VAT Exemption in Bahrain|Which supplies are VAT Exemption in Bahrain?

What does VAT Exemption mean?

There are some supplies of good and services which are exempt from VAT in Bahrain. These kinds of supplies are usually mentioned as non-taxable supplies or may also be called as VAT exempt on supplies. There is no VAT levied on these supplies.

When a supplier supplies such exempted supplies, VAT is not applicable. The supplier should not charge VAT on these kinds of supplies. For VAT Exempted Supplies, Input Tax cannot be recovered on the expenses incurred while making these exempt supplies.

Value Added Tax (VAT) in Bahrain has been implemented in different phases in the Kingdom of Bahrain from 1^st January 2019.  The VAT is an indirect tax which is a type of general consumption tax that will be collected incrementally, based on the value added, at each stage of production or distribution of sales. It is usually implemented as a destination-based tax. VAT, a general consumption tax, will apply to most transactions in goods and services. There few items exempted from VAT Exemption in Bahrain.

Which supplies are VAT Exemption in Bahrain?

1. Real Estate is one of those supplies which fall under VAT Exemption in the Kingdom of Bahrain.

Those Real Estate Supplies which are under VAT Exemption in Bahrain includes the sale, lease or license.  It does not matter if the real estate is residential, commercial or land (e.g., bare land).

For all the Exempt Supplies, if there is any VAT that has been incurred on expenses or purchases (i.e., professional legal fees, refurbishment, etc.) which is associated in the production of Exempt Supplies, Input Tax on such supplies will not be recoverable.

For VAT purposes of the place of supply rules, what is the definition of “real estate” and what does it include?

• Real Estate Includes an area of land over which rights, interests or services can be created.
• Real Estate Includes any building, structure or engineering work permanently attached to the land.
• Real Estate is any fixture or equipment which makes up a permanent part of the land or is permanently attached to a building, a structure or engineering works.

The sale or lease of real estate shall not include the supply of the following:

• Hotel accommodation
• Rental of function rooms and halls
• Car parking rental for periods of less than one month
• Serviced offices where the customer does not have the right to use a designated space on an exclusive basis
• Management services, utilities, telecommunications, internet, and television charged separately and in addition to rent

If a Residential Accommodation is given in the form or furnished or semi – furnished, the entire supply will be the supply of real estate for VAT purposes unless for the furniture’s are separately made.

Kindly note that furnishings kept in the real estate for example – Furniture, fittings, plant, etc., which are not fixed to land or a building and which can be taken out without damaging the real estate property are not considered as real estate.

2. Financial services also fall under VAT Exemption in the Kingdom of Bahrain. Financial services which are not provided for the exchange of a fee, commission, discount or rebate, are VAT exemption in the Kingdom of Bahrain.

Interest income that is made by the giving of a loan, as well as the equal income under a Shari’ah compliant product, are financial services which are under VAT Exemption. When transactions are not remunerated by the way of fee these kinds of transactions qualify for VAT Exemption.

There is some kind of financial services which are not Exempted from VAT in Bahrain. Financial Services such as remittance, transfer of money and issuance of cheques, where transactions are typically remunerated by way of a fee.  These kinds of typical financial services do not qualify for the VAT exemption in Bahrain. Hence, they are subject to VAT at a standard rate of 5%.

Agencies who are performing brokerage and intermediary services as well as private banking kind of services that are typically remunerated by way of a fee or commission. Such case and financial transactions are also subject to 5% VAT and do not qualify for VAT Exemption. A credit card is a kind of supply which typically generates both taxable income (e.g., membership fee) and exempt income (interest on the credit granted).

How to calculate VAT if the Supplies qualify for either zero-rated or is VAT exempt?

If supply can fall under both the scope of zero-rate as well as VAT exemption, the zero-rate treatment will be applicable over the VAT exemption and the supply will, therefore, be treated as zero-rated for VAT purposes.

Which are the Basic Food Items which are VAT Exemption in the Kingdom of Bahrain?

