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VAT Registration in Bahrain: Who Needs to Register?
VAT in Bahrain: A Pivotal Milestone
The 1st of January, 2019 marks a significant milestone in the history of Bahrain as it heralds the introduction of Value Added Tax, commonly known as VAT. In the lead-up to this historic date, ‘VAT Law in Bahrain’ became a widely-discussed topic among businesses operating in the country. Many businesses were initially uncertain about the implementation of VAT Law in Bahrain, but the VAT authorities worked diligently to ensure that this new tax regime became a reality as of January 1, 2019.
Introduction of VAT Law in Bahrain
The VAT Law in Bahrain was officially approved under Royal Decree No. (48) of 2018 on 9th October, 2018, and subsequently made available on the official website. This legislation formally set the wheels in motion for the implementation of VAT in Bahrain, marking the beginning of a new era in the country’s fiscal landscape from 1st January, 2019.
VAT Law in Bahrain: A Comprehensive Overview
The approval of VAT laws marked a significant milestone in the journey to implement VAT in Bahrain. To provide a comprehensive understanding of this transformative process, the following key aspects have been announced by the VAT authorities:
Finalization of VAT Regulations: A critical step in shaping the VAT landscape.
VAT Procedures and Related Circulars: Providing guidelines for businesses and individuals.
Bahrain VAT Portal Readiness: Ensuring that the necessary digital infrastructure is in place.
Opening Registration in Bahrain VAT Portal: Alongside essential registration timelines.
Finalizing VAT Return Format and Portal Readiness: Streamlining the process for businesses and individuals.
Knowledge Sharing User Guide: Providing valuable insights into various aspects of VAT in Bahrain.
The VAT authorities have been diligently working to ensure a seamless introduction of VAT Law in Bahrain on January 1, 2019.
Business Readiness for VAT in Bahrain:
VAT in Bahrain is now a reality, and it’s imperative for businesses to proactively prepare to be ‘VAT-Ready.’ Being ‘VAT Ready’ doesn’t just refer to your readiness on the day VAT compliance is mandated; it signifies your preparedness well in advance.
To achieve this, businesses should consider the following:
Accurate Financial Records: Ensure that all financial transactions are meticulously recorded and that books of accounts are both accurate and up-to-date. These records will serve as evidence for the minimum annual turnover threshold for registration, potentially affecting whether you are mandated to register or can request an exemption.
VAT Implementation in Transactions: VAT is a transaction-based tax. This means VAT at 5% must be charged on every taxable supply of goods or services, and a VAT invoice, often called a ‘Tax invoice,’ must be issued right from day one. On the purchasing side, you’ll be allowed to recover the VAT paid as Input VAT deduction. It’s vital to maintain the balance between VAT paid on purchases and VAT collected on sales, which should be remitted to the government via VAT returns.
Choosing the Right VAT Software: To facilitate a smooth transition into the new VAT era, businesses need to explore and adopt suitable VAT software. This software not only ensures VAT compliance when implemented but also eases the transition into the VAT landscape.
Understanding the Broader Impact of VAT: VAT doesn’t solely affect finance departments; it touches every facet of an organization, including supply chain, product pricing, sales, procurement, legal, commercial, logistics, and HR. Businesses have a limited window before the implementation of VAT in Bahrain, and this time should be invested in understanding VAT fundamentals, educating teams, assessing impacts, and making the necessary changes to be VAT-compliant from day one.
External Stakeholder Communication: Educating and informing external stakeholders such as vendors and customers about VAT and its implications on transactions is equally vital as part of the preparation process.
Any unpreparedness towards Bahrain VAT may have repercussions on your credibility, impacting relationships with customers and vendors, as well as leading to losses due to non-compliance fines.
Latest News on VAT in Bahrain:
Stay up-to-date with the latest developments in Bahrain VAT:
Transitional VAT Returns for 2019: Announced by the Nation Bureau of Revenue (NBT) in June 2019.
