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VAT on Financial Services

The most complex area of Bahrain VAT — exempt, standard-rated, or both?

FINANCIALMarch 2026 · 8 min read

Classification Matrix

Service VAT Treatment Rationale
Interest income Exempt Margin-based financial service
Insurance premiums Exempt Life and general insurance
Share dealing Exempt Securities & equity transactions
Advisory fees 10% Explicit fee-based service
Safe deposit boxes 10% Custody, not financial
FX trading Exempt Currency exchange margin

Partial Exemption

Banks and insurers making both exempt and taxable supplies must use partial exemption. Standard method: input tax apportioned by ratio of taxable turnover to total turnover. Special methods possible with NBR approval. Annual adjustment required. De minimis rule: if exempt input VAT is less than BD 5,000 per year, it can be recovered in full.

Financial Services

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