Bahrain Tax System: How It Works
Delving into the financial fabric of Bahrain and looking to explore Bahraini tax system? Don’t worry! We’ve got you covered!
The Bahraini tax system, known for its business-friendly environment, is a critical component to understand. Whether you’re an entrepreneur or an expat, this guide will illuminate the subtleties of Bahrain’s tax regime, from corporate taxes to individual financial obligations. Let’s demystify the economics of living and working in this Gulf gem.
Let’s dive in!
Allowable Deductions And Tax Credits
Nearly all expenses related to taxable activities in the country are deductible under Bahraini law, including production costs, refinement costs, employee compensation, and other operational losses.
For tax purposes, all reasonable and justified costs incurred in producing and exploring goods sold during the current tax year are deductible, provided they haven’t already been subtracted from net taxable income in another way.
It is also possible to deduct taxes and duties not mandated by the Bahrain income tax law, such as customs duties, from taxable income.
Tax On Corporate Income
Bahrain doesn’t tax income, capital gains, sales, inheritance, interest, dividends, royalties, or fees—except some taxes levied on oil firms. Consequently, it’s a desirable nation to open a Gulf central administration.
At a rate of 46%, oil, gas, and petroleum companies in Bahrain are subject to the only corporate income tax.
As such, any oil business operating in Bahrain is subject to tax, regardless of the type of commercial activity or the location of the company’s establishment, exploration, production, and refining.
Taxes and customs charges that the taxpayer has paid are deductible. The costs of raw materials, production, and management may also be deducted from taxable income.
Incentives For Investments
The government actively seeks out international knowledge and innovations in various disciplines to grow and diversify the economy, privatize infrastructure projects, boost tourism, and build medium-to small-sized companies.
The following is a summary of some of the main draws for international investors:
- Absence of personal, corporate, and withholding taxation;
- No restriction on repatriation of capital, profits, royalties, and dividends;
- A developed infrastructure with excellent transportation and communication systems;
- 100% foreign ownership of a company permitted in some instances;
- Foreigners (other than GCC citizens) able to own high-rise commercial and residential properties as well as property for tourism, banking, financial health, and training projects in specific geographic areas;
- Seven well-established industrial zones, with another being prepared at Hidd (the new seaport of Bahrain);
- A well-defined set of laws and regulations; Intellectual property rights recognized and respected, with the registration of trademarks.
Manufacturing investment incentives include
- Subsidies for nationals hired;
- Electricity rebates: 50% rebate for the first five years for all industries;
- Land rental rebates: 100% rebate of rentals in government industrial areas for the first three years for all industries;
- Export credit facilities: available for all industries;
- Tariff protection: 10% to 20% protection may be given to pioneering or downstream industries;
- Duty-free import of machinery and raw materials to be used in new industries or for processing in Bahrain.
Controls On Foreign Exchange
There are no limitations on the conversion or transfer of funds due to exchange control.
Duty On Customs
The standard duty rate is 5% of the value in CIF (Cost Freight Insurance), except for cigarettes, which are 100%, and alcoholic beverages, which are 125%. A 20% tariff rate applies to a few categories of commodities, including paper and aluminum products.
Stamp Duty
At a rate of 2% of the property value, stamp duty is applied to real estate transfers and/or registrations.
Tax On Personal Income Tax
Bahrain does not impose personal income taxes. Social Security Bahrainis are required to contribute to social insurance at 12% of their base income, of which the employee contributes 5%, and 7% is made up of the employer.
For all employees (Bahrainis and foreigners alike), the employer provides an extra 3% of base pay as insurance against work-related accidents.
Training Tax
A training center approved by the Ministry of Labour and Social Affairs is required for businesses with fifty or more employees.
If they don’t, these businesses must pay a training levy of 1% for Bahrainis and 3% of payroll (base salary) for foreigners.
Sales Taxes And Withholding Taxes
There are no withholding taxes. There is a 12 percent sales tax on petrol. A 5% government levy and a 15% service charge are often applied to the final bill amount for guests utilizing hotel facilities.
Property, production, and value-added taxes are nonexistent in Bahrain.
