Bahrain remained a tax-free jurisdiction until 2017, when the kingdom introduced excise tax – followed by the implementation of value-added tax (VAT) two years later. The country’s tax landscape continues to evolve, with a number of other notable tax and reporting regulations launched in recent years. Among these, a domestic minimum top-up tax (DMTT) law will take effect for Bahrain entities that are part of large multinational enterprise groups starting in 2025.
Regarded as a financial leader in the Middle East, Bahrain has prioritised economic diversification, promoting technology, manufacturing and logistics, among other measures. Meanwhile, the kingdom welcomes international investment, permitting 100% foreign ownership in multiple sectors. The 2024 introduction of the DMTT law highlights the kingdom’s commitment to global cooperation and integration.
Overview
Bahrain’s corporate income tax (CIT) requirements are generally limited. A DMTT of 15% will be applicable to Bahrain-resident entities that are part of large multinational enterprises groups from fiscal years starting on or after January 1, 2025. A CIT rate of 46% is already applied to entities engaged in hydrocarbons exploration, production or refining.
The country does not mandate capital gains tax, withholding taxes or other taxes on the repatriation of profit. The year 2017 saw the launch of an excise tax on tobacco products, sweetened carbonated drinks and energy drinks. This was followed by the introduction of VAT starting on January 1, 2019, with Bahrain becoming the third GCC market to implement VAT requirements – after the UAE and Saudi Arabia adopted the tax during 2018.
VAT
Taxes, including VAT, are administered by the National Bureau for Revenue (NBR), established in 2018 by the Ministry of Finance and National Economy. Bahrain is a member of the OECD base erosion profit shifting (BEPS) inclusive framework. The kingdom is thereby required to ensure that national regulations and processes align with the framework, and to ensure the implementation of minimum BEPS standards.
When initially introduced during 2019, the rate of VAT in Bahrain was 5% – before doubling to 10% commencing January 1, 2022. A transition period of 12 months permitted businesses to charge VAT at a rate of 5% during the 2022 calendar year, subject to certain stated requirements.
As of 2024 the standard VAT rate is 10%, with specified goods and services subject to VAT at 0%. A restricted number of supplies, including margin-based financial services and real estate, are among the activities exempt from VAT. Zero-rating may apply to goods such as basic food items, medical supplies, education and transport – as well as supplies for the oil and gas industry, subject to certain conditions.
VAT Registration
Companies with a yearly taxable turnover above BD37,500 ($99,500) are obliged to register within 30 days of the date that the threshold is either surpassed or is expected to be surpassed. Since this is a rolling test, entities are required to look backwards 12 months and forwards 12 months to evaluate whether they have exceeded or will exceed the threshold for this requirement. Entities may elect to register voluntarily if their annual taxable turnover exceeds or is expected to exceed BD18,750 ($49,700).
For non-resident businesses that supply goods or services in Bahrain, there is no minimum threshold for registration. That is to say, non-resident businesses providing taxable supplies to non-VAT-registered customers in Bahrain are required to register within 30 days of their first supply if the place of supply is Bahrain, regardless of the value of the transaction.
Filing Returns
VAT returns are filed on a monthly basis for businesses with an annual taxable turnover above BD3m ($8m), and a quarterly basis for other businesses. Resident businesses with an annual taxable turnover below BD100,000 ($265,000) may apply to the NBR to file on an annual basis. VAT returns are submitted online via the NBR portal: submission and payment must be completed by the last day of the month following the end of the tax period.
Record Retention
Taxpayers in Bahrain have historically been required to maintain the required records for a period of five years from the end of the relevant tax period. However, during 2024 the NBR raised the period for the retention of VAT records by an additional five years, doubling the requirement period to 10 years, effective from 2024.
E-Invoicing
In 2022 the NBR invited service providers to submit proposals to assist the bureau with reviewing and improving the legal framework required to launch e-invoicing. Moreover, the agency held focus group sessions on the implementation of e-invoicing for large taxpayers in multiple sectors. The sessions offered an overview of the potential e-invoicing operating model and gathered feedback from industry representatives. In light of these activities, it is anticipated that the kingdom will launch e-invoicing, to help streamline VAT compliance, in the years ahead.
CIT & DMTT
Bahrain is one of 147 member countries of the OECD BEPS inclusive framework to approve a statement that provides a model for international tax reform – including the proposal that international businesses pay a global minimum tax of 15%. In May 2023 Bahrain’s minister of finance and national economy, Shaikh Salman bin Khalifa Al Khalifa, reported that a CIT would soon be implemented in Bahrain.
