VAT in Bahrain Basics

The GCC (Gulf Co-operation Council) countries have agreed ‘in principle’ to the GCC VAT Agreement to levy VAT in the region and are agreed by the GCC countries that VAT will be introduced in every country through the GCC Framework Agreement.

VAT was introduced in UAE & Saudi Arabia since 1st Jan 2018. The Kingdom of Bahrain Value Added Tax (VAT) was implemented from 1st January 2019. The VAT in Bahrain has been implemented at a standard rate of 5%. In this video, you will learn about the basics of VAT in Bahrain.

This Video Help you to understand the Basics of VAT in Bahrain

If you want to Understand VAT in Bahrain Basics through Article please go through the below-transcripted version of the video blog

In this, we cover the following topics

    1. Why is VAT important to businesses in Bahrain?
    2. How is VAT in Bahrain Applicable?
    3. What is the supply of goods?
    4. Two important terminologies: Input VAT &Output VAT
    5. What are the categories of VAT?

The implementation of VAT in Bahrain has been progressed in three different stages:

  • Companies having a higher turnover – they registered from 1st January 2019
  • Companies having medium or a mid-tire turnover – they registered by the middle of 2019
  • End of this year, by 1st January 2020 all the companies who are eligible to register for VAT in Bahrain has to register for VAT

From 1st January 2020 onwards VAT should be implemented by all eligible businesses in the Kingdom of Bahrain. 

Why is VAT important to businesses in Bahrain?

VAT is important to all businesses in Bahrain who is having a taxable turnover because every businessman who is doing business should know what is VAT, the applicability of VAT in their business and should ensure that they comply with the VAT law in Bahrain.

How is VAT in Bahrain Applicable?

VAT in Bahrain is applicable to the supply of goods and supply of services.

What is the supply of goods?

The supply of goods is the passing of the ownership of a property or the right to use that property as an owner. When the right to use as an owner is shifted, that is called supply of goods. What is not considered a supply of goods will be considered as a supply of services.

In business everting will be taxable if ownership is transferred or service is done. In VAT there is no usage of the purchase of goods or sale of goods. Everything is called supply. So here onwards, we will use the word supply instead of purchases as well as sales.

To understand how VAT is applicable there are two important terminologies:

Out VAT: When we supply the materials or services, we collect VAT from customers which is known as Out VAT.

Input VAT: When we purchase products or get service from suppliers, we pay VAT which is known as Input VAT.

Total of Output VAT minus Input VAT is the difference amount which is the net VAT payable amount which should be paid to the Tax Authority on a periodic basis.

There will be times when Input VAT is more than Output VAT. What we have paid to the service providers or suppliers is more than what we have collected. In such cases, we have the right to get a refund from the Tax Authority.

For Example: in the chart given below a company has made some purchases and expenses that the company has made and paid tax which is called input tax. There are also some expenses for which there is no tax incurred. So, the company will be paying many expenses where they have paid tax and they are eligible to claim the input tax for such expenses.

At the same time, the company has collected VAT from different customers from different products which is called Output TAX.

The difference between Output TAX & Input TAX is the amount that has to pay to the Authority.  In the below example the total Output TAX collected is 10,000/- and total Input TAX paid is 5,500/- the difference is 4,500/- which is the net VAT payable to the TAX Authority.

What are the categories of VAT?

VAT is categorized into Exempted & Taxable, Taxable is further divided into Standard Rate (5%) & Zero Rated (0%).

Example for Zero Rated – 0% are export, construction of a new building, educational services, medication & medical equipment, etc

Items that are taxable other than zero-rated everything will be taxable under Standard Rated – 5 %.

Examples for Exempted – certain financial services, banking, bare land

In short, to mention there are a very limited number of items exempted from VAT in Bahrain and many items are zero-rated, apart from these the rest is Standard Rated (5%). If you want to know more about VAT in Bahrain go through the official website of Bahrain.

Looking for VAT Services in Bahrain?

For VAT Services in Bahrain
Bichin Raj
+973 3619 8998

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