An introduction to the value added tax (VAT) system in Bahrain in 2023
Main considerations
- On the 1st of January 2019, Bahrain introduced Value Added Taxes (VAT) at a standard rate of 5%;
- VAT is imposed on most of the supplies of imports, goods and services, however the law also grants a zero-rate status or an exemption of VAT on supplies of certain goods and services, as described later;
- A taxable company can request to be exempted from registering and filing VAT if the company has all its taxable supplies either i) zero-rated or ii) exempted;
- It is mandatory for all non-residents to register for tax purposes in Bahrain regardless of the value of their supplies.
Healy Consultants Group PLC assists our Clients to evaluate their readiness for VAT. Our Accounting Team efficiently provides VAT readiness support by i) liaising with relevant government authorities belonging to our Client’s specific business area; ii) preparing and implementing VAT filing for our Client’s company; and iii) regularly updating our Clients.
Registration guidelines
- It is mandatory for all Bahrain-based companies to register for VAT by the 20th of December 2019 if their taxable supplies or imports equal or exceed BHD37,500 (approx. US$100,000) per annum;
- However, the Ministry of Finance has planned to effectively implement the VAT in Bahrain in phases depending on their amount of taxable supplies, as per table below;
| Taxable supplies to exceed (in BHD / annum) | VAT registration deadline | VAT effective date |
|---|
| Mandatory registration | 5,000,000 | 20 December 2018 | 1 January 2019 |
| 500,000 | 20 June 2019 | 1 July 2019 |
| 37,500 | 20 December 2019 | 1 January 2020 |
| Voluntary registration | 18,750 | No deadline | 1 January 2019 |
- Companies whose taxable supplies and imports exceed BHD18,750 (approx. US$50,000) per annum but are below the mandatory threshold of BHD 37,500 may voluntarily choose to register for VAT from 1st January 2019.
Filing considerations
- In 2019, companies whose taxable supplies exceed or expect to exceed BHD5,000,000 are required to file their VAT returns on a quarterly basis. While all other taxpayers are required to file it for the initial six months, followed by two quarterly returns:
| VAT Filing period (2019) | Jan- March | April- June | July- Sept | Oct- Dec |
|---|
| Annual turnover >BHD 5,000,000 | 1st quarterly return | 2nd quarterly return | 3rd quarterly return | 4th quarterly return |
| Annual turnover <BHD 5,000,000 | 1st return filing | 2nd return filing | 3rd return filing |
- From 1st January 2020, quarterly and monthly VAT filings would be implemented depending on the annual turnover of each company, as below:
| Annual turnover of company | VAT filing frequency from FY 2020 |
|---|
| Annual turnover >BHD 3,000,000 | Monthly |
| Annual turnover <BHD 3,000,000 | Quarterly |
- All VAT returns must be filed on the last day of the month following the month in which the tax period ends.
Penalties
- Companies that either i) do not register or ii) evade VAT are punishable by imprisonment for a term not less than 3 years and not exceeding 5 years;
- A company is considered to violate the tax laws if it i) fails to register for VAT within 60 days of the registration deadline (as per above registration phases); ii) fails to supply a tax invoice; and iii) illegally recovers the input VAT;
- A fine either equivalent to the amount of tax and not exceeding 3 times of the value of tax is imposed on the defaulter.
Exemptions
- The Ministry of Finance in Bahrain will apply a zero-rated VAT on
- basic food items;
- construction services for new buildings;
- private education;
- private healthcare services;
- medicine and medical equipment;
- domestic and international transportation services; and
- domestic oil and gas industries.
- The following services will be granted a VAT exemption:
- sale and lease of real estate;
- financial services; and
- life insurance.
Conclusion
It is important that our Clients’ are aware of their tax obligations in their country of residence and domicile; and they fulfil those obligations regularly. Let us know if you need Healy Consultants Group PLC’s assistance to meet your VAT filing and other tax obligations.
