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5 Tips on Filing Corporate Tax in Bahrain

In 2021, most foreign entrepreneurs pick Bahrain as their location of choice when it comes to setting up businesses. Business-friendly laws, strategic location, and flexible taxation are some of the reasons why Bahrain business setup has become such a huge deal over the past couple of years.

Taxes, as uninteresting as they sound, are a critical ingredient of any business. After all, governments need taxes to boost the economy and improve the quality of life in the respective nations.

Foreign investors will be pleased to know that barring businesses that operate in the oil and gas sector, other businesses and companies need not worry about taxes on income, sales, capital gains, or estates. In the oil and gas sector, profits are taxable at a rate of 46%.

Let’s have a look at how Bahrain business taxation works.

What Are the Advantages of Doing Business in Bahrain? 

Here is why so many expats are swinging towards company registration in Bahrain

  • 0% corporate tax rate (Except for businesses involved in Oil and Gas sector)
  • Zero Personal Income Taxes
  • Zero Wealth or Capital Gains Taxes
  • Some of the lowest operating costs out of all the countries constitute the Gulf Cooperation Council (GCC). Rent for offices and industrial lands are relatively low.
  • Flexible laws in the context of foreign ownership
  • And so much more.

Tips to Remember while Filing Corporate Taxes in Bahrain                  

  1. 0% Corporate Taxes and Income Taxes 

Unless your business operates in the oil and gas sector, setting up a company in Bahrain is highly profitable. This taxation feature means that you can possess and operate several business opportunities without paying any taxes.

There are no wealth or capital gain taxes set in place either. It means that you can retain most of the profits you made in your business and use the same to invest in future business opportunities.

Furthermore, the lack of income taxes means that your employees can keep most of what they earn. As long as foreign workers receive residency permits from the employer, they need not worry about paying heavy income taxes.

Please note that businesses in the oil sector will have to pay 46% of the net profits in corporate taxes.

2.Value Added Tax (VAT) 

Starting 2019, VAT was implemented in Bahrain, with the general rate being 5% and most goods and services being subject to the same.

The National Bureau of Revenue is responsible for monitoring VAT and upholding the provisions of the Bahrain VAT laws and regulations.

The taxation period in Bahrain follows the Gregorian calendar year, i.e. January 1st – December 31st.

3.Other Taxes

Registration and license fees can range from BHD 25 to BHD 1000. These fees can vary based on the type of business.

In most cases, the rate of customs duties is 5% of the value in Cost, Insurance, and Freight (CIF). However, specific categories are subject to a 20% duty rate. Meanwhile, some goods and products are subject to a rate of over 200%.

10% Municipality tax is levied on the lease of commercial and residential properties to ex-pats.

4.Payment of Tax 

When the initial estimated tax statement was filed, taxes in Bahrain will be payable in 12 equal monthly instalments. Therefore, tax payments are due from the 15th day of the fourth month of the taxable year.

Based on the subsequent altered estimated income tax statements, tax payments for the remainder of the 12 months will have to be made. The final payment will be due on the 15th day of the third month after the taxable year.

5.Withholding Taxes 

There is no provision of withholding taxes for people working towards starting a business in Bahrain. This aspect of the taxation system means that any payments of interest, royalties, or dividends are not dependent on Withholding Taxes in the country.

Bahrain has double Tax Treaties or DTTs with several countries, including Algeria, Austria, Bangladesh, Belgium, France, Thailand, the United Kingdom, etc. In addition, the country’s lucrative location allows easy access to markets all over the world.

Thanks to the lack of corporate income tax, the business opportunities in Bahrain are endless. In 2021, the country did not allow the global pandemic to play spoilsport and came up with a hefty stimulus package to lessen the blow.

It included exemption of municipal fees, payment of utility bills on behalf of businesses, and so much more. As a result, in comparison to many other countries, Bahrain is light years ahead of business and is shaping up to become a global business hub.

If you are looking forward to setting up a company in Bahrain or want more valuable insights, get in touch with us today!