Municipal Tax
When renting real estate in Bahrain, people and businesses must pay a municipal tax. Residential, commercial, and furnished residential real estate all have different tax rates based on the kind of property.
A municipal tax, which is equivalent to 10% of your monthly rent for your home or flat, is mandatory for expats.
Excise Duty
On December 30, 2017, the Kingdom of Bahrain implemented an Excise Tax system.
This is a levy levied on particular products that are hazardous to the environment and human health The purpose of the charge is to dissuade people from eating unhealthy products.
The money collected from excise taxes goes towards treating illnesses brought on by using these products.
The retail price of the following goods is subject to excise tax:
- On tobacco and its by-products, 100%
- 50% on soft drinks and carbonates
- On energy drinks, 100%
VAT
The Kingdom of Bahrain implemented a Value Added Tax (VAT) of 5% on January 1, 2019. Bahrain’s VAT is implemented and administered by the National Bureau for Revenue (NBR), a government body.
VAT is paid by the ultimate customer when they buy any tax-exempt goods or services.
Companies then reimbursed the National Bureau for Revenue for the value added to their suppliers and refunded the VAT collected from the ultimate customer.
Products and Services Are Not Subject to VAT:
- Simple food items
- Services related to general medicine
- Passenger transport services
- Gas and oil industry
- Tickets for flights abroad
VAT Registration
In January 2019, the Kingdom of Bahrain started implementing VAT gradually.
Companies and businesses must register with the National Bureau of Revenue (NBR) to receive a tax number and registration certificate.
VAT registration is implemented gradually, requiring businesses under particular annual supply categories to register within a predetermined time window.
By December 20, 2019, all businesses and organizations that have attained or anticipate reaching a yearly supply of BD 37,500 (the minimum required limit) to BD 500,000 must register for value-added tax.
Scheme For VAT Tourist Refunds
Visitors to Bahrain who make purchases within the Kingdom can receive a VAT refund. A refund can be requested at Bahrain International Airport at one of the specified desks.
If the following eligibility requirements are satisfied, travelers may choose to have their VAT refund credited to their credit card accounts via electronic transfer or cash.
- When tourists visit the Kingdom, they purchase the stuff.
- The purchased products are for personal use and included in the commodities list that qualify for VAT refunds.
- The products are bought from one of the scheme-registered authorized merchants.
- The visitor departs the Kingdom of Bahrain within two months of the product’s delivery date.
Fees For Tourism
Quarterly 5% levy charges of the entity’s revenue must be paid by owners of hotels and restaurants.
International Agreements On Taxes
The Multilateral Convention to Implement Tax Treaty-Related Measures to Prevent Base Erosion and Profit Shifting (MLI) has also been ratified and signed by Bahrain. On June 1, 2022, the MLI became operative for Bahrain.
Bahrain and the following states have 45 Double Tax Treaties (DTCs): 45 DTCS:
- Algeria
- Austria
- Bangladesh
- Barbados
- Belarus
- Belgium
- Bermuda
- Bulgaria
- Brunei
- China
- The Czech Republic
- Cyprus
- Egypt
- Estonia
- France
- Georgia
- Hungary
- Iran
- Ireland
- Isle of Man
- Jordan
- Lebanon
- Luxembourg
- Malaysia
- Malta
- Mexico
- Morocco
- Netherlands
- Pakistan
- Philippines
- Portugal
- Seychelles
- Singapore
- Sri Lanka
- Sudan
- Switzerland
- Syria
- Tajikistan
- Thailand
- Turkey
- Turkmenistan
- United Kingdom
- Turkmenistan
- Yemen
| Food | Healthcare | Education | Transportation |
| Basic food 0% | Qualifying medicines and medical goods 0% | Elementary education and higher education 0% | International transport 0% |
| Other food 5% | Essential healthcare 0% | Nurseries/preschools 0% | Local transport 0% |
Conclusion
As we conclude our exploration of Bahrain’s tax system, remember that it’s more than just a set of rules; it’s a reflection of the nation’s economic ethos.
With this understanding, you’re better equipped to navigate the financial landscape of Bahrain, whether you’re investing, working, or simply enjoying the life in this dynamic country.
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