Tax Declaration In Bahrain: Step-By-Step Guide

Tax Declaration In Bahrain

Stepping into the world of Bahraini finance? Navigating the nuances of tax declarations in Bahrain might seem daunting, but it’s a key step in embracing your financial responsibilities in this thriving Gulf nation. Don’t worry! We’ve got your back!

Whether you’re a business mogul or a newcomer to the workforce, our guide breaks down the essentials, ensuring your tax journey in Bahrain is as smooth as the island’s pearl-filled waters.

Let’s dive in!

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 Are Bahrain’s VAT Registration Requirements? 

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The VAT law, consistent with the VAT agreement, states that a business established in Bahrain that engages in economic activities must register for VAT. 

If it makes taxable supplies or imports that exceed the mandatory registration threshold of approximately Bahraini Dinar 36,500 (US$ 100,000).

 Suppose a Bahrain-based company’s supplies and imports are less than the statutory registration barrier but surpass the voluntary registration threshold of about Bahraini Dinar 18,250 (US$ 50,000)

In that case, the company may choose to register for VAT voluntarily.

Businesses with taxable revenue over the voluntary threshold but below the prescribed limit should assess whether it would be beneficial to register for VAT.

 When deciding whether to voluntarily register for VAT, consider customer VAT status, the value of VAT projected on costs, reputational damage, and internal resourcing.

A business that is not established in Bahrain must register for VAT if it makes any supplies in Bahrain on which it is obligated to remit VAT 

(e.g., the place of supply is in Bahrain, and the customer cannot self-account for the VAT payable under the reverse charge method).

 Non-resident enterprises are not subject to a threshold test.

What Exactly Do You Mean By Filing A VAT Return?

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.

One of the most constantly complicated components of contracting in Bahrain is complying with the country’s tax system.

 If you have a permanent contract in Bahrain, many employers will manage your tax via the PAYE (pay-as-you-earn) method. 

This implies that they compute and process your Bahraini taxes for you before sending you a net wage.

How Do You File A VAT Return In Bahrain?

To file a VAT Return in Bahrain, taxable persons must provide transaction details on sales, purchases, and non-registered supplier purchases through the NBR website’s VAT Return Form.

When you visit your VAT Return Form to file your VAT Return, you will encounter two types of procedures. It will either be,

Paying the VAT responsibility is required if your recoverable input VAT paid on purchases is less than the VAT collected on taxable sales.

If the recoverable input VAT paid on purchases exceeds the VAT collected on taxable sales, you can claim back the excess VAT paid from the Authority.

How Are VAT Returns Filed Online?

The taxpayer must electronically complete the VAT Return Form, which requests a summary of the total amount of output tax owed and recoverable for a specific tax period. 

You must electronically file all the information by signing into the National Bureau of Revenue (NBR).

The steps to take for filing VAT returns in Bahrain are as follows:

  • The taxpayer must electronically register with NBR before submitting VAT returns through the NBR portal.
  • The electronic VAT return form is available with just one NBR portal login.

The taxpayer must manually enter the following information in the VAT return form:

VAT On Sales

You must include information about sales, output VAT, and any necessary adjustments in this part. The sales data must be divided into the following categories:

  • Standard-rated sales
  • Sales to registered taxpayers in other GCC states
  • Sales are subject to the domestic reverse charge mechanism
  • Zero-rated domestic sales
  • Exports and Exempt

VAT On Purchases

In this case, you must provide purchase information and recoverable input VAT. The following format must be used for declaring purchase data and input VAT.

  • Standard-rated domestic purchases
  • Imports subject to VAT are either paid at customs or deferred
  • Imports subject to VAT accounted for the reverse charge mechanism
  • Purchases subject to domestic reverse charge mechanism
  • Purchases from non-registered suppliers, zero-rated/exempt purchases

The VAT return must be submitted once the necessary information has been provided.

Following the taxpayer’s submission of the VAT Return form, NBR will notify them by SMS and email. The taxpayer’s online account with the NBR provides access to the official detailed receipt (in PDF format).

VAT return forms can be changed in cases of errors within 30 working days of the Taxable Person becoming aware of the error on his VAT Return Form and before the NBR begins supervision and inspection procedures. 

To submit an amended VAT Return Form, use the same processes as described above.

When Should You File Your VAT Return?

Taxable firms registered for VAT in Bahrain must file their VAT returns according to their tax period. The tax burden must be paid to the NBR, and any refunds must be obtained from the National Bureau of Revenue (NBR).

The VAT Return filing deadline is the last calendar day of the month following the month specified in your VAT Return Filing period.

Businesses in Bahrain with an annual turnover of more than 5 million BHD are required to file their VAT every quarter. The VAT Return must be submitted by the last calendar day of the month when the quarterly tax period ends.

The National Bureau of Revenue (NBR) stated that the VAT return submission and payment deadline for the June and second quarter 2023 tax periods has been extended to 1 August 2023.

From 2020, How Will VAT Return Filing Be Structured?

Taxable businesses in Bahrain with an annual turnover of over 3 million BHD must file their VAT Return monthly.

Taxable businesses in Bahrain with an annual turnover of less than 3 million BHD must file their VAT Return quarterly. Return filing quarters end on March 31, June 30, September 30, and December 31.

What Is The Penalty For Failing To File A VAT Return?

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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 value of the tax 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 keep in mind 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 and as stated by the NBR.

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.

Export Of Services Outside The GCC (Taxable Customer) 

The provision of services to non-GCC recipients will be zero-rated as an export from Bahrain. 

However, the interpretation of which services qualify under this regulation is unclear at this time and may differ from the approach used in other GCC member states. 

According to VAT rules, the recipient must benefit from the service outside Bahrain for the zero rating to apply. 

International Service Purchases 

Under the VAT agreement, purchases of overseas services (intra-GCC and from outside the GCC) will be treated as reverse chargeable. 

In Bahrain, and accordance with domestic VAT legislation in both the UAE and KSA, this is intended to work in the same way as a fully taxable customer charging output VAT and taking a (equal and offsetting) input tax credit in its VAT return. 

For such businesses, it should be about cash flow neutral. Although the reverse charge is a typical VAT technique, it necessitates considerable attention regarding system configuration, compliance, and control.

Conclusion

As we close the chapter on tax declarations in Bahrain, remember, this isn’t just about numbers and deadlines; it’s about contributing to the economic fabric of a country that’s as rich in culture as it is in oil.

Equipped with this knowledge, you’re set to confidently navigate Bahrain’s financial landscape, keeping your fiscal affairs in perfect harmony.

Declaration Decoded!

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