On 1st January 2019, Bahrain became the third GCC (Gulf Cooperation Council) after the UAE and Saudi Arabia to implement a VAT (Value Added Tax) system. The introduction of the new tax regime came as a welcome change to anyone hoping to set up a small Bahrain business.
What is Value Added Tax or VAT? It is an indirect tax levied on the supply of goods and services and imports. Bahrain has paved the way for a 5% VAT tax on goods and services. Consequently, manufacturers, wholesalers, and retailers will have to collect the tax from the consumer and present it to the government.
Read on to know more about how anyone looking forward to company registration in Bahrain can benefit from this new taxation system.
Who is required to pay Value Added Tax in Bahrain?
The law in Bahrain mandates the following group of people to give back VAT to the government:
- Any business establishment or business owner who furnishes invoices with tax
- Any taxable business establishment or business owner who sells good and services in the Kingdom of Bahrain
- Any consumer in Bahrain who purchases the goods as mentioned earlier and services
- Importers under the Unified Customs Law will also have to pay VAT
How Does VAT Registration in Bahrain Work?
A Bahrain business has to enrol itself with the National Bureau of Revenue (NBR) in the kingdom of Bahrain. The establishment receives a VAT number in return for enlistment.
Each VAT number is different. Let’s say a person owns three business establishments in Bahrain. Then, the business owner will get three unique VAT numbers for his three business setups. This information is vital for anyone looking forward to company registration in Bahrain.
Under Bahrain law, any business owner can enlist under the following VAT categories:
Mandatory VAT Registration
If a business establishment reaches or is expected to reach an annual turnover between BHD 37,500 and BHD 500,000. Then the business will have to register with the NBR for mandatory VAT.
Voluntary VAT Registration
This type of VAT registration is for those businesses whose annual turnover reaches or is expected to reach over BHD 18,750. As the name suggests, these business entities can register for VAT out of their own volition.
- Non-Resident VAT Registration
Any non-resident planning on starting a business in Bahrain will have to register with the NBR. They can enrol with the NBR directly or hire the services of a tax representative.
Tax Group VAT Registration
This provision allows two or more businesses to enrol themselves with the NBR as a tax group. These businesses constitute a single entity and are liable for any tax obligation arising out of their establishments.
NBR can also delist a tax group if the terms and conditions aren’t met.
Benefits of VAT System
- Small Businesses Exude the Appearance of Being a Bigger Entity
Thanks to VAT, small businesses can become more extensive and more established. When they get a VAT number, no one will know quickly if the business’ turnover is more than the VAT threshold.
This advantage can pave the way for future success in the business world. Small and medium-sized companies in Bahrain stand to get many business benefits from the newly imposed VAT system.
VAT Makes a Business Look More Professional
If a business equips itself with a VAT number after enlisting with the NBR, it becomes more serious and professional.
This benefit can revolutionize the way people perceive small to medium-sized businesses in Bahrain.
Business Owners Can Reclaim the VAT Paid for Business Services
Business supplies such as computers, chairs, desks, etc., are accompanied by Value Added Tax. While you have to pay VAT at the point of purchase of these items, you can later reclaim it from the government of Bahrain while filing taxes.
Eases Business Transactions with Foreign Investors
Generally, foreign ex-pats like to check whether a country has a VAT system or not before engaging in any business activity in the same country.
It is because the value-added tax is indicative of a robust economic infrastructure.
Tracking is Easy
Another reason why a business setup in Bahrain is a good idea is that tracking VAT is easy. All you need to do is punch your VAT number to check your VAT status or dealer status.
Unlike other taxes, you need not go through the pain of checking documents and receipts from the last time you had to cough up Value-added tax.
Exemptions from VAT
In 2019, Bahrain came out with a Value-added taxation system that was well-defined and welcomed by all types of businesses.
Business owners in Bahrain can request an exemption from NBR if the annual turnover rate is zero-rated. Consequently, the NBR will exempt the business from the same after verifying the request.
What Are the Different VAT Rates in Bahrain?
Bahrain has introduced VAT rates in three categories to incentivize business and commerce and encourage Bahrain's company registration.
The standard rate of 5% applies to a wide range of consumer goods and services in Bahrain. Items covered include clothes, makeup, car, electronics, etc. It is also known as the Input tax.
The NBR has set aside a 0% VAT for certain household items, including basic food and grocery items, education and health fees, pharmaceutical items, types of equipment for construction, etc.
End-buyer does not pay any taxes on these items as mentioned earlier, which means that business owners are exempted.
Certain goods and services in Bahrain are exempted from taxes. Tax-exempt services include sales or lease of real estate at a particular location and fees of few financial institutes.
The introduction of a VAT system indicates excellent news for anyone looking forward to setting up a company in Bahrain. If you want to know more about business opportunities in Bahrain or want to gain other valuable business insights, get in touch with us today!