Economic Activity for VAT purpose in Bahrain

Anyone who is carrying out an Economic Activity in Bahrain should be registered for VAT in Bahrain. But how do you determine whether you are conducting any Economic Activity for VAT purposes in Bahrain. In this blog we will see how to determine an economic activity in Bahrain.

The Bahrain VAT law has detailed certain features which should be taken into consideration to establish that one is conducting an economic activity in Bahrain. All those economic activities are required to charge VAT in Bahrain on their supplies of Goods and Services.

What is an Economic Activity as per the Bahrain VAT Law?

As per the Bahrain VAT law an economic activity is defined as below:

“An activity conducted in an ongoing and regular manner for the purpose of generating income, and includes commercial, industrial, agricultural, or professional activities or services or any use of tangible or intangible assets, and any other similar activity.”

How to determine that one is conducting an economic activity in Bahrain?

The following points may be taken into consideration to determine whether one is conducting an economic activity for VAT in Bahrain or not.

1. Intention to make profits: It is not necessary that the activity that you are conducting should make profits. However, when you have an intention or a motive to make profits out of the activity you are conducting may indicate that it is an economic activity.

2. Frequent Transactions: If there are regular and similar transactions on a day to day basis for the activity you are conducting it may indicate that it is an economic activity.
3. Procurement Volume: The amount at you which you are buying goods for the activity can also indicate whether you are carrying out an economic activity or not. Off course you do not purchase goods in a big volume for your daily consumption. Hence, it may be one factor to determine an economic activity in Bahrain.
4. Loans: if you are conducting any activity with the help of loans or any other similar means where you have made an investment and the investment made can be paid only after selling of goods. This can also show that economic activity is being conducted.
5. Time and Effort in the Establishment: If it is only the source of income that one has and if they spending a considerable amount of time and effort in the establishment to sells their goods it may determine that economic activity is conducted.
6. Advertising & Promotions: if there is an advertisement or promotions being planted for the sale of goods it may determine that they are conducting economic activity.
7. Nature of an asset: The nature of an asset that one buys may determine if one is conducting an economic activity or not.

What are the different types of Economic Activity under the Bahrain VAT Law?

The Bahrain VAT Law specifically recognizes the following activities as Economic Activities but kindly note that the below list is indicative and not exhaustive:

• Commercial activities
• Industrial activities
• Agricultural activities
• Professional activities
• Services or any use of tangible or intangible assets; and
• Any other similar activity

What are the conditions of an Economic Activity to exist in Bahrain?

1. The activity should be conducted independently: if you are conducting any activity in Bahrain to be considered as an economic activity it should be carried out in an independent manner. It means that the person who is conducting should not be subject to any one’s authority.

Who can be regarded as conducting an activity independently?

• Sole Traders
• Separate legal entities such as joint-stock companies or Bahrain Shareholding Companies (B.S.C.), With Limited Liability Companies (W.L.L.) and Single Person Companies (S.P.C);
• Partnerships, whether these are formed under Bahrain law or not; and
• Unincorporated joint ventures

2. The activity should be in a regularized manner: if one is conducting an activity, it is important that it is being conducted regularly. There is no specific threshold or the number of transactions that should be made to be considered that the activity is being conducted regularly, it also depends on the type of business and the type of supplies that are being made. Hence, it is necessary to check each the details of each activity that is being conducted.
3. The activity should be conducted for income generation: while conducting an activity there should be an intention to generate an income. The income that is being generated while conducting an activity should be in return for goods and services provided. Suppose, good and services are being provided for free and there is no intention to charge in the near future, then it is not an economic activity.

Our Tax Experts in Emirates Chartered Accountants Group Bahrain believe in a proactive approach to tax advisory services with a cost-effective and tailor-made option that is preferred by businesses all over. Our team of professionals is well versed with the Bahrain VAT Law as well as the UAE VAT Law  They are also equipped with practical experience of implementing VAT in UAE and VAT in Bahrain.

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• VAT Registration
• VAT Training 
• VAT Implementation 
• VAT Return Filing Service
• VAT Consultancy 
• Accounting for VAT Compliance

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