The kingdom introduced the DMTT law on September 1, 2024. The release of this requirement positioned Bahrain as the first GCC country to implement a DMTT aligned with pillar two of the BEPS framework. Adhering to international standards for taxation transparency, the introduction of this legislation underscores the kingdom’s commitment to global cooperation and integration.
Effective from fiscal years commencing on or after January 1, 2025, the global minimum tax rate of 15% will apply to Bahrain-resident constituent entities (CEs)of multinational enterprises that meet the revenue threshold – namely, exceeding €750m in at least two of the last four fiscal years.
The executive regulations for the implementation and enforcement of the law will be released after Cabinet approval, and, as such, were not yet available at the time of publication. These will prescribe the rules, conditions and procedures for implementing the law in alignment with OECD rules, guidance and commentary. While the DMTT law is applicable only to large multinational entities, it could pave the way for a broad-based CIT applicable to other businesses in the years ahead. As of September 2024, the following regulations remain in effect:
A) Economic substance requirements (ESR): This mandates substance requirements for Bahraini entities undertaking geographically mobile activities in, from or through the kingdom. This seeks to target corporate structures that redirect income or profit to entities in jurisdictions with zero- or low-tax regimes. ESR apply to entities such as corporations, branches and partnerships that fall under one of the following categories:
• Distribution and service centres;
• Headquarters;
• Holding companies;
• Leasing;
• Shipping;
• Intellectual property;
• Banks;
• Financing companies;
• Insurance;
• Investment firms (Central Bank of Bahrain (CBB) categories 1 and 2); and
• Fund administrators. Some of the above activities are regulated by the CBB. The relevant entities are thus required to report to the CBB. Businesses undertaking one or more relevant activities are required to pass economic substance tests to prove that they have genuine commercial operations and management in Bahrain. The deadline for entities to submit their economic substance return is three months from the end of the financial year.
B) Ultimate beneficial ownership (UBO): UBO disclosure mandates the identification of the natural person(s) with controlling ownership of an entity. The requirement for companies incorporated in the kingdom and branches of foreign businesses (excluding CBB-licensed entities) established in Bahrain to provide details of their UBOs is a tool that the government enacted to facilitate transparency and compliance with international regulations.
The regulation also encompasses persons who exercise effective control over a legal person or arrangement, and those with control over any commercial registration through means other than ownership.
C) Country-by-country (CbC) reporting: While no transfer pricing rules exist in the kingdom as of 2024, Bahrain has introduced CbC reporting – effective from the financial year commencing January 1, 2021. The requirements are applicable for all businesses with a legal entity or branch in Bahrain that are members of multinational groups with an annual consolidated revenue of BD342m ($907m) and above. Entities meeting this threshold in the preceding financial year are obligated to file a CbC notification and/or a CbC report. The requirement applies to all resident entities that are part of a multinational group, regardless of whether it is headquartered in the kingdom.
An entity subject to CbC rules is referred to as a CE. Each CE of a multinational group resident in Bahrain for tax purposes is required to submit a notification to indicate whether it is the ultimate parent entity (UPE) of the group by the last day of the reporting financial year. In cases where the CE is not the UPE, the notification needs to include the identity and tax residence of the reporting entity.
Since Bahrain is a non-reciprocal jurisdiction, the ministerial order does not oblige a Bahrain-resident CE of a multinational group based outside the country (UPE outside Bahrain) to submit a CbC report under the secondary filing mechanism. These entities are only required to submit a notification.
D.) Multilateral instrument: In November 2020 Bahrain endorsed the OECD’s Multilateral Convention to Implement Tax Treaty Related Measures for BEPS and also deposited the kingdom’s instrument for ratification of the multilateral agreement. By mid-2023 Bahrain had concluded some 45 double taxation avoidance agreements with other jurisdictions. This list includes Bermuda, China, France, Hungary, Ireland, Luxembourg, Malaysia, the Netherlands, Singapore, Seychelles, South Korea, Switzerland and the UK.
Other Taxes
Other taxes in Bahrain include:
• Customs duties: These duties range from 5% to 125%, depending on the nature of the product under import.
• Excise tax: An excise tax of 100% applies on tobacco products and energy drinks, alongside a rate of 50% for soft drinks.
• Municipality: A municipality tax ranging from 7-10% is applicable on the rental amount.
• Property transfer: A 2% levy on the value of the property is required for the transfer or registration of real estate. If the levy is paid within 60 days of the transaction date, the rate is reduced to 1.7%.
