It is important to understand the meaning of the frequently used terms and definitions under VAT. These terms will soon become a part of your daily business conversations with all your stakeholders. Let us understand the important terms under VAT in Bahrain, along with their respective meaning.

TermsMeaning
GoodsAll types of physical assets that can be supplied, including real estate, water, and all forms of energy.

Example: Cars, apparel, electronics, etc.

ServicesAnything that can be supplied other than goods

Example: Legal services, professional services, car repair, etc.

SupplierA person who supplies (sells) goods or services
RecipientA person who receives (purchases) goods or services from a supplier
ConsiderationEverything collected or to be collected by a supplier from the recipient or a third party for supply of goods or services

Example: Ahmed Electronics supplies 100 mobile phones @ BD 100 each to Niyaz Electronics. VAT @ 5% (BD 500) is charged on the supply. Here, the consideration to be collected by Ahmed Electronics is BD 10,500 including VAT.

Taxable personA person, being a natural or legal person, who carries out an economic activity that requires them to register under VAT. Only a taxable person can charge VAT.
RegistrantA taxable person who has been issued a VAT registration number
ExportSupply of goods or services from Bahrain to another country
ImportSupply of goods or services from another country to Bahrain
Capital assetsMaterial and immaterial assets of a business allocated for long-term use

Example: Buildings, machinery

Input taxTax paid by a taxable person on goods or services purchased

Example: Ahmed Electronics purchases 20 laptops @ BD 1,000 each from Ziya Computers. VAT @ 5% (BD 1,000) is charged. Here, Ahmed Electronics’ input tax is BD 1,000.

Output taxTax charged by a taxable person on supply of goods or services

Example: Ahmed Electronics supplies 50 laptops @ BD 2,000 each to Niyaz Electronics. VAT @ 5% (BD 5,000) is charged on the supply. Here, Ahmed Electronics’ output tax is BD 5,000.

Input tax deductionA mechanism by which a VAT registered person can deduct input tax from the output tax for a period and only remit the balance tax payable to the Government.

Example: In the above example, Ahmed Electronics’ output VAT on supply to Niyaz Electronics is BD 5,000 and input VAT on purchase from Ziya Computers is BD 1,000. Ahmed Electronics can claim input tax deduction of BD 1,000 and only remit the balance output tax (BD 4,000) to the Government.

Taxable suppliesSupplies on which VAT is charged and input tax deduction can be availed
Exempted suppliesSupplies on which no VAT is charged, and no input tax deduction can be availed
Tax invoiceA written or electronic document where the occurrence of a taxable supply is recorded
Tax credit note A written or electronic document where the occurrence of any amendment to a taxable supply, that reduces or cancels the same is recorded
Tax periodA period for which the tax payable needs to be calculated. Tax periods are usually monthly, quarterly and annually.
Tax returnStatement to be prepared and submitted by a taxable person for a tax period. It contains the details of sales, purchases, output tax, input tax, tax payable, etc.