Bahrain, a sovereign nation in the Persian Gulf, has been transforming itself as one of the flourishing economies of the world. Manama, being the capital and the largest city of the nation, is a remarkable business destination. Over the years, the destination has been attracting multiple business investors to come forward and invest. The Government of Bahrain has set an easy business setup process for foreign investors to create a business-friendly environment. At the same time, the Bahraini Government is keeping a close eye on the implementation of the tax scenario, that is a mandate for the business entities.
If you are planning to start a business in Bahrain or is already an established owner, then knowing the tax scenario turns out to be a boon. This guide highlights the complete tax scenario that the business entities in the Kingdom of Bahrain need to comply with.
What is Tax Service?
Tax is one of the inevitable parts of a business entity that needs to be filed at the end of the accounting year. In simple terms, we can define tax as a compulsory financial charge that needs to be borne by the taxpayer. Business entities need to borne corporate tax, that needs to be backed by a reliable and effective taxation strategy. The implementation of a tax strategy is essential as it helps the business entity to achieve their financial goal by reducing the tax liability and enhancing the business profit.
Tax Scenario in Bahrain
The Kingdom of Bahrain, being one of the most developing economies of the GCC region, attracts foreign direct investment (FDI) to a great extent. The taxation policy in Bahrain is also deemed to be most liberal as compared to other countries. It is to note that the region of Bahrain doesn’t hold the concept of income tax for individuals. However, it is essential to understand that a small portion is charged as a ‘Social Insurance Tax’, which gets applied on all the workers at a rate of:
- 1% for Non-Bahraini workers
- 7% for Bahraini workers
The Bahraini government has taken necessary measures to wipe out different types of taxes, which includes the following in the list.
- Corporate Income Tax (CIT)
- Withholding Tax (WTT)
- Transfer Pricing
- Capital Gains Tax (CGT)
- Personal Income Tax (PIT)
Apart from the ones stated above, the other types of tax include:
- Municipality Tax: Gets levied at 10% on the rental of commercial and residential property to expatriates.
- Stamp Duty: Gets levied on 2% on all property sales, regardless of the purchase price
- Payroll Tax: Employers need to contribute to the employees
- 12% for Bahraini employees
- 3% for the Non-Bahraini employees
- Custom Duty: Gets applicable at the rate of 5% of the value in cost, insurance
- 125% gets levied on Alcoholic Beverages
- 100% gets on Cigarettes
Double Taxation Treaties
The concept of Double Taxation Treaties (DTTA) is an agreement that allows the business investors to carry out the business transactions between nations without paying the import and export taxes. Bahrain has a vast number of DTAs that enables the business owners and investors to carry out the transactions at ease without getting involved in the tax process. This initiative has provoked the business investors to get clarity and identify the essentials as to why invest in Bahrain. The impact of DTAs has been significantly great and thus fetches out multiple opportunities for the business investors. To get a better clarity on this, have a look at the advantages of setting up your business in Bahrain
Taking a step ahead to widen the source of revenue, the Bahraini government has also implemented the VAT scenario in the region.
Also read about VAT Registration in Bahrain.
Implementation of VAT in Bahrain
Being a part of the GCC countries, the Kingdom of Bahrain has enforced the concept of Value- Added-Tax (VAT) during the end of 2018, with an effective rate of 5%. The National Bureau of Revenue (NBR) is the governed authority that is responsible for the implementation and management of VAT in the Kingdom of Bahrain. It turns out to be a mandate for the business entities with the annual value of supplies above BD 37,700. The Decree (48) of 2018 states that the concept of VAT is not applicable on the following goods:
- Basic food products
- General medical services
- Passenger transport services
- Oil and Gas Sector
- International Air Tickets
There are multiple advantages and disadvantages of implementing VAT. Being aware of the essentials will help you to understand the concept in a better way.
VAT Refund Scheme for Tourists
The Bahraini government has initiated the VAT refund scheme for international tourists. This gets enforced once the tourist requests for VAT refund from Bahrain on the purchases made within the nation. The scheme is applicable only if the following conditions are met:
- The goods are purchased during the tourist’s stay in the region
- The goods fall under the category of the eligible for VAT refunds
- They are obtained from authorized merchants
- The tourists leave the area within two months from the date of supply of the goods.
To understand the VAT implementation process more clearly, read this guide on how to register VAT in Bahrain.
Why Avail Taxation Services?
Implementation of tax services is one of the vital elements that need to be fulfilled by any business organization. By proceeding ahead with the application of tax for your business, your business entity will be able to grab the following benefits:
1.Social Contribution
Paying tax is a step towards the development of the society where the business entity exists. The tax paid by the business entities goes to the government funds, which will be utilized towards the development of the nation.
2.Good Credit Rating
Maintaining a clear tax payment record helps the business entities to hold a good credit rating that will be beneficial while dealing with the financial institutions. In simple terms, the higher the credit rating is, the better.
3.Enhances the Investor Value
A well-established credit score helps the business entities to grab more investors and institutions who will be willing to invest in the company. However, it is to be taken care that the investors prefer to have a look at the business records before investing. So, in short, we can say that the documents need to be accurate and error-free.
Why Avail Professional Taxation Services?
Dealing with the company tax services turns out to be a tough job if one is not well-versed with the relevant procedures. Implementing the different processes after company incorporation is a must to maintain the business processes at ease. Here’s a guide on the five things you need to do after setting up your company in Bahrain. Now, vailing professional services at this point turns out to be a profitable and smart move. By getting in touch with experts, you can grab the following benefits:
- The tax proceeds will be handled effectively
- Experts can fetch out the existing errors quickly
- Tax experts can help you to regularize the tax scenario
- Maintain proper records related to tax and vat returns
- Helps you to minimize the tax risk to a great extent
- Implementation of relevant software to ease the recording process
At Business Setup Worldwide, we are dedicated to providing the best effective tax solutions to our clients. Being one of the top tax consultants in Bahrain, our tax advisors can assist you in the following services:
- Tax Structuring
- Transfer Pricing
- Tax Due Diligence
- Handling Tax Issues
- Filing Tax/ VAT Returns
How Can We Help?
Business Setup Worldwide has been one of the top ten business consultants in the UAE. Ranging from company incorporation to dealing with office space and legal procedures, we assist our esteemed clients in every aspect. We provide taxation services that are compliant with the tax legislation and system. Our advisors having expertise in this area of legal and tax consulting will provide hands-on solutions to all your tax-related issues. We offer our client’s comprehensive professional services from a single source. If you are looking forward to implementing tax services in your company, feel free to have a word with our experts. Contact us today for more information-we’d be glad to assist.
