Bahrain introduced the value-added tax starting with January 2019 and it is the third country from the six member states of the Gulf Cooperation Council to implement this tax. The Unified VAT Agreement signed by the GCC members made it mandatory for these jurisdictions to implement this type of tax, in a harmonized manner across all of the states. Bahrain, along with the other members, have implemented the main principles of the VAT Agreement in their own VAT legislation. A certain degree of variation for the taxable supplies remains.
Investors who are interested in company formation in Bahrain
are not deterred by the recent tax changes. The value-added tax rate remains a small one, with a zero range and reduced ranges for selected goods and services.
Because the Bahrain VAT law differs from that in the other GCC states, like the United Arab Emirates, it is advisable to reach out to our agents who specialize in company registration in Bahrain for updated information.
How is VAT implemented in Bahrain?
The value-added tax in Bahrain has varying rates, starting with the standard one. These are as follows:
the standard rate: this is 5% and it will apply to certain goods and services; it is the rate agreed among the GCC countries.
the zero rate: when supplies are subject to VAT, but the charged rate of 0%; the input VAT can be deducted.
the exemptions: some types of goods and services are exempted from VAT; these cannot deduct input VAT.
others: some goods and services are out of the scope of the value-added tax altogether.
Investors who wish to know more about the category in which their business is included can reach out to our agents who specialize in company formation in Bahrain
Examples of services that are subject to VAT
To make it easier for investors who wish to set up a company in Bahrain, we list some types of services that are subject to VAT and the respective rates:
- Food: subject to a zero rate for basic foodstuffs and a 5 percent rate for restaurants and coffee shops.
- Healthcare: zero rate for most medical services (general and specialist) and 5 percent rate for cosmetic procedures, the supply of food and beverage to non-patients and other extra services, not related to the medical procedures or the patient.
- Financial services: currencies trading, investment fund services, life insurance, and reinsurance contracts and others are exempt; the 5% rate applies to general insurance, brokerage, discretionary asset management, and others.
- Education: zero rate for kindergartens, primary, secondary and higher education institutions, for printed and digital books and others; the 5% rate for professional education, stationery, food and beverages, and others.
- Oil: gasoline and diesel for motor vehicles, motor oil, gas for ovens are zero-rates.
- Import and export: export services, import of basic foodstuffs and import of medicines and medical equipment are zero-rated.
In the import/export category, services provide in Bahrain by a foreign company are subject to the standard 5% rate and the following are exempt from VAT: the import of equipment used by individuals with special needs, the import of personal luggage and household items, the imports of gifts carried by passengers.
Our team of tax specialists can provide further details on the implementation of this tax according to the specific business field.
What are the VAT registration requirements?
Investors who set up a company in Bahrain will need to register for VAT purposes if their annual supplies exceed the mandatory threshold. A transitional period applies until a certain date, however, starting with December 2019, companies are expected to comply with the mandatory registration threshold on supplies greater than 37,500 BHD and a voluntary registration on supplies exceeding 18,750 BHD.
Investors who are interested in company formation in Bahrain will need to follow the guidelines issued by the National Bureau of Revenue regarding the VAT return.
What are the VAT registration steps in Bahrain?
VAT registration in Bahrain is a process that involves five main steps:
- creating the company’s profile with the National Bureau for Revenue (NBR);
- fill in the company details; this includes the taxpayer details, the registration details, financial information and the personal identification details for the registrant;
- submit the request for creating the profile; a successful application will be notified via e-mail;
- receive the login details once the NBR application is approved;
- once the details are available, the taxpayer can log into the virtual portal and complete the registration form.
Once these steps are complete, the company receives the VAT registration certificate and it will also be assigned a VAT account number. This is also referred to as the Tax Registration Number, the TRN.
One important requirement for investors who set up a company in Bahrain and obtain the VAT certificate is to display this certificate in a visible spot in the establishment. The certificate includes the registration date, the taxpayer information (CR number, name, and address) and the information for registration (VAT account number).
Any changes to the company particulars are to be notified to NBR. Failure to do so may result in the VAT de-registration if the evidence is provided that the company is non-compliant. Upon receipt of the certificate, the holder has the responsibility to ensure that the details are correct.
Other information about VAT in Bahrain
Tax group registration is possible in Bahrain, however, a number of criteria apply:
- all of the companies in the group must be engaged in an economic activity;
- all of the companies must be considered Bahrain residents for taxation purpose and must be registered for tax;
- the companies must be related, as follows: two or more individuals have a formal partnership arrangement with one control criteria such as a voting interest in each of the entities of at least 50%, a market value interest of at least 50% or control by any other means.
One of our agents who specialize in company formation in Bahrain can provide investors with more details about tax group registration.
In those cases in which a company that should have been subject to VAT registration in Bahrain fails to do so, the NBR may register it automatically starting with the date from which the company should have been registered. All of the VAT due for this period will need to be accounted for.
The usual VAT registration period in Bahrain is 60 days and the NBR can apply penalties after this time. The administrative penalties can be of up to 10,000 BHD and sanctions can also apply for tax evasion.
Companies that are no longer subject to mandatory VAT registration and are not interested in voluntary registration may commence the de-registration process, which includes a simple request made on the NBR portal. It is useful to note that the taxpayer remains subject to the ongoing obligations until the de-registration is approved.
Some of the situations in which de-registration becomes mandatory are the following:
- the company is no longer carrying out an economic activity in the country (for resident and non-resident companies);
- the company has not recorded any taxable supplies for 12 consecutive months;
- when the total value of the annual supplies and expenses in the last 12 months is below the voluntary registration threshold (only for resident companies);
- the total value of the annual supplies and expenses is not expected to exceed the threshold in the coming twelve months (also only applicable to resident companies).
Failure to de-register when this is required may result in administrative penalties. One of our agents who specialize in company registration in Bahrain can provide investors with more details on the penalties that may apply.
Documentation for VAT purposes in Bahrain and input tax recovery
Companies that are registered as VAT taxpayers in Bahrain need to comply with certain requirements regarding documents and records that are to be kept. The following are mandatory:
- accounting books, with the transactions in chronological order;
- records of all supplies and imports of goods and services;
- balance sheet, profits and loss accounts, salaries records;
- inventory records, fixed assets records, customs documentation for imports and exports.
- others, as needed.
Taxable persons in Bahrain can recover VAT charges on expenses, according to the use of the expenses. For example, VAT charges on the expenses for the purpose of the economic activity can be recovered in whole or in part. Certain conditions apply for this, among which the fact that the input tax claim must be issued within five years, the limit set forth by the VAT Law.
Our agents can help with more information about company registration in Bahrain as well as VAT registration and input tax recovery.
Investing in Bahrain
Bahrain is a jurisdiction that offers a number of advantages to investors. The commercial registration statistics are briefly highlighted below:
- in 2017, a total number of 42,835 individual establishments were registered.
- out of these, 24,883 were companies.
- the number of commercial registration renewals was 23,984.
The data was provided by the Ministry of Industry, Commerce, and Tourism of the Kingdom of Bahrain.
our agents who specialize in company formation in Bahrain
for more information about the tax requirements and the VAT regime.