The Kingdom of Bahrain recently introduced a new law increasing the value-added tax (VAT) on goods and services from 5% to 10%.
The new VAT rate entered into effect on 1 January 2022, with a one-year transition period.
Background
VAT was first introduced by the Kingdom of Bahrain in 2019 at a 5% standard rate on goods and services. The VAT law is based on the VAT unification agreement of the Gulf Cooperation Council (GCC), published on 21 April 2017. A 5% VAT rate had been agreed to by all GCC member states with an implementation deadline initially set for 1 January 2019, but was postponed to early 2021.
Key details
VAT applies to all goods and services that have not been specifically exempted. While it applies to insurance premiums, such as medical and accident insurance, there is a specific exclusion for life insurance premiums. The Kingdom of Bahrain released transitional rules adding the following implementation details.
One-off contracts
A 5% VAT rate applies when a contract was entered into before 24 December 2021, while the goods or services were/are to be delivered on or after 1 January 2022. However, the 10% VAT rate will apply if:
- The contract is amended, renewed or expires before the goods or services are delivered
- The goods or services delivered are made on or after 1 January 2023
- A contract was entered into after 24 December 2021, and the goods or services were/are to be delivered on or after 1 January 2022
Continuous contracts
When a contract was entered into before 24 December 2021, with some or all the goods and services occurring on or after 1 January 2022, a 5% VAT rate will apply to goods and services delivered before 1 January 2022, as well as those delivered on or after 1 January 2022, and before 1 January 2023. A 10% VAT rate will apply if:
- A continuous contract expires or is renewed on or after 1 January 2022, and before 1 January 2023
- Goods and services are delivered after 1 January 2023