Basics of VAT in Bahrain

The Kingdom of Bahrain introduced the Value Added Tax (VAT) law in 2019. VAT is an indirect tax charged on goods and services purchased and sold by businesses. The National Bureau of Revenue (NBR) is the VAT implementing authority in Bahrain.

This article explains the basics of VAT, including VAT registration, input VAT recovery, VAT returns, offences under VAT law and many more.

What is the VAT rate in Bahrain?

The GCC countries agreed to implement VAT at a standard rate of 5%. Accordingly, the Kingdom of Bahrain started charging VAT @5% w.e.f 1st January 2019.

However, from 1st January 2022, NBR revised the standard VAT rate in Bahrain to 10%.

VAT registration in Bahrain

The businesses must mandatorily obtain VAT registration in Bahrain if they fall into the following categories: 

S No	VATable supplies of goods and services in a year  (Generating or expected to generate)	VAT registration needs to be obtained by
1	More than BHD 50,00,000	20th December 2018
2	More than BHD 5,00,000 and not exceeding BHD 50,00,000	20th June 2019
3	More than BHD 37,500 and not exceeding BHD 5,00,000	20th December 2019

Also, all entities and individuals generating over BHD 18,750 VATable supplies in a year can obtain VAT registration voluntarily.

Types of supplies under Bahrain VAT Law

There are different types of supplies under VAT in Bahrain. The VAT rates are decided based on the nature of the goods or services.

1. Standard-rated items: A 10% VAT rate will be applied to these goods and services.
2. Zero-rated items: These supplies are subject to VAT, but the rate charged is 0%. However, businesses can claim related input VAT.
3. Exempt items: These are the supplies businesses can not charge VAT and can not claim input VAT.
4. Out-of-scope items: NBR kept these supplies out of the VAT ambit by NBR.

Input VAT recovery under Bahrain VAT

Businesses in Bahrain shall comply with the below conditions to recover the input VAT paid on the purchases: 

• Businesses seeking the recovery of input VAT shall be a VAT registered person
• Businesses claiming input VAT shall spend the expenses only for economic activity
• The expenses shall not fall under the list of disallowed expenses mentioned in VAT law
• The expenses shall be used for making VATable supplies and not the exempt supplies
• Businesses shall possess the original VAT invoices or the relevant import documents
• Input VAT should be claimed within the time limit specified under VAT Law, i.e. five years

VAT records in Bahrain

A VAT-registered business in KSA or the VAT representative (if applicable) is required to retain the following documents:

• Accounting books related to the VATable person’s transactions in a chronological order
• Purchases & sales records, along with imports of goods and services, including:
  • ­VAT invoices and alternative documents received
  • ­VAT Credit or Debit Notes (CDNs) and alternative documents received

• Profit & loss accounts and balance sheet
• Wages and salaries records
• Fixed assets records
• Inventory records and statements for each VAT period
• Customs documents related to import and export transactions
• Any other records, as notified by the NBR

A VATable person must keep the relevant records for five years from the end of the relevant VAT period. However, real estate businesses must keep the records for 15 years from the end of the relevant VAT period.

VAT returns in Bahrain

VAT-registered businesses shall submit the VAT return electronically to the NBR at the end of each VAT period with all the relevant data.

A VAT return summarises the value of sales and purchases of businesses made during a VAT period and shows the net VAT position. Net VAT position is the difference between the VAT charged on sales (output VAT) and the VAT paid on purchases (input VAT) for the same tax period.

If the output VAT exceeds the input VAT, the difference must be paid to the NBR. If the input exceeds the output VAT, a VAT payer will have excess recoverable input VAT. A VAT payer can request a refund of this excess from NBR or carry forward this excess to use it as a credit to offset VAT liabilities in future.

Penalties for VAT offences in Bahrain

NBR has a right to impose penalties and fines on VATable persons whenever there is any violation of VAT rules. The below table explains the nature of the offence and its related penalties:

Nature of Offence	Penalty or Fine
Failure to obtain VAT registration within 60 days from the date of expiry of the registration period	Maximum of BHD 10,000
Late submission of a VAT return (not exceeding 60 days)	Between 5% to 25% of the value of the VAT declared or paid
Late payment of VAT due (not exceeding 60 days)
Submission of incorrect data in the VAT return resulting in VAT liability	Between 2.5% to 5% of the unpaid VAT per month (or part of a month) where the VAT is not paid
Preventing the NBR’s staff from carrying out their duties	Maximum of BHD 5,000
Failure to notify NBR of any changes made in the VAT registration application or a VAT return
Failure to display prices of the goods or services at the business place (inclusive of VAT)
Non-submission of information requested by the NBR
Failure to issue VAT invoice as per provisions
Breaching any other provision of the Law or the Regulations

Also, NBR can impose an administrative fine and collect it together with the VAT due, if any.