Companies supplying taxable goods or services in Bahrain must comply with new VAT laws from January.
The Kingdom of Bahrain will be the third Gulf Cooperation Council (GCC) member state to introduce VAT when it applies from 1 January 2019.
Alongside publishing its VAT law in early October, Bahrain
agreed to the establishment of the National Tax Authority for Gulf
Taxes which will manage, collect and control all types of taxes and
related administrative fines through the application of local laws,
regulations and tax regulations.
Get a complete overview on our 12 December webinar: Register here to join the session live or access it later on-demand.
Key points to know about VAT in Bahrain
The VAT rate for Bahrain is set at the standard GCC rate of 5%, however a zero rate and exemption can apply in certain cases. VAT may also be suspended if imported goods are under a customs suspension.
Companies supplying taxable goods or services in Bahrain must register as set out in the GCC unified agreement:
- where annual revenue is more than USD 100,000
- those with annual revenue between USD 50,000 and 100,000 can optionally register
- voluntary registration is possible if expenses exceed the threshold.
The voluntary registration option is designed for start-up businesses with no turnover to enable them to register for VAT.
Contracts signed to provide taxable supplies to the government sector should be treated as zero-rated supplies, even if they will be fully or partially submitted after the start of VAT in Bahrain. This zero-rating should continue until the contract renewal date, or 31 December 2022.
A zero-rating allows businesses to reclaim any VAT they have paid on costs. A Taxable Person who makes only zero-rated supplies may request to be excluded from the Mandatory Registration requirement for VAT purposes in accordance with the conditions that will be stated in the Executive Regulations.
For Bahrain, these categories are:
- Cross-border transportation of goods and passengers within the GCC and from/to the GCC
- Local transport
- Exports of goods or services out of implementing GCC states or non-implementing GCC states
- Gold, silver and platinum for investment purposes
- First supply after the extraction of gold, silver or platinum
- Supply of goods to areas under customs suspension system
- Re-export of temporarily imported goods for the for the purpose of repair, maintenance or processing
- Medicines, main medical services and medical equipment
- Education services
- Newly constructed buildings
- Petroleum, petroleum derivatives, and Gas
- Essential food items as stated under the GCC unified agreement.
A number of business categories will be exempt from VAT in Bahrain:
- Financial services (except for fee-based services)
- Supply of Peer Land
- Supply of Real estate
- Imports of personal items and gifts carried in travelers' personal luggage and with foreign people coming to the Kingdom for the first time
- Importation of goods if the final destination country is exempt from VAT or subject to a zero-rate
- Diplomatic exemption as per GCC customs law
- Goods and services in the Kingdom for Military services
- Importation of requirements for people with special needs.
Record-keeping and filing
VAT records must be kept for a minimum of five years from the end of the year to which they related, and made available for review at any time. VAT returns must be filed with the tax authority on a regular basis, electronically.
The VAT period should be a minimum one month, and VAT payments and returns should be filed before the last day of the following month, from the end of tax period.
Transactions with non-implementing GCC states will be treated as transactions with non-GCC states.
Requirements for VAT payments
From January, invoices should include the following:
- Identifying number
- Supplier's VAT number
- Where the customer has to 'self-account', a statement to that effect and the customer's VAT number.
Non-compliance with VAT in Bahrain
Businesses should expect penalties to be imposed in cases of non-compliance with the new VAT law. Here are some examples of non-compliance and the associated penalty.
- A person failing to register within the required period for more than 60 days will be penalised a maximum 10,000 Bahraini Dinar (USD 26,527).
- A person failing to submit a VAT return or not making a payment within the required period for more than 60 days will be subject to penalties between 2.5% to 5% of the due tax amount.
- A person who is providing incorrect information will be subject to penalties between 5% to 25% of the due tax amount.
- Tax evasion offences where a person performs a deliberate act or omission with the intention of violating the provisions of the issued tax legislation, will face prison for a period between three to five years and a penalty equal to the due tax, but no more than three times the due tax.
Talk to us
TMF Group's accounting and tax teams based in the middle east can help you prepare your business for the introduction of VAT, and assist with ongoing compliance.
Learn more on our upcoming webinar: The road to understanding VAT implementation in GCC
Have questions? Make an enquiry with us today.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.