• Social insurance: Employers are obligated to make a contribution of 3% for expatriates and 12% for Bahraini employees. The employee contribution rate is 1% for expatriates and 7% for Bahrainis. The maximum monthly income subject to the contribution is capped at BD4000 ($10,600). Effective March 1, 2024, significant changes have been implemented for the end-of-service (EoS) benefits system for expatriate employees. Under the system, employers are now required to submit EoS entitlements for all relevant employees to the Social Insurance Organisation on a monthly basis electronically, via the organisation’s online portal.
• Tourism: A 5% fee is imposed on hotels and restaurants classified as catering to tourists per the Ministry of Industry and Commerce (MoIC). This 5% levy, along with a 10% optional service charge, is generally passed on to the customer. Effective May 1, 2024, the Ministry of Tourism introduced a new tourist levy of BD3 ($7.96) per room per day on hotel accommodation. This is incorporated into the room rates charged to tourists visiting Bahrain.
Establishing A Business
Bahrain is an ideal location for firms seeking to operate across a range of sectors within the GCC. The kingdom’s strategic location in the centre of the Gulf is key to this appeal. Moreover, the country offers an open commercial environment with numerous competitive advantages, including some of the region’s lowest business costs. In addition, Bahrain invests substantially in integrated logistics, business and infrastructure, and is home to a mature regulatory environment.
Businesses can be established in the Bahrain International Investment Park and the Bahrain Logistics Zone. These were both designed to provide a base for local, regional and international companies to operate from, thereby enabling investors to capitalise on the country’s strategic position and cater to the Gulf’s sizeable and expanding market.
Foreign investment and 100% foreign ownership are largely allowed, although some activities are reserved for Bahraini and/or GCC citizens and companies. For instance, 51% Bahraini ownership is required for general trade and retail activities. Sectors restricted from foreign involvement include those related to document clearance, Islamic pilgrimage, press and publication, and workforce agencies. Bahrain has established free trade agreements with other countries, including the US and Singapore, that enable foreign investors to establish 100% ownership entities. Further exemptions are reviewed on a case-by-case basis.
Commercial Registration
All companies are required to be registered with the MoIC to secure a commercial registration certificate before commencing business. The most commonly used business entity structures in Bahrain are as follows:
• Companies limited by liability: Full foreign ownership in a with limited liability (WLL) company is generally permitted, except for entities that undertake business activities requiring a Bahraini partner to own at least 51% of the firm’s capital. Although the minimum share capital requirement for a WLL has been revoked, certain activities may still require a WLL company to possess a minimum share capital. A WLL may have one or more shareholders, with no limit on the total number; WLLs previously required a minimum of two shareholders, up to a maximum of 50. The share capital of WLLs must be divided into equal shares. A WLL company is permitted to be a shareholder in another company.
• Single-person company (SPC): All SPCs have been merged with WLLs, effective from April 1, 2021.
• Bahrain shareholding company (BSC) (closed): This denotes a closed joint stock company consisting of not fewer than two persons who subscribe for negotiable shares that are not offered to the public for subscription. The issued capital must not be less than BD250,000 ($663,000).
• Holding company: A holding company may take the form of a BSC (closed) or a WLL. Registration requirements depend on the legal form selected. A holding company is required to own more than 50% of the shares of its subsidiaries.
• Branch offices: Operational, representative or regional branches may be registered as an operational, representative or regional office of the parent company. The parent company shall bear all liability for its branch. Business operations are allowed only for an operational office, while representative and regional offices are only permitted to undertake marketing and promotional activities. The aforementioned forms of entities must be incorporated under the Bahrain Commercial Companies Law.
The list of documents that are required to be submitted through the MoIC‘s online commercial registration platform, Sijilat, include the following:
• Passport/ID copies of individual shareholders, or the commercial registration details of corporate shareholders;
• Commercial address details;
• Draft memoranda and articles of association;
• Capital deposit certificate (after preliminary approval); and
• Financial auditor’s report or evaluation letter for in-kind capital (if any). Additional requirements may apply based on the nature of business activities.
Accounting Requirements
Businesses are expected to report the following:
• Audit requirements: All public companies, closed joint stock companies, WLLs and branches of foreign firms are required to undertake an annual audit. In addition, the auditors appointed at the annual shareholders’ meeting must be registered with the MoIC.
• Book year/accounting currency: Each company shall have a financial year that starts on January 1 and ends on December 31 each year, unless otherwise provided for in the company’s articles of association. The first financial year shall be an exception: this will start on the company’s incorporation date and finish at the end of the financial year.
• Financial statements: Companies are required to prepare accounts in accordance with International Financial Reporting Standards.
Financial Services
All regulatory requirements for financial services are overseen by the CBB.
Currency Restrictions
There are no foreign exchange control restrictions on the repatriation of profit by way of dividends or other payments.
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