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Taxation in Bahrain

Taxation in Bahrain

Taxation in Bahrain is very light due to the fact that there are no taxes on income, nor on sales or transfers, except for companies involved in two selected business fields.

Company formation in Bahrain is a simple process, one of the many reasons why foreign investors choose to set up business here. In this article, our agents highlight the main issues concerning taxation and those entrepreneurs who are interested in knowing more about this topic can reach out to one of our taxation specialists.

Bahrain taxation guide

Bahrain is a preferred jurisdiction due to its tax-free regime, for companies in all business fields except for the oil and gas sector. There is no applicable corporate income tax, no sales, transfer or capital gains tax for companies all other business fields except for the two previously mentioned.

The list below includes the taxes that are not imposed in Bahrain:

  1. Corporate income tax: companies are not subject to a tax on their profits derived from Bahrain when they activate in business fields other than the gas and oil sector.
  2. Withholding tax: there is no withholding tax on interest, dividends, and royalties in Bahrain. 
  3. Personal tax: there is no personal income tax applicable to income derived from employment.
  4. Others: there is no real property tax in Bahrain and no capital gains tax.

This lack of main corporate taxes is an advantage for investors who wish to set up a company in Bahrain.

Companies in the oil and gas sector are subject to a tax rate of 46%, imposed on their net profits that are calculated according to the applicable accounting period. Other taxes that are applicable to companies include the following:

  • – 2% stamp duty: applicable to the transfer of the registration of real estate; a discount can apply.
  • – 5%: this is the value of the customs duty; two different, higher taxes apply to cigarettes and alcoholic beverages.
  • – 10% municipality tax: this tax has a value of 10%; it is levied on the rental of both commercial and residential property.
  • – 12% payroll tax: the employer pays a 12% social insurance tax for a Bahraini worker and a 1% tax for non-Bahraini employees; the rates are calculated according to an income ceiling.

Investors who are interested in company formation in Bahrain should know that value-added tax has been imposed starting with the year 2019. The standards value-added tax rate is 5%, with certain types of supplies being subject to a zero rate. VAT does not apply to basic foodstuffs, general medical services, passenger transport services, international air tickets or the oil and gas sector.

An excise tax is imposed in case of special types of goods that are considered harmful to human health and the environment. These are carbonated drinks and energy drinks as well as tobacco and other derivatives thereof. The tax is applied on the retail price. 

One of our agents who specialize in company registration in Bahrain can provide investors with more details about these applicable taxes and how they are levied.

Tax compliance requirements for companies in Bahrain

In Bahrain, the tax year is usually the same as the calendar year, however, it can be another period of twelve months specified in the company’s Articles of Association. Companies are required to file their own tax returns and consolidated returns are not allowed. 

Companies in the oil sector are subject to filing an estimated income tax statement and pay the due tax in twelve equal monthly installments. Penalties apply for failure to pay the installments as stated (usually 1% of the tax liability).

One of our specialists in company registration in Bahrain can provide investors with more details on the tax compliance requirements for companies in the oil and gas sector. 

As far as the VAT registration requirements are concerned, companies are expected to register voluntarily when their annual taxable supplies exceed 18,750 BHD. The tax returns are handled via an online portal and the payments are made in the same manner. During 2020, companies that have an annual taxable supply of over 3 million BHD will make the payments monthly, while all other taxpayers shall make these payments on a quarterly basis. The government agency in charge of implementing and collecting the VAT payments is the National Bureau for Revenue

Investors who wish to know more about the current tax legislation, including but not limited to the Income Tax Law and the VAT Law can reach out to our agents. We can also provide details on the double tax treaties concluded by Bahrain.

Contact our specialists for ongoing assistance for company registration in Bahrain.