Country Name: Kingdom of Bahrain
Currency: Bahraini Dinar (BHD)
Primary Tax Authority: National Bureau for Revenue (NBR)
Key Legislation:
- Corporate Income Tax Law
- Value Added Tax (VAT) Law
- Customs Law
- Excise Tax Law
Fiscal Authority Allocation
Centralized Fiscal System:
Bahrain operates a centralized tax system, with the National Bureau for Revenue (NBR) responsible for administering and collecting taxes, including corporate income tax (CIT) on specific sectors, value-added tax (VAT), and excise tax. There are no personal income taxes for residents and expatriates.
Corporate Income Tax (CIT)
Standard Rate: 0% (for most businesses)
Bahrain does not impose a corporate income tax on most companies. However, companies in the oil, gas, and petroleum sectors are subject to a 46% tax rate on their taxable income.
Corporate Forms and Taxation:
- Mainland Companies: Businesses operating outside of the oil and gas sector are generally not subject to CIT.
- Oil and Gas Companies: Companies engaged in oil and gas extraction and refining are taxed at 46%.
Exemptions and Incentives:
- No CIT for Most Sectors: Bahrain is a tax-free jurisdiction for most businesses, with 0% corporate tax for non-oil companies, including those in finance, trade, and manufacturing.
- Free Zones: Companies operating in Bahrain’s free zones, such as the Bahrain International Investment Park (BIIP) and Bahrain Logistics Zone (BLZ), benefit from customs duty exemptions and no restrictions on foreign ownership.
Goods and Services Tax (GST) / Value-Added Tax (VAT)
Standard Rate: 10%
Bahrain implemented VAT in January 2019 with an initial rate of 5%, which was increased to 10% in January 2022. VAT applies to most goods and services.
Exemptions:
Certain goods and services, such as healthcare, education, residential property rentals, and financial services, are either exempt from VAT or zero-rated. Exports are zero-rated, allowing businesses to reclaim VAT paid on inputs used to produce exported goods.
Personal Income Tax (PIT)
No Personal Income Tax:
Bahrain does not impose personal income tax on residents or expatriates. Income earned from employment, investments, or other sources is tax-free.
Additional Mandatory Contributions
Social Security Contributions:
Employers and Bahraini employees must contribute to the General Organization for Social Insurance (GOSI), which covers pensions, unemployment, and healthcare benefits. Expatriates are required to contribute to social insurance for accident compensation only.
- Employer Contribution: 12% of gross salary for Bahraini nationals, 3% for expatriates (accident compensation only).
- Employee Contribution: 7% of gross salary for Bahraini nationals.
Withholding Taxes
- Dividends: 0%
- Interest: 0%
- Royalties: 0%
Bahrain does not impose withholding taxes on dividends, interest, or royalties, making it an attractive jurisdiction for international investors.
Transfer Pricing Rules
Bahrain does not currently have formal transfer pricing regulations. However, multinational companies are expected to comply with general international standards regarding arm’s-length transactions between related parties.
Special Tax Regimes
- Oil and Gas Sector: Companies in the oil and gas sector are taxed at 46% on profits. The sector remains subject to specific agreements with the government for production-sharing and taxation purposes.
- Free Zones: Bahrain’s free zones, such as the Bahrain International Investment Park (BIIP) and Bahrain Logistics Zone (BLZ), offer customs duty exemptions, 100% foreign ownership, and no corporate income tax.
Other Taxes
- Customs Duties: Import duties are generally set at 5%, in line with the Gulf Cooperation Council (GCC) Common Customs Law. Free zone companies benefit from customs duty exemptions unless goods enter mainland Bahrain.
- Excise Taxes: Bahrain levies excise taxes on specific goods to discourage consumption of products harmful to public health or the environment:
- Tobacco products: 100% excise tax
- Energy drinks: 100% excise tax
- Carbonated drinks: 50% excise tax
- Municipality Taxes: A municipality tax of 10% is imposed on rental properties.
Double Taxation Agreements (DTAs)
Bahrain has signed over 40 double taxation agreements (DTAs) with countries such as the United Kingdom, France, India, and China. These agreements help reduce withholding taxes on cross-border income, including dividends, interest, and royalties, and prevent the double taxation of income earned in Bahrain and abroad.
Local Taxes
There are no local or municipal taxes on businesses or individuals in Bahrain, aside from the 10% municipality tax on rental properties.
Compliance and Reporting
Annual Filing:
Companies operating in Bahrain’s oil and gas sector must file their corporate tax returns annually. VAT-registered businesses are required to file VAT returns quarterly.
Penalties for Late Filing:
Penalties apply for late filing or non-compliance with VAT and excise tax laws. These may include fines, interest on unpaid taxes, and additional penalties for significant delays.
Recent Developments
Increase in VAT Rate:
In January 2022, Bahrain increased its VAT rate from 5% to 10% to boost government revenues as part of its fiscal consolidation efforts. The government continues to review exemptions and zero-rated goods to ensure the VAT system remains efficient while protecting essential goods and services.
Economic Diversification:
Bahrain’s Vision 2030 aims to diversify the economy beyond oil, focusing on sectors such as finance, technology, manufacturing, and logistics. Free zones, economic incentives, and infrastructure development play key roles in attracting foreign direct investment (FDI) to Bahrain.
Digital Transformation:
Bahrain is investing heavily in its digital economy by developing ICT infrastructure and encouraging innovation in fintech, e-commerce, and digital services. The country’s regulatory framework supports businesses involved in digital technologies, and there are no taxes on digital services.
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