The Bahrain VAT law was released on 09^th October 2018, by the Ministry of Bahrain. Bahrain VAT is all set to be implemented from 1^st January 2019 at the rate of 5%. The Executive Regulations for VAT in Bahrain is expected to publish shortly. All the companies in Bahrain with turnover exceeding BHD 5 Million annually must register with the Tax Authorities before 1^st January 2019. As per the Ministry of Finance, all the companies with turnover of more than 5 Million BHD should register for VAT in Bahrain. That level of revenues will require firms to register with the National Bureau for Taxation (NBT), the entity in charge of managing the tax. Registration applications will be received until January 1, 2019.

Who should register for Bahrain VAT and by when?

What is the turnover required to Voluntary Register for VAT in Bahrain?

Any business having an annual turnover more than BHD 18,750/- may voluntary register on the website of National Bureau of Tax anytime throughout the year.

Overview of VAT in Bahrain Decree Law

Article 2 of the Bahrain VAT Law states that the supply of all goods and services by a taxable person in the Bahrain shall be subject to VAT. The standard rate imposed is 5% while certain goods and services is subject to Zero rated or Exempt from VAT (Article 3 of Decree Law). As per the law, certain basic foodstuff and other basic goods and services are Zero Rated from VAT, in addition to a number of other goods and services mentioned in the Executive Regulations.

What does Zero Rated Supplies include in Bahrain VAT?

Article 53 of Decree Law gave the provisions for goods and services which are subject to Zero Rated. These include:

1. Export of Goods outside the Implementing States
2. Local transportation sector
3. The Supply of preventive and basic healthcare Services and Goods and Services related.
4. Oil, oil derivatives and Gas sector
5. The Supply of educational Services and related Goods and Services including kindergarten, pre-basic education, basic, secondary and higher education.
6. The Supply of Goods to a customs duty suspension regime in accordance with the Unified Customs Law, and the Supply of such Goods whilst under customs duty suspension.
7. The Supply or Import of medicines and medical equipment on liaison with the concerned medical authorities in the Kingdom.
8. The first Supply after the extraction of gold, silver and platinum for trading purposes.
9. The Supply and Import of pearls and gemstones, after obtaining the certificate issued by the Authority for testing pearls and gemstones to determine their nature.
10. Construction of new buildings
11. Transportation Services of passengers and Goods to or from the Bahrain, which begins or ends or passes through the Bahrain’s land and the Supply of included Services and Supply of related means of transport.
12. All re-Exports of Goods that were temporarily imported into the Kingdom for repairs, renovation, modification or processing, and the Services added to it.
13. The Supply of Services from a Taxable Supplier residing in the Bahrain for the benefit of a Customer who is not residing in the Implementing States and is benefiting from the service outside the Implementing States subject to the provisions of Article (17) of the Decree Law.
14. The Supply or Import of investment grade gold, platinum and silver with purity level of not less than ninety-nine percent (99%) publicly traded on the global market, based on a certificate issued by the concerned Authority for testing precious metals and gemstones in the Bahrain.
15. Supply and Import of food items (based on a list approved by the Financial and Economic Cooperation Committee).

The Executive Regulations shall specify the terms, conditions and necessary measures for the application of the provisions of this Article.

What Supplies are Exempted in Bahrain VAT?

Article 54 to 56 of the Decree Law give the exemptions from VAT, which include:

• The supply of financial services, unless payment is done by way of an explicit fee, commission or commercial discount. The Regulations shall specify the terms and conditions for the application of this Article.
• Supply of bare land and buildings by way of lease or sale (subject to terms and conditions specified in the Regulations)
• The following import are exempted from VAT:

1. If the supply of such goods in the final destination is exempt or zero-rated from VAT.
2. Goods that are exempt from customs duty in accordance with the terms and conditions specified in the Customs Law, and that are as follows:
   • Diplomatic exemptions
   • Military exemptions
   • Used personal effects and household items transported by nationals living abroad on return and expatriates moving to live in Bahrain for the first time
   • Personal luggage and gifts carried by travelers
   • Necessities for people with special needs

The Regulations shall specify the terms and conditions and necessary measures to implement the provisions.

What are the records to be maintained for VAT purpose?

The Taxable Person shall keep organized records, Tax Invoices and books of accounts related to imports or Supply of Goods or Services and shall present these records, invoices or books to the Authority upon request. The Regulations shall specify the records, books, durations and terms and conditions for maintenance of these records.

What are the penalties for non – compliance of Bahrain VAT law?

The Law describes the penalties that could be imposed for non-compliance. These includes the penalties for failing to apply for registration, i.e up to BHD 10,000. The following violations could be treated as tax evasion according to Article 63 of Decree Law:

• Failure to apply for registration within 60 days of the deadline for registration.
• Failure to submit the Tax Return or payment of the Tax within 60 days of the payment deadline.
• Failure to provide the Tax invoice.
• Improper claiming of input VAT.
• Issuance of Tax Invoices for non-Taxable Supplies.

Value Added Tax or Tax in general, is an unaccustomed practice in the Kingdom of Bahrain and it will definitely induce the businesses to transform some practices followed conservatively to comply the regulations.