The value chain of the Oil & Gas industry includes three subsectors upstream, midstream, and downstream. These subsectors in Bahrain include activities such as:
- The licensing, exploration, development, and production of crude oil and gas;
- Refining, processing of crude oil and gas and the manufacturing of petrochemical products; and
- Transportation, distribution, and sale of O&G products.
Place of supplying oil and gas (“O&G”) products follow the rules for goods as set out in Article 14 of the VAT Law in Bahrain. O&G products distribution system follows the special place of supply rules provided by a pipeline Article 15 of the VAT Law in Bahrain.
Until such a time that Bahrain recognizes the other GCC Member States as the Implementing States for VAT purposes, the place of supplying O&G products in Bahrain through a pipeline distribution system will be the place of consumption of those products. It is the delivery of products to a location through the pipeline distribution system.
What is VAT treatment in Bahrain for O&G Products?
Upstream, midstream, and downstream activities for the oil, oil derivatives, and gas sector are generally zero-rated. As an exception, zero-rating does not apply to specific downstream activities such as the import and supplying of products derived from oil, oil derivatives, and gas such as plastic and fertilizers.
The zero-rating applies to the following supplies:
- The supplying of oil, gas, and other hydrocarbons (whether processed or unprocessed);
- The grant of a right to use, explore or exploit any part of the Kingdom to search for, extract or produce oil, gas, or other hydrocarbons;
- Oil and gas exploration services;
- Oilfield and gas field related services such as design, drilling, rig set-up, drilling, extraction, recovery, separation, evaluation, feasibility analysis, testing, seismic and geophysical surveys, and repair and maintenance services;
- Specialist professional services for the exploration or exploitation of existing and potential oil and gas sites;
- Oil refining or gas processing services, including regasification of liquefied natural gas;
- Distribution/transportation of oil, gas, or other hydrocarbons;
- The storage of oil, gas, or other hydrocarbons;
- The supplying of consumables that are used directly and exclusively for making the above supplies; and
- The purchase or lease of machinery or equipment used directly and exclusively for the above supplies.
What is VAT treatment in Bahrain for Supplying raw natural gas, crude oil, and other hydrocarbons?
- The supply in Bahrain of raw natural gas, crude oil, and other hydrocarbons in their natural form are zero-rated. The products are those generally classified under HS codes 2709, 2711, and 2714.
- Importing such goods into Bahrain from a place outside the territory of the Implementing States is exempt from VAT.
The application of the zero rates on supplies occurring in Bahrain and the VAT exemption at import is linked only to the nature of the products sold/imported. There are no specific requirements of the supplier, the purchaser, or the importer of record.
What is VAT treatment in Bahrain for Supplying processed natural gas, other hydrocarbons, and refined crude oil products?
- The supply in Bahrain of processed natural gas and other hydrocarbons and refined crude oil products is zero-rated.
- Importing such goods into Bahrain from a place outside the territory of the Implementing States is exempt from VAT.
The application of the zero rates on supplies occurring in Bahrain and the VAT exemption at import is linked only to the nature of the products sold/imported. There are no specific requirements of the supplier, the purchaser, or the importer of record.
The list below is non-exhaustive lists of products that are subject to VAT at the zero rates were supplied in Bahrain or exempt from VAT when imported into Bahrain.
- Petroleum oils and oils derived from bituminous minerals (generally falling under HS code 2710), such as naphtha, diesel fuel, fuel oil, fuels, and lubricants,
- Waste oil that has not been used and is unsuitable for its originally intended purpose,
- Petroleum gases and other hydrocarbons, in gaseous or liquefied form (generally falling under HS code 2711) such as liquefied natural gas and liquefied petroleum gas, and
- Petroleum bitumen and other residues
For the avoidance of doubt, the following products are subject to Bahrain VAT at the standard rate of 5% were imported into or supplied in Bahrain:
- Used oil that has been used and contaminated by physical or chemical impurities; and
- Products such as ammonia, methanol, urea, asphalt concrete.
What are the Exclusions from the zero-rate and VAT exemption at import?
- It does not apply to the supply produced using oil, gas, and other hydrocarbons as feedstock.
- Plastics, fertilizers, and asphalt concrete are subject to VAT at the standard rate on their supply and import into Bahrain. Such products at export will be subject to VAT at zero when they meet the conditions to qualify as an export of goods for VAT purposes.
- The supply of O&G products remains subject to VAT at zero rates even where the purchaser intends to use these products for producing plastics, fertilizers, or other products. The same principle applies when the products are imported instead of being locally purchased.
What is the VAT treatment in Bahrain for Retailing of Petrol/Gas Stations?
Generally, a petrol/gas station makes various supplies such as:
- O&G products;
- Food/drinks and other goods in the convenience shop;
- Services such as car wash and car servicing;
- Space for a café/restaurants or an ATM.
The supply of O&G products will be subject to Bahrain VAT at zero rates if the products qualify for the zero rates. Any other products will be subject to VAT at the standard rate.
- Supplies such as car washing, car servicing, and convenience shop supplies will be taxable at the standard rate of 5% unless they are specifically exempted or zero-rated under the VAT Law in Bahrain.
- Car servicing includes changing the oil or related products. The taxable person needs to assess whether the supply is a “single composite supply” or “multiple supplies” for VAT purposes.
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