What is VAT?

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Value Added Tax (VAT) is a tax that is levied on the value added at each stage of the supply chain, from production to the final sale of goods and services. VAT is a consumption tax, meaning it is ultimately paid by the end consumer.

In Bahrain, VAT was introduced on January 1, 2019, at a standard rate of 5% & Was increased to 10% in 2022. VAT applies to most goods and services, although certain items are exempt or zero-rated

Businesses that are registered for VAT must charge VAT on their taxable supplies and can reclaim VAT on their eligible expenses.

The VAT registration threshold in Bahrain is BHD 37,700 (approximately USD 100,000) of annual taxable supplies. Businesses that exceed this threshold must register for VAT within 30 days of reaching the threshold. Businesses that do not exceed the threshold can register for VAT voluntarily.

Penalties for non-compliance with VAT regulations in Bahrain can be significant. Failure to register for VAT when required can result in a penalty of up to BHD 10,000 (approximately USD 26,000). Other penalties can be imposed for late submission of VAT returns, failure to issue VAT invoices, and other non-compliance issues.

It is important for businesses to understand their obligations under the Bahraini VAT regulations and to ensure timely and accurate compliance to avoid penalties and other legal issues. Seeking the advice of a professional accountant or tax advisor can be helpful in navigating the complex VAT landscape.