VAT Law for Real Estate Services in Bahrain

Real Estate is one of the significant direct contributors to the economy of any
country. It plays a vital role in every region’s recovery and supports the broader
diversification of its economies. The kingdom of Bahrain has one of the most
open and liberalized real estate markets in the whole of the GCC region. With
the implementation of the 5% ( VAT ) Value Added Tax rate in Bahrain, all the
respective tax authorities have released a much-needed guide to help real
estate sectors to apply for VAT efficiently. VAT in real estate, as per the
executive regulation, includes services like accommodation services, services
related to construction, and services by real estate experts, estate agents,
auctioneers, architects, engineers, and others who perform tasks and work
related to real estate management.

Real estate in simple terms means,

● Any area of land in which rights, interests, or services can be created
● Any building, structure, or engineering work that is permanently attached
to the land
● Any fixture or equipment which becomes a permanent part of the land or
is permanently attached to a building, a structure, or engineering works

Real estate does not include tangible things attached to the land or building like
furniture, fittings, plants, and apparatus, and can be removed without
damaging the property. When residential accommodation is provided in the
form of furnished or semi-furnished accommodation, the entire consideration
will be considered as a supply of real estate, unless a separate charge for the
furniture is made. However, it is important to consider whether the
accommodation will meet the conditions for serviced accommodation as a
different VAT treatment will apply.

VAT treatment on Real Estate

Under the Bahrain VAT law, any supply relating to the grant of rights in REM
obtaining the ownership giving the right to use the real estate is considered as
the supply of goods. Any sale, lease, or license of real estate located in Bahrain
is an exempt supply, regardless of whether the real estate is residential,
commercial, or land which is bare or partly developed. VAT incurred on expenses
or purchases like professional legal fees, refurbishment, etc. are attributable to
making exempt supplies of real estate. These supplies will not be recoverable by
the taxable person. Businesses that only make exempt supplies for VAT
purposes and do not receive taxable supplies of goods or services for which
they are liable to account for VAT at 5% under the reverse-charge mechanism
will not be able to register for VAT.

The following are the real estate services that fall under the VAT law:

● Services by real estate experts or agents
● Services that involve the preparation, coordination, and performance of
construction, destruction, maintenance, conversion, and similar work
● Services by auctioneers, architects, interior designers, surveyors,
engineers, and others involved in matters relating to real estate

Services that are not considered as “Supply for Real Estate”

The following supplies will not be considered as the sale or rental of real estate
which will be taxable at the standard rate of 5%,

1. Hotel accommodation and related services,
2. The provision of paid car parking for periods of less than one month,
3. The provision of serviced office space where the customer does not have
the right to use a designated space on an exclusive basis,
4. Rental of a function room, hall, or similar facility,
5. Management services, utilities, telecommunications, internet, and
television are charged separately and in addition to the rent, and
6. Providing permission to affix equipment and signage to land or buildings.

When applying for a wide exemption on the supply of real estate, it is more
likely that VAT becomes a cost for the real estate sector in Bahrain than in any
another country.

Zero-rated Real estate supplies,

The following services come under the zero-rated Vat category,

1. Construction of a new building
2. Construction of extension to an existing building (where the extension adds
room or functional space to the building)
3. Site clearance works before the construction of a new building
4. Services provided by engineers and surveyors and similar services of a
supervisory nature that relate to the construction of a new building
5. Civil engineering works relating to a new building

5% Standard-rated Real Estate supplies

The following supplies are applied under the standard rate of 5% VAT for Real
estate,

1. Restoration, refurbishment, and/or reconstruction work on an existing
building
2. Demolition services (even when on land on which a new building will be
constructed)
3. Architects’ and interior design fees
4. Landscaping
5. Construction of swimming pools, saunas, and steam rooms

You can do VAT registration for your real estate services online with one of the
most renowned Audit firm in Bahrain, Chaturvedi Associates, with the help of
expert consultants who are adept with the current trends of Bahrain law.
Educate yourself with the right information and contact our team for the best
support!