Bahrain VAT Law: Key Guidelines for Importing and Exporting Goods

What is an import of goods?

An import of goods takes place when goods enter Bahrain from a place outside of its territory. For these goods to be considered imported under the VAT law, they must be cleared through customs and not placed under the customs duty suspension regime.

An import of goods does not require a transaction between two parties or a payment. For example, suppose that a Belgian company that has a branch in Bahrain transfers goods from the head office to its branch in Bahrain. In this case, there is no actual supply of goods taking place under the VAT law. However, the arrival of goods in Bahrain will be considered an import since the goods are coming from a place outside of Bahrain.

Determining place of supply for an import under the VAT law

The place of supply for imported goods is the first point of entry in the territory of the implementing states. For example, if goods are imported from India to Bahrain, then the place of supply will be Bahrain. This import falls within the VAT jurisdiction of Bahrain.

If goods are placed under the customs duty suspension regime, then the place of supply for these goods is the implementing state where the goods are released for import. For example, suppose that some goods are shipped from the UK to Bahrain. On arrival, these goods are placed under the customs transit regime to be transported to the Kingdom of Saudi Arabia, where they will be released from the suspension regime and cleared from customs. This import does not fall under the VAT jurisdiction of Bahrain, as the goods are placed under the customs duty suspension regime upon arrival. These goods will be released from the customs duty suspension regime only after leaving Bahrain.

VAT treatment of imported goods

Goods that are imported into Bahrain are typically subject to the standard VAT rate of 5%, unless they are specifically exempt from it.

In cases where the goods are exempt from custom duties, would still have to pay VAT at the standard rate unless the transaction falls under one of the following exemptions:

• When zero-rated goods or exempted goods such as basic food items, precious metals sold for investment, pearls, precious stones, prescribed medicines and medical equipments are locally supplied in Bahrain.

• When goods are imported for persons with special needs. The importer must have the relevant documentation in accordance with the conditions and controls of the customs law.

• When the imported goods are exempt from customs duties under one of these categories:

  • Diplomatic exemption

  • Military exemption

  • Returned goods

  • Belongings and household appliances belonging to Bahraini citizens who are residing abroad or foreigners who are moving to reside in Bahrain for the first time

  • Personal belongings and gifts that are brought by a passenger

Paying VAT on import

The person who is determined to be the importer of goods for customs purposes is liable to pay VAT on import.

Customs duty and import VAT are due on the same day and must be paid by the importer. Customs duty is due in Bahrain in the following scenarios:

• When goods arrive and are imported in Bahrain; or

• When goods are released from customs duty suspension regime and imported in Bahrain

Determining the value of imported goods for VAT purposes

The value of imported goods is the customs value as determined under the customs law. The following values must be included in the customs value in order to determine the value of goods subject to VAT:

• Customs duties

• Excise tax

• Costs relating to the import of goods such as transportation charges, commission expenses or other similar charges incurred until the goods reach the territory of the implementing states

• Additional charges related to insurance, storage, packing, or surveillance until the goods reach the territory of the implementing states

Determining the value of goods re-imported after a temporary export

In cases where goods are temporarily exported outside of the territory of the implementing states for repair, completion of manufacturing, or other similar services, and then re-imported, the VAT will be due on the value added to the goods while they were exported.

For example, a machine is temporarily exported from Bahrain to Europe for repair. Once it is repaired, it is re-imported into Bahrain. The value of import VAT will be the value added to the machine while it was in Europe, as calculated under the customs law. Here, when the machine is re-imported again, it will be exempt from VAT only if it meets all the conditions of customs exemption for returned goods.

Adjustments in the value of goods imported

If the supplier has provided a discount after importing the goods, the discount will not affect the value of the goods or the VAT liability unless the customs value of these goods is adjusted because of this discount. If there are no adjustments to the customs value, then there will be no change in the VAT liability of the importer. In this case, the importer doesn’t need to make any adjustments to his tax returns to show the discount.

If the importer finds that the import VAT amount payable is incorrect (for instance, due to an error in classification or in value), he should inform Bahrain Customs Affairs before paying import VAT.

In certain cases, the importer may need to make an amendment to a customs declaration even after the goods have been cleared. If an amendment results in additional customs duty or VAT due, then the adjustment is processed through a payment order issued by Bahrain Customs Affairs, and any additional amounts are collected from the importer.