1. Water: Natural water, Artificial mineral water, Ice, Sparkling water and Soda Water (Except sweetened and flavored).
2. Milk: Fresh or long life milk (the types that are available in the market) not containing added sugar or any other sweetener

Yogurt: Includes all categories of yogurt whether condensed or with added sugar or any other sweetener or flavored, or includes added fruits, nuts or cocoa

Fresh cheese: including whey cheese, and curd cheese: Like Ricotta cheese, Brocciu cheese, cottage, double cream and mozzarella, Processed cheese: Includes sliced cheese and spreadable cheese types and parmesan. Other dairy products: Cream and Labneh

3. Meat & Fish:

Birds (fresh or chilled): whole or parts (with bones or boneless)

Beef meat: Carcasses, half-carcasses and other cuts whether with bone or boneless (Except frozen types) Sheep or Goat meat (fresh or chilled): Carcasses, half-carcasses, half-carcasses of lambs and other cuts whether with bone or without, goat meats, edible intestines, and limbs of lamb and goat (Except frozen types)  Meat of camels and camelids (Camelidae) (fresh or chilled): meat, intestines and other edible parts of frozen camels. Fresh or chilled fish: Yellowfin tuna, Bigeye tuna, Atlantic and Pacific bluefin tuna, Southern bluefin tuna, Longtail tuna, Kawakawa, Mackerel (Kingfish), Trevally, Seabream, Groupers (Hamor, Bertram, Chenino, Cato, Nagel, Samman), Sheri fish (Sheoor), Hamra fish (Alesmaudi), Nagroor fish, Bori (Meed and Biya), Safi fish (rabbitfish), Barracuda (Except frozen types)

4. Oils

Olive oil: Virgin olive oil

5. Egg

Bird’s egg, fresh or preserved or cooked: Egg with shell

6. Sugar and Salt

Sugar: Fine crystals | Salt: Table salt

7. Infant Formula

Infants and young children food based on milk or malted milk prepared as substitutes of mother’s milk (Except those containing cocoa)

8. Bread products

All kinds of bakery products Bread, Pies, Bagel (Except gateau). Biscuit,  Other bakery products including ones that contain stuffing (salty or sweet like cocoa)

9. Vegetables & Fruits:

Potato, fresh or chilled: All types of Potato (Except frozen types and sweet potato). Tomatoes, fresh or chilled: All types of tomatoes. Onion and Garlic, Fresh or chilled: Onions (green or dry rind). Cabbage lettuce, Fresh or chilled: Cabbage lettuce (head lettuce). Cucumbers and gherkins, fresh or chilled: Cucumbers and gherkins. Carrots and turnips. Corned beans peeled or not, fresh or chilled: Peas, Beans. Other vegetables, fresh or chilled: Aubergines (eggplants), Capsicum, Spinach, New Zealand spinach and orache spinach (garden spinach), Olives, Pumpkins, Squash, Marrow, Okra, Parsley, Corriander. Citrus Fruits, Fresh or dried: Oranges, Mandarins (including tangerines and satsumas), Lemons | Fresh or dried fruits: Fresh dates, Pressed dates, Pineapples, Guavas, Mangoes. Fresh fruits: Grapes, Watermelons, Melons, Apples, Pears, Apricots, Sour cherries, Kiwifruit, Pomegranates (Except frozen types).

10. Coffee beans, tea, and cardamom

Coffee beans: Not roasted, Roasted (Except decaffeinated). Tea, including flavored: Green tea (not fermented) in the packaging (Except Above 3 Kilograms), Other green tea (not fermented) (Except fermented), Small tea bag (Except Above 3 Kilograms). Other black tea (fermented) and other partly fermented tea. Cardamom: Whole Cardamom and Crushed or ground cardamom.

11. Wheat and rice

Wheat: Normal wheat, Thin wheat, Wheat flour (Except wheat flour mixed with cocoa). Rice: Semi-milled or wholly milled rice, whether polished or glazed (Except brown rice)

Source National Bureau of Revenue

Emirates Chartered Accountants offer VAT Services in the Kingdom of Bahrain. Our tax officers are professionally equipped and well versed with the Bahrain VAT laws and have in hand experience of handling VAT in other GCC countries.

We are headquartered in Dubai, UAE as Emirates Chartered Accountants Group providing service to the business community with our core services Audit & Assurance, Tax Services, Company Formation, Accounting, etc.

Our VAT Services in Bahrain are:

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