Bahrain Tax Refund: All You Need To Know

Bahrain Tax Refund

Embarked on a financial voyage in Bahrain and wondering about tax refunds? In the kingdom known for its economic dynamism, understanding the nuances of tax refunds can be crucial. Fret not! We’ve got your back!

Whether you’re a local entrepreneur or an expat navigating the Gulf’s fiscal waters, this guide will demystify the Bahrain tax refund process, ensuring you’re well-informed and financially savvy.

Let’s dive in!

What Exactly Does It Mean By Filing A VAT Return?

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A VAT Return is a calculation of how much VAT a business must pay or be refunded by the Tax Authority. 

A taxpayer is required to pay VAT on taxable purchases, also known as input tax, and to collect VAT on taxable sales, also known as output tax.

To summarize, VAT is a tax on goods and services. The taxpayer collects VAT on behalf of the Tax Authority (NBR) and claims back the VAT paid on their taxable transactions.

What Is A Refund Of VAT?

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The taxpayer may ask the National Bureau for Revenue, or NBR, to reimburse any excess VAT when the input VAT on their tax return exceeds the output VAT.

  • The tax due for the goods or services the taxpayer purchases is input VAT.
  • The tax gathered on the products or services the taxpayer sells is output VAT.

What Are The Refunds Of Taxes To Taxable Individuals?

Within five years of the end of the year in which a qualifying condition was met, the taxpayer must apply for the VAT refund.

If any of the following circumstances are satisfied, a taxpayer may be eligible for a tax refund:

  • If a taxpayer’s net tax deduction exceeds its deductible amount, they can carry the excess tax over to the following tax year.
  • when a taxpayer pays more taxes than what is owed in net tax.
  • if the taxpayer has applied for deregistration and has excess recoverable net tax.

Who Can Be Termed As An “Overseas Tourist”?

The term ‘overseas tourist’ means a natural person who is not a resident in any of the GCC VAT implementing States and who is not a crew member on a flight or aircraft leaving a GCC VAT implementing State.

How Do Companies Sign Up For The Tourist Refund Scheme For VAT?

Vatable Businesses should visit the operator’s website, Planet, to complete the VAT Tourist Refund Scheme registration process if they would like to register for the scheme.

Bahrain’s VAT Tourist Refund Scheme registration is an online process that only requires three easy steps:

  • Step 1: Complete the online form for registration.
  • Step 2: Review the document and click the “Sign Online” button.
  • Step 3: Send in the required documentation.

Eligibility And Requirements For Tax Refund

To be eligible for the Tax Refund Scheme, tourists must meet certain criteria:

  • Non-Resident Status: Tourists must be non-residents of Bahrain.
  • Minimum Purchase Amount: There is typically a minimum purchase requirement to qualify for a VAT refund. This amount can vary and is subject to the specific regulations of the scheme.
  • Goods Eligibility: Not all goods and services are eligible for a VAT refund. Certain items might be excluded or have specific conditions for refund eligibility.
  • Proof Of Purchase: Tourists must retain and present valid receipts and documentation for the purchased items to claim a refund.

Eligibility For Reimbursement Of VAT

Refunds of VAT is available to the following people:

  • A taxable individual who overpaid VAT
  • Foreign governments, institutions, diplomatic and military agencies, and international organizations that have paid value-added tax (VAT) on products and services provided within the borders of the Kingdom of Bahrain.
  • Tourists.

Timeline For VAT refunds

The NBR will examine the taxpayer’s accounts once they submit their request to verify the legitimacy of the refund request. After examining the accounts, the NBR representatives will inform the taxpayer within 60 days if the request is approved.

What Is The Required Documentation For Services Of VAT Refund?

Visitors and international businesses need documentation to obtain a VAT refund through VAT refund services. 

Other papers may be needed depending on the nature of the claim and the particular conditions set forth by the government to execute the refund. 

Nonetheless, the following standard documents are needed in the UAE for VAT refund services:

  • Original tax invoices
  • Proof of export of goods from the UAE, such as shipping documents or boarding passes
  • Original receipts or credit card slips
  • Passport or other identification documents
  • The boarding pass or airline ticket for tourists
  • Trade license and commercial registration for businesses
  • Bank account details for the refund transfer

Process Of Claiming VAT Refund

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The process for tourists to claim a VAT refund generally involves the following steps:

  • Shop At Participating Outlets: Tourists should make purchases at outlets participating in the Tax Refund Scheme. These outlets are typically identified by signs or stickers indicating their participation in the VAT refund program.
  • Request Tax Invoice: Upon purchase, tourists must request a tax invoice or receipt showing the VAT amount paid.
  • Validation At Departure: When leaving Bahrain, tourists must present the purchased goods, along with the tax invoices, at designated validation points, often at airports or border checkpoints.
  • Claiming Refund: Tourists can claim their VAT refund after validation. This might involve filling out refund forms or utilizing designated kiosks or offices at the departure point. 

Refunds are often processed through credit card reversals or cash payments, depending on the scheme’s procedures.

Impact And Benefits Of The Tax Refund Scheme

The implementation of the Tax Refund Scheme in Bahrain has several potential benefits:

  • Boosting Tourism: The scheme aims to attract more tourists by offering an incentive to shop and spend in Bahrain, ultimately contributing to the growth of the tourism sector.
  • Economic Diversification: By promoting Bahrain as a shopping destination, the scheme supports the diversification of the economy, reducing dependency on oil revenues.
  • Enhancing Shopping Experience: For tourists, reclaiming VAT on purchases can significantly enhance the overall shopping experience and provide additional value for their spending.

Challenges And Future Developments

While the Tax Refund Scheme presents numerous advantages, there are certain challenges and areas for potential improvement:

  • Awareness And Accessibility: Ensuring that tourists are well-informed about the VAT refund process and making it easily accessible at various tourist points, including airports and major shopping centers.
  • Regulatory Updates: Regular reviews and updates of the scheme’s regulations and eligible goods to align with evolving consumer trends and international standards.
  • Operational Efficiency: Enhancing the efficiency of refund procedures to minimize processing times and provide a seamless experience for tourists.

Information To Be Included In The Refund Request

The following information should be included in the refund request:

  • The candidate’s name and address
  • An explanation of their business endeavors
  • Details of the applicant’s tax registration (as supplied to the appropriate body in their nation of residence)
  • The explanations for the applicant’s payment of the expenses included in the refund request
  • An explanation of the expenses associated with the requested tax return

Increase In VAT Rate

Bahrain’s National Bureau of Revenue (NBR) has issued English-language guidelines on the transitional procedures for raising the regular VAT rate from 5% to 10% on January 1, 2022

According to the guidance, the 10% VAT rate applies to standard-rated supplies and imports made on or after January 1, 2022

Certain transitional restrictions apply, however, because the amended law increasing the VAT rate was published in the Official Gazette and came into force on December 24, 2021.

What Is The Penalty For Failing To File  VAT Return?

Failure to submit the tax return or late payment of tax within the prescribed period will result in a penalty of 5%, not exceeding 25% of the tax value that should be declared or paid.

 If it exceeds sixty days after the expiration of the tax period, it will result in imprisonment for a period not less than 3 years and not more than 5 years.

Please remember that regardless of whether there is no VAT to pay or refund, all VAT-registered businesses in Bahrain must file their VAT Returns on time, as stated by the NBR.

Conclusion

As we conclude our exploration of Bahrain’s tax refund system, remember that this knowledge is more than just a fiscal formality; it’s a tool for financial empowerment in your Bahraini journey.

With these insights, you’re now equipped to navigate the tax seas of Bahrain with confidence, ensuring your financial health remains robust.

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