If an amendment leads to an overpayment of customs duty or VAT, Bahrain Customs Affairs will adjust the customs duty and VAT payable. The importer will be able to claim this overpaid import VAT as input tax in his returns and not as a refund.

Payment of import VAT

As a general rule, the importer must pay the VAT due on goods at the point of import to Bahrain Customs Affairs, before the goods are released. The VAT payment procedure will be the same as the procedure for paying customs duties and excise tax.

Agents acting on behalf of a non-VAT-registered person

A VAT-registered agent from Bahrain who imports goods on behalf of a person who is not registered for VAT in Bahrain must pay the import VAT before the goods are released. The agent will not be able to recover the import VAT paid through his tax returns. Instead, the agent should get the import VAT amount reimbursed by his client.

VAT-registered importers

A VAT-registered person in Bahrain who imports goods for business purposes must use their own Commercial Registration (CR) number and VAT account number.

If the taxable person hires a clearing agent to help with the customs clearance process, then the clearing agent should fill in and submit the customs documentation using the client’s CR number and VAT account number.

If a taxable person uses the VAT account number of another taxable person to import goods, they will not be able to recover the import VAT paid. The person whose VAT account number has been used for the import will also not be able to recover the VAT paid, because the goods were not imported for their business.

Deferral of import VAT for taxable importers from Bahrain

Import VAT can be paid while submitting the tax return for the period during which the import took place, provided the taxable importer submits a form provided by the NBR.

To get authorization to do so, the importer must meet the following conditions:

• The importer must be registered for VAT in Bahrain.

• The importer must maintain and submit all documents related to the imports so that the NBR can verify if the details are correct.

• The importer must comply with any import-related requests the NBR makes.

• The importer must declare VAT due on their tax return for the tax period during which the goods were imported.

The NBR has the authority to decide whether a taxable person can defer the payment of import VAT.

If an importer has received authorization to defer payment of import VAT, their VAT account number will be flagged to Bahrain Customs Affairs and their goods will be released without collecting import VAT.

The importer must mention the import VAT due in their tax return. They will be eligible to claim that import VAT paid as input tax, based on the normal input tax recovery rules.

Recovery of import VAT paid

A VAT-registered taxable person in Bahrain can claim VAT paid on import as input tax provided that the goods will be used to make taxable supplies and the recovery of VAT on these goods is allowed. The importer will be unable to claim the import VAT paid if they enter the wrong VAT number.

The taxable person must maintain records of all customs documentation issued by Bahrain Customs Affairs. This documentation serves as proof that the goods were imported into Bahrain and VAT was paid, and it will help the importer recover the VAT amount paid in his tax return.

If the payment of import tax has been deferred, then the taxable person can report VAT as a recoverable input tax in the same tax return in which the VAT is being paid. All the conditions for recovery must be met at the time of submitting the tax return, and customs documentation supporting the deferral of payment must be produced.

What Is an Export of Goods?

An export of goods is a supply of goods from Bahrain to anywhere outside the Implementing States.

For an export of goods to fall within the scope of the VAT law, it must meet the following conditions:

• There must be an actual sale of goods between two individuals, with an exchange in cash or kind.

• The goods must be shipped from a place in Bahrain to a place outside of the territory of the Implementing States.

Supplies of goods that are shipped from a place outside of Bahrain to another place outside of Bahrain do not fall within the scope of VAT law.

Conditions for applying zero-rate VAT on exports

Exports of goods from Bahrain are subject to 0% VAT. This allows businesses in Bahrain to remain competitive, because:

• Selling prices will not be affected by VAT since it is 0%.

• Businesses will be able to recover VAT paid on expenses relating to the goods exported.

For a supply of goods to qualify as an export and be subject to zero-rate VAT, the following conditions must be met:

• The goods sold must be shipped from a place in Bahrain to a place outside the Implementing States within 90 days from the date of their supply.

• The goods must not be changed, used, or sold to a third party before they leave Bahrain.

• The supplier must retain the commercial and official documents that serve as proof of shipment.

Both direct and indirect exports can be subject to zero-rate VAT. In other words, the person responsible for shipping the goods to a place outside the Implementing States can be the supplier, the purchaser, or a third party who acts on behalf of the supplier or purchaser.

The goods will be considered as being shipped to a place outside the territory of Implementing States on the day they leave the territory of Bahrain.

The supplier must check whether all the conditions to apply zero-rated VAT are met.

