Bahrain: NBR  releases updated VAT guide clarifying capital asset adjustments when business use changes over time 

Bahrain's National Bureau for Revenue (NBR) updated its VAT General Guide on 29 July to clarify that businesses must adjust input VAT claimed on capital assets if their use shifts from tax-liable to exempt supplies, with the adjustment spread over the asset's five- or ten-year recovery period depending on type. 

Bahrain’s National Bureau for Revenue (NBR) has published Version 1.15 of its VAT General Guide, updated on 29 July 2026.

This follows the National Bureau for Revenue (NBR) releasing an updated VAT General Guide on 28 January 2026.

The revised guide includes two key updates:

10.3. Requirements for a VAT invoice and simplified VAT invoice

The first update is to Section 10.3, which clarifies that the list of information to be included on a VAT invoice for it to be considered compliant with the VAT legislation depends on whether it is a full or simplified VAT invoice.  The update provides additional guidance on the description of a supply that must be included on both full and simplified tax invoices:

• A description of the supply must be sufficiently detailed to indicate the nature of the goods or services in a manner that allows the correct VAT treatment to be clearly determined.
• For supplies related to the construction of a new building, the building permit number of the relevant project must be provided.

11.8.4. Change in use – Capital assets scheme 

The second update expands Section 11.8.4 on the change in use under the capital assets scheme. The additional guidance explains how the scheme ensures that input VAT recovered on a capital asset reflects its actual use over its lifetime, rather than its intended use at the time of purchase.

Input VAT on purchase of a capital asset 

When purchasing a capital asset, a VATable person can recover the input VAT paid on the asset based on the use or intended use of the capital asset at the time of purchase:

• Where the capital asset is purchased for making VATable supplies only, the input VAT on this asset is fully recoverable;
• Where the capital asset is purchased for making exempt supplies only, the input VAT on the asset is not recoverable;
• Where the capital asset is purchased for making both VATable and exempt supplies, the input VAT on the asset is partially recoverable.

The capital assets scheme 

As capital assets are used for a long period of time, their use may change over time. An asset originally bought solely to make VATable supplies could, after some time, be used to make exempt supplies. The VATable person will have claimed 100% of the input VAT on buying the asset.

The capital assets scheme is designed to ensure that the correct amount of input VAT is recoverable by a VATable person based on the use of that asset over its lifetime, i.e. it is determined by whether it is used to make VATable supplies, exempt supplies or a mixture of both.

Where the use of a capital asset, over a certain time, differs from its initial or intended use, the VATable person is required to adjust the input VAT initially recovered.

A capital asset is a tangible or intangible asset acquired for long-term business use rather than resale. Examples include buildings, equipment, machinery, vehicles, servers, software licences, and long-term subscriptions.

Time period for application of the capital assets scheme 

The capital assets scheme applies during the lifetime of the relevant capital asset, which is as follows:

• For intangible assets and movable tangible assets, their lifetime is no less than five years;
• For immovable tangible assets, their lifetime is at least ten years.

The adjustment period relating to capital assets is:

• Five years for movable tangible capital assets and intangible capital assets;
• Ten years for immovable tangible capital assets.

The first year of the adjustment period corresponds to the VAT year during which the capital asset was first used. Each subsequent year of the adjustment period starts following the end of the preceding VAT year. VAT year has the same meaning as for the annual adjustment of the apportionment ratio as discussed in the “Annual adjustment of the apportionment ratio” section.

Any change in the use of a capital asset once its adjustment period has expired does not trigger the requirement to adjust the amount of input VAT recovered.

Examples of capital expenditure: 

In 2023, Company XYZ purchases a machine intended for long-term use in its VATable business activities. The purchase price is BHD 50,000, exclusive of VAT, with VAT charged at 10% (BHD 5,000).

As the machine will be used wholly for VATable supplies, Company XYZ recovers the full input VAT of BHD 5,000 through its VAT return for the relevant VAT period.

In 2025, Company XYZ installs an upgrade component costing BHD 15,000 plus 10% VAT (BHD 1,500). The addition to the capital asset shall be recognised as a separate capital asset, and its useful life shall be accounted for separately.

Company XYZ recovers the full input VAT of BHD 1,500 relating to the capital expenditure through its VAT return for the relevant VAT period.

Example – Change in use  

Company ZYZ purchases a software license for long-term use in its business activities. The purchase price is BHD 20,000, exclusive of VAT, with VAT charged at 10% (BHD 2,000).

Acquisition cost: BHD 20,000

Total input VAT incurred: BHD 2,000

At the time of acquisition, the software was intended to be used wholly for VATable supplies. Accordingly, Company ZYZ recovered the full input VAT incurred (BHD 2,000) through its VAT return for the relevant VAT period.

After two years, the use of the software changes so that it is now used 60% for exempt supplies and 40% for VATable activities. Because the software is a capital asset subject to the change-in-use adjustment rules and has a five-year adjustment period, the input VAT must be adjusted over the remaining three years of that period.

Change-in-use adjustment: BHD 2,000 x 60% ÷ 5 = BHD 240

Company ZYZ is required to repay BHD 240 per year for each of the remaining three years of the adjustment period, resulting in a total adjustment of BHD 720.