Diverse Return Filing Periods: Based on the threshold of BHD 5,000,000.
VAT Return Filing Period for 2023 Onwards: Released through VAT manuals.
VAT Return Format: Unveiled by the NBT.
New Electronic Service: Introduced by the National Bureau for Revenue (NBR) to allow VAT payers to register their interest in attending upcoming VAT workshops.
VAT Refund Desk at Bahrain International Airport: Opened on April 17, 2019.
Contract with Planet Payment: Signed by the Ministry of Finance and National Economy (MOFNE) on February 20, 2019, to build a VAT tourist refund scheme.
Different Timelines for Registering Under Bahrain VAT: Depending on your turnover.
Stay informed and prepared for the evolving VAT landscape in Bahrain.
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Who can voluntarily register under Bahrain VAT?
Mandatory VAT Registration for Residents in Bahrain
For residents in Bahrain, obtaining a VAT registration is obligatory under the following circumstances:
- When the total value of supplies made in the previous 12 months exceeds BD 37,500.
- When the anticipated total value of supplies for the upcoming 12 months is expected to exceed BD 37,500.
The mandatory threshold for VAT registration in Bahrain stands at BD 37,500.
Please Note: Non-resident individuals in Bahrain are also mandated to register for VAT, regardless of the value of their supplies, if they engage in transactions for which VAT is applicable. Registration can be pursued either directly or through a designated tax representative.
Who can voluntarily register under VAT?
VAT Registration Options in Bahrain
Businesses in Bahrain have two key avenues for VAT registration:
Mandatory VAT Registration:
- Required when the value of supplies or expenses in the preceding 12 months surpasses BD 18,750.
- Also obligatory when the expected value of supplies or expenses in the forthcoming 12 months is set to exceed BD 18,750.
- The threshold for mandatory VAT registration in Bahrain stands at BD 37,500, making the voluntary threshold 50% of this figure.
Voluntary VAT Registration:
- Businesses may opt for voluntary VAT registration for the primary benefit of input tax deduction. This enables the deduction of input tax (tax paid on purchases) from output tax (tax collected on sales), with only the balance tax payable to the Government.
- Additional advantages of VAT registration include the ability to issue VAT invoices and the enhanced credibility that accompanies a Bahrain VAT registration.
- Businesses with turnovers exceeding BD 18,750 but not reaching BD 37,500 can choose to voluntarily register for VAT.
Exemption from VAT Registration:
- Businesses exclusively engaged in zero-rated supplies have the option to request exemption from Bahrain VAT registration. Zero-rated supplies include examples like newly constructed buildings and the export of goods to non-GCC VAT-implementing States.
Phased VAT Registration in Bahrain:
- VAT authorities have implemented a phased VAT registration approach to ensure smooth VAT implementation.
- Larger businesses with annual supplies exceeding BHD 5,000,000 were mandated to register in the first phase of Bahrain VAT registration by December 20, 2018.
- In the second phase, businesses with annual supplies exceeding BHD 500,000 were required to register by June 20, 2019.
- The third phase of VAT registration targeted all remaining businesses with annual supplies exceeding BHD 37,500, and the deadline was December 20, 2019.
In Conclusion: Businesses in Bahrain must assess the value of their supplies to determine their VAT registration status. If the value of supplies exceeded BD 37,500 in the previous 12 months or is anticipated to exceed this threshold in the next 12 months, mandatory VAT registration is necessary. Non-resident businesses should note that they must register for Bahrain VAT regardless of their supply value if they engage in taxable supplies. The option of voluntary VAT registration is available for businesses with supplies exceeding BD 18,750 in the previous or expected in the next 12 months. Additionally, businesses exclusively involved in zero-rated supplies may apply for exemption from VAT registration. The phased VAT registration approach ensures a smooth transition for businesses in Bahrain as they adapt to the VAT regime.
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