The supplier can apply 0% VAT at the time of supply, provided he gets the supporting export documentation within 90 days from the date of supply of the goods. If he does not get the documents within that timeframe, he must adjust the VAT treatment, treat the supply as a domestic supply for VAT purposes, and issue a new tax invoice to show that this is a domestic supply. Depending on the VAT rate applicable on the goods, the supplier may have to apply a standard VAT rate of 5%.

If the buyer of the goods (or a third party acting on their behalf) organizes the shipping of goods, the supplier must get all the necessary documents from the buyer to prove that:

• The goods have been shipped by the buyer or a third party acting on their behalf to a territory outside the Implementing States within the 90-day timeframe, and

• The goods have not been changed, used, or sold by the buyer before they were shipped.

If the documents provided by the buyer are not satisfactory, the supplier must treat the supply of goods as a local supply of goods. In this case, the supplier is required to issue a valid tax invoice for his export of goods before the 15th day of the month following the date on which the supply took place.

Calculating the 90-day timeframe based on the date of supply

For an export of goods to be eligible for 0% VAT, the goods must be shipped from Bahrain to a place outside the Implementing States within 90 days from their date of supply.

In order to calculate the 90-day timeframe, the date of supply will be either:

• The date on which the transport of goods starts, if the transport is supervised by the supplier, or

• The date on which the goods are placed at the disposal of the buyer, if the transport is not supervised by the supplier

Sale of goods in the departure and arrival areas of an airport or seaport in Bahrain

All the goods sold in shops located in departure areas of airports and seaports in Bahrain are subject to zero-rate VAT in Bahrain, provided the following conditions are met:

• The goods are sold in the departure area, after customs and security checks, of an airport or seaport to a passenger who is scheduled to leave Bahrain.

• The goods are not meant for immediate consumption or to be used while still in the departure area. These passengers who bought the goods intends to leave Bahrain for a place outside the territory of the Implementing States.

• The supplier has received evidence that the passenger intends to leave Bahrain for a place outside the territory of the Implementing States.

The 0% VAT is applicable only on the sale of goods that are not meant to be consumed immediately after purchase. Food or beverages that are meant to be consumed immediately (whether purchased from a vending machine or a restaurant or lounge) will be subject to VAT at the standard rate, unless they are specifically exempt or are covered by a specific zero-rate regime.

Goods sold in shops located in the arrival areas are subject to VAT at the standard rate, unless they are covered by a specific zero-rate regime or a VAT exemption.

Documents required to prove an export of goods

In order to apply VAT at 0%, the supplier must have valid export documents to prove that the goods left the territory of Bahrain for a place outside of the Implementing States within 90 days of their date of supply.

The documents required are:

• The documentation issued by Customs Affairs at the Ministry of Interior to confirm the export. This must be in the name of the supplier, or buyer, or a third party acting on their behalf.

• The commercial document that identifies the supplier, the customer, and the place of delivery of the goods.

• The transportation documents confirming the delivery of the goods outside the territory of the Implementing States, such as a bill of lading, airway bill, or certificate of shipment.

• For goods sold in the departure area of an airport or seaport, the boarding pass details of the buyer, such as the name, flight number, and destination, proving that the individual is travelling to a place outside the territory of the Implementing States.

Additionally, in cases where the shipment is organized by the buyer, the NBR may require evidence that the goods have not been changed, used in whole or part, or supplied to any third party between the date of their supply and their shipping.

Other transactions at export subject to VAT at the zero rate

The following transactions also fall under zero-rated VAT export.

• The supply of goods made to a customs duty suspension regime. In this case, the goods must be moved into the regime within 90 days from their date of supply and meet all conditions required for the regime to apply. For example, a supply of goods transferred from the local market to a customs warehouse.

• The supply of goods within a customs duty suspension regime. In this case, the conditions for the customs suspension regime are all met. For example, a supply of goods within a customs warehouse.

• The re-export of goods temporarily imported into Bahrain for repair, conversion, restoration and processing. The zero rate is applicable on the repair, conversion, and restoration activities, the processing supplies, any goods that became a part of the original goods, and any goods that became unusable or worthless as a result of their use for the repair, restoration, conversion, or processing. These goods must be provided by the supplier of restoration services. The conditions for temporary import under the Customs Law must be met, and the supplier must keep the supporting documents for the re-export of the temporary imported goods.