A Simple Guide to VAT Zero-Rated Supplies in Bahrain
Bahrain introduced VAT in 2019, and certain goods and services are subject to a zero-rate of VAT. This means businesses don’t charge VAT on these supplies, but they can reclaim VAT on any related costs. Understanding which supplies are zero-rated is important for businesses to stay compliant and avoid extra tax costs. In this guide, we’ll explain which supplies are zero-rated, when they apply, and how businesses can stay compliant.
Key Zero-Rated Supplies in Bahrain
Some goods and services in Bahrain are zero-rated, meaning they are taxed at 0%. Here are the main categories:
Exports of Goods:
Goods shipped from Bahrain to a destination outside the country are zero-rated, as long as they are shipped within 90 days, remain unchanged, and are not sold before leaving Bahrain. Required documents include customs records and proof of delivery.
Exports of Services:
Services provided to customers outside Bahrain may qualify for the zero-rate, as long as the customer is not in Bahrain and the service is used outside the country. Some services, like those related to real estate, do not qualify for the zero-rate.
Transport Services:
International transport services are zero-rated. This includes transport of goods or passengers from Bahrain to other countries or from other countries to Bahrain. Certain related services, such as loading and unloading, are also zero-rated.
Basic Needs:
Essential food items and healthcare services, including medical treatments and medicines, are zero-rated to keep them affordable.
Education:
Educational services, like tuition fees and materials from accredited institutions, are zero-rated.
Real Estate:
Construction services for new residential buildings and sales or rentals of residential real estate are zero-rated. However, commercial real estate transactions usually are not.
Oil and Gas:
Domestic oil and gas transactions are zero-rated.
Precious Metals and Stones:
The sale of commodities like gold, silver, platinum, and precious stones is zero-rated.
Conditions for Zero-Rate VAT
For businesses to apply the zero-rate, certain conditions must be met:
For Exports of Goods: Goods must be shipped out of Bahrain within 90 days, remain unchanged, and proper shipping documentation must be provided.
For Exports of Services: The customer must be located outside Bahrain, and the services must be used outside the country.
For Transport: International transport services must involve travel from or to Bahrain, or within Bahrain as part of an international journey.
How Zero-Rated VAT Affects Businesses
If your business provides zero-rated goods or services, you do not charge VAT to customers. However, you can reclaim VAT on expenses related to these supplies.
If your business offers both taxable and zero-rated supplies, you must keep accurate records and apply the correct VAT for each type of supply.
Tips for Staying Compliant
Classify Supplies Correctly: Make sure you classify goods and services as zero-rated or taxable, based on the guidelines.
Keep Documentation: Maintain proper records, such as shipping documents or contracts, to support your zero-rated supplies.
Consult Experts: Due to the complexities of VAT laws, it’s helpful to consult with VAT experts to ensure you are following the rules correctly.
Conclusion
Understanding which supplies are zero-rated under Bahrain’s VAT system helps businesses avoid unnecessary taxes while remaining compliant. By classifying supplies correctly, keeping documentation, and seeking expert advice, businesses can take full advantage of the zero-rate VAT benefits.
Note: This information is based on the guidelines provided by the National Bureau for Revenue (NBR) of Bahrain and is subject to change with or without notice. For more detailed information, please refer to the NBR Website.
