Everything you need to know about Reverse Charge Mechanism in Bahrain: FAQs

What is the reverse-charge mechanism?

Under the reverse-charge mechanism, the responsibility to pay VAT is shifted from the supplier to the recipient. So the recipient pays VAT directly to the government and then they report it in their tax return as output tax (tax collected on sales transactions).

Why is the reverse-charge mechanism needed?

The reverse-charge mechanism allows non-resident suppliers to supply taxable goods and services to VAT-registered recipients in Bahrain without registering for VAT in Bahrain.

When is the reverse-charge mechanism applicable?

The reverse-charge mechanism is applicable on:

• Supplies made by non-resident suppliers
• Local supplies of certain goods and services

I am a recipient involved in a reverse-charge transaction. What should I do?

You should calculate the amount of VAT to be paid to the government, self-account the VAT amount as output, and declare it in your VAT return.

If your supplier is a non-resident, your invoice won’t include the VAT amount. So you should either record the VAT amount digitally or make a note of it on the hard copy of your invoice.

Can a non-resident supplier supply taxable goods or services to a non-registered business owner under the reverse-charge mechanism?

No, this transaction is not allowed. The reverse-charge mechanism is limited to non-resident suppliers supplying taxable goods and services to VAT-registered recipients in Bahrain.

However, the non-resident supplier can register for VAT in Bahrain in order to charge VAT on the supplies they provide in the Kingdom.

I am a VAT-registered business owner in Bahrain and my supplier is a non-resident individual. Who should pay VAT for these supplies?

Since your supplier is a non-resident, you will have to pay VAT under the reverse-charge mechanism for any goods or services they supply.

When is the reverse-charge mechanism applicable on supply made by non-resident suppliers?

The reverse-charge mechanism is applicable when taxable goods and services are supplied by non-resident suppliers to registered recipients in Bahrain.

What is the need for the domestic reverse-charge mechanism?

The domestic reverse-charge mechanism provides relief for taxable business owners selling supplies subject to 0% VAT or out-of-scope supplies. It relieves them of the burden of negative cash flow created by the VAT incurred on their expenses.

Under what conditions is the reverse-charge mechanism applicable on local supply?

For the reverse-charge mechanism to be applicable on local supply, the supplier must:

• Meet the eligibility criteria mentioned below to apply for the domestic reverse-charge mechanism.

  • The applicant is required to be a taxable person.

  • The VAT that is due on the goods or services supplied to the applicant must be completely recoverable by the applicant as input tax.

  • The applicant must provide evidence to prove that the total sum of their intra-GCC supplies and exports exceeds 50% of the total value of their supplies.

  • The applicant must provide credible evidence to show that they would be in a position to owe net tax and that this would impact their financial position.

• Submit an application to the NBR and receive the NBR’s approval

What are the eligibility criteria for a supplier to apply for the domestic reverse-charge mechanism?

To apply for the domestic reverse-charge mechanism:

• The applicant must be a taxable person
• The VAT due on the goods or services supplied to the applicant must be fully recoverable by the applicant as input tax.
• The applicant must provide evidence that the total of their intra-GCC supplies and exports exceeds 50% of the total value of their supplies.
• The applicant must provide credible evidence that they would be in a position where net tax will be recovered from them and that this would impact their financial position.

What happens after an application for the domestic reverse-charge mechanism is approved?

When the NBR approves the application, the applicant will receive a certificate which allows them to apply the domestic reverse-charge mechanism on the specified supply. The applicant should provide a copy of this approval to their suppliers so that they don’t charge VAT on supplies made to the applicant.

What is the reverse-charge mechanism?

Under the reverse-charge mechanism, the responsibility to pay VAT is shifted from the supplier to the recipient. So the recipient pays VAT directly to the government and then they report it in their tax return as output tax (tax collected on sales transactions).

Why is the reverse-charge mechanism needed?

The reverse-charge mechanism allows non-resident suppliers to supply taxable goods and services to VAT-registered recipients in Bahrain without registering for VAT in Bahrain.

When is the reverse-charge mechanism applicable?

The reverse-charge mechanism is applicable on:

• Supplies made by non-resident suppliers
• Local supplies of certain goods and services

I am a recipient involved in a reverse-charge transaction. What should I do?

You should calculate the amount of VAT to be paid to the government, self-account the VAT amount as output, and declare it in your VAT return.

If your supplier is a non-resident, your invoice won’t include the VAT amount. So you should either record the VAT amount digitally or make a note of it on the hard copy of your invoice.

Can a non-resident supplier supply taxable goods or services to a non-registered business owner under the reverse-charge mechanism?

No, this transaction is not allowed. The reverse-charge mechanism is limited to non-resident suppliers supplying taxable goods and services to VAT-registered recipients in Bahrain.

However, the non-resident supplier can register for VAT in Bahrain in order to charge VAT on the supplies they provide in the Kingdom.

I am a VAT-registered business owner in Bahrain and my supplier is a non-resident individual. Who should pay VAT for these supplies?

Since your supplier is a non-resident, you will have to pay VAT under the reverse-charge mechanism for any goods or services they supply.

When is the reverse-charge mechanism applicable on supply made by non-resident suppliers?

The reverse-charge mechanism is applicable when taxable goods and services are supplied by non-resident suppliers to registered recipients in Bahrain.

What is the need for the domestic reverse-charge mechanism?

The domestic reverse-charge mechanism provides relief for taxable business owners selling supplies subject to 0% VAT or out-of-scope supplies. It relieves them of the burden of negative cash flow created by the VAT incurred on their expenses.

Under what conditions is the reverse-charge mechanism applicable on local supply?

For the reverse-charge mechanism to be applicable on local supply, the supplier must:

• Meet the eligibility criteria mentioned below to apply for the domestic reverse-charge mechanism.

  • The applicant is required to be a taxable person.

  • The VAT that is due on the goods or services supplied to the applicant must be completely recoverable by the applicant as input tax.

  • The applicant must provide evidence to prove that the total sum of their intra-GCC supplies and exports exceeds 50% of the total value of their supplies.

  • The applicant must provide credible evidence to show that they would be in a position to owe net tax and that this would impact their financial position.

• Submit an application to the NBR and receive the NBR’s approval

What are the eligibility criteria for a supplier to apply for the domestic reverse-charge mechanism?

To apply for the domestic reverse-charge mechanism:

• The applicant must be a taxable person
• The VAT due on the goods or services supplied to the applicant must be fully recoverable by the applicant as input tax.
• The applicant must provide evidence that the total of their intra-GCC supplies and exports exceeds 50% of the total value of their supplies.
• The applicant must provide credible evidence that they would be in a position where net tax will be recovered from them and that this would impact their financial position.

What happens after an application for the domestic reverse-charge mechanism is approved?

When the NBR approves the application, the applicant will receive a certificate which allows them to apply the domestic reverse-charge mechanism on the specified supply. The applicant should provide a copy of this approval to their suppliers so that they don’t charge VAT on supplies made to the applicant.