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Jan 2022

Bahrain: New VAT rate to hit insurance sector

Source: Middle East Insurance Review | Dec 2021

Businesses like insurance and financial services are expected to see an increase in costs as a direct effect of Bahrain’s proposed doubling of the value-added tax (VAT) rate from 5% to 10%, an expert has said.
 
The increase is set to take effect from 1 January 2022.
 
International accounting firm KPMG said, “Businesses whose sales are partially or fully VAT exempt (e.g., businesses in the financial services, insurance, and real estate sectors) may experience an increase in costs as a direct effect of a rate increase. Furthermore, a rate increase may cause an impact across all industry sectors, with the end consumer ultimately bearing the brunt of an increase.
 
“It remains to be seen if some measure to relieve the impact of a rate increase, such as zero or reduced rates of VAT, would continue to apply to specific or essential goods and services.”
 
VAT was introduced in Bahrain in 2019. Under the current VAT system, life insurance and the reinsurance of life contracts are exempted from VAT when provided locally.
 
All other forms of insurance (including reinsurance of non-life contract) are subject to VAT at the standard rate of 5%.
 
The policies may change to be zero-rated or out of scope, depending on whether they are being exported or being sold to another GCC member state. This is determined on a ‘per policy’ basis in line with the zero-rating provisions in the executive regulations.
 
Fitch Ratings estimates that the VAT hike could raise GDP by an additional 1.5-2 percentage points. M 
 
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