Cooperation Council (GCC) agreement to implement VAT across
member states. Initially, the standard VAT rate was set at 5%, but it was subsequently
increased to 10% effective from January 1, 2022.
2. Relevant Standard/Law References
2.1 Legal Framework
The VAT system in Bahrain is governed by the following legal instruments:
a. The Unified Agreement for Value Added Tax of the Cooperation Council for the Arab
States of the Gulf (the Framework), ratified by Decree-Law No. (47) for the year 2018.
b. Decree-Law No. (48) for the year 2018 regarding Value Added Tax (the VAT Law),
amended by Decree-Law No. (33) for the year 2021.
c. Resolution No. (12) for the year 2018 on the issuance of the Executive Regulations of
the Value Added Tax Law (the Executive Regulations).
Bahrain VAT General Guide, page 4
2.2 Scope and Rate
VAT applies to consumer spending and is collected on supplies of goods and services as
well as on imports into Bahrain. The standard rate of 10% applies if a supply of goods and
services is made:
º By a VATable person
º In Bahrain
º And the supply is not specifically exempted from VAT or subject to the zero-rate
Bahrain VAT General Guide, page 12
3. Detailed Explanations
3.1 VAT Mechanism
VAT is paid and collected at every stage of the supply chain, with end consumers bearing
the cost. A VAT registered person must charge VAT on their supplies (output VAT) and can
reclaim VAT incurred on business expenses and imports (input VAT) to the extent that
these expenses and imports are used to make VATable supplies.
On a regular basis, a VAT registered person files a VAT return to the National Bureau for
Revenue (NBR) and pays the excess of output VAT over input VAT. If input VAT exceeds
output VAT, a refund can be sought or carried forward as a credit against future VAT
liabilities.
Bahrain VAT General Guide, page 12
3.2 VAT Treatment
Supplies of goods or services in Bahrain can be subject to VAT at:
1. The standard rate of 10%
2. The zero-rate (0%)
3. Exempt from VAT
The conditions for applying VAT at 0% or exemption must be interpreted strictly. Where
these conditions are not met, the transaction will be subject to the standard rate of 10%.
Bahrain VAT General Guide, page 46
3.3 Registration Requirements
VATable persons are required to register for VAT if their annual supplies exceed or are
expected to exceed the mandatory registration threshold. The threshold and registration
deadlines have evolved since the introduction of VAT:
º From January 1, 2019: BHD 5,000,000 annual supplies
º From July 1, 2019: BHD 500,000 annual supplies
º From January 1, 2020: BHD 37,500 annual supplies
Voluntary registration is possible for businesses with annual supplies exceeding BHD
18,750.
Bahrain VAT General Guide, page 130
3.4 VAT Periods and Returns
VAT periods (reporting periods) vary based on the value of annual supplies:
º Annual supplies exceeding BHD 3 million: Monthly VAT periods
º Annual supplies between BHD 100,000 and BHD 3 million: Quarterly VAT periods
º Annual supplies below BHD 100,000: Annual VAT periods
VAT returns must be filed and any VAT due must be paid no later than the last day of the
month following the end of the relevant tax period.
Bahrain VAT General Guide, page 132
4. Used Cases/Interpretations & Disclosures by the listed entities
BMMI B.S.C., a Bahraini company, provides insights into their VAT treatment in their 2023
financial statements:
“There is no tax on corporate income in the Kingdom of Bahrain. Taxation on foreign
subsidiaries is provided in accordance with the fiscal regulations applicable in the
respective country. Income tax in the consolidated statement of income for the year
comprises current tax. Income tax is recognised in the consolidated statement of income
except to the extent that it relates to items recognised directly in equity, in which case it is
recognised in equity.”
BMMI BSC, page 34
Ithmaar Bank B.S.C. (c) disclosed in their 2022 financial statements:
“The Group is subject to VAT at 5% on certain financial services as applicable from 1
January 2019 (increased to 10% from 1 January 2021). The amount of VAT liability is
determined by applying the VAT rate on eligible turnover, reduced by the VAT paid on
eligible expenses (input VAT). The irrecoverable portion of input VAT is recognized as
expense in the consolidated income statement.”
annual-eport-en-2022, page 71
5. Summary
VAT in Bahrain was introduced on January 1, 2019, initially at a rate of 5%, which was
increased to 10% from January 1, 2022. The system applies to a wide range of goods and
services, with some items zero-rated or exempt. Businesses must register for VAT if their
annual supplies exceed the mandatory threshold, currently set at BHD 37,500. VAT returns
are filed on a monthly, quarterly, or annual basis, depending on the value of annual
supplies.
The implementation of VAT has required businesses in Bahrain to adapt their financial
systems and reporting processes. As evidenced by the disclosures from BMMI B.S.C. and
Ithmaar Bank B.S.C. (c), companies are required to account for VAT in their financial
statements, recognizing VAT liabilities and expenses where applicable.
For complete and authoritative guidance, please refer to the full VAT Law and Executive
Regulations available through the National Bureau for Revenue (NBR) website,
www.nbr.gov.bh.
6. Attribution
The information provided in this response is based on the Value Added Tax Law issued by
Decree-Law No. (48) of the year 2018 as amended by Decree-Law No. (33) for the year
2021, and the Executive Regulations issued by Resolution No. (12) for the year 2018. The
specific rules referenced are from the Bahrain VAT General Guide. For complete and
authoritative guidance, please refer to the full Value Added Tax Law and Executive
Regulations available through the National Bureau for Revenue (NBR) website,
www.nbr.gov.bh.
Discuss Bahrain VAT
