The Kingdom of Bahrain is one of the most attractive destinations for business in the Gulf region. This is possible because Bahrain’s tax system imposes a zero corporate tax rate (0% base rate on profit), except for companies engaged in the oil and gas sector. However, as part of economic diversification, local authorities plan a tax reform in 2024, increasing the corporate income tax (CIT).
Features of Bahrain’s Tax System
Bahrain’s tax system is simplified for foreign companies, as the state aims to attract foreign capital. The Kingdom seeks to develop the economy in various sectors, not just oil and gas extraction. The reasons are clear — Bahrain’s oil reserves are not as abundant as its neighbors, such as the UAE, Qatar, and Saudi Arabia. Therefore, authorities need to develop other economic sectors.
The tax system currently in place is highly advantageous for businesses. It allows launching companies in Bahrain with 100% foreign ownership and exempts them from paying corporate income tax, contributing to high profitability. It’s worth noting that holding, trading, and management companies and consulting firms can be established in Bahrain. The most popular are WLL (With Limited Liability) companies.
Overview of the Legislative Framework Regulating Taxation in Bahrain
Bahrain remains the only country among the Arab states of the Gulf Cooperation Council that has not legislatively introduced an introductory corporate income tax rate. This norm is established at the state level by the corresponding tax authority of the kingdom.
The Committee on Financial and Economic Affairs is actively discussing the issue of reforming the corporate income tax. The introduction of the Profit Tax Law is proposed, under which the CIT rate is intended to be increased to 3% for medium-sized companies and up to 30% for large foreign corporations.
There are active discussions at the legislative level regarding the increase in the corporate tax rate. The Bahraini government seeks to find a compromise solution to maintain the stability of economic positions and not alienate foreign entrepreneurs interested in significant investments in the country.
Central Taxes in Bahrain
The current tax system for foreign companies and individuals remains unchanged. It is essential to be familiar with the following table to understand which taxes in Bahrain are mandatory for conducting legal activities.
| Tax Type | Rate |
|---|---|
| Basic Corporate Income Tax (CIT) | Zero Rate |
| Corporate Tax for Oil and Gas Companies | 46% |
| Value Added Tax (VAT) | 10%, 0% for certain goods and services |
| Stamp Duty | 2% |
| Capital Gains Tax | 0% |
The tax system for companies is characterized by transparency and favorable conditions, making Bahrain an excellent and accessible alternative to the UAE for offshore company formation. However, potential rate increases may bring some adjustments.
All companies conducting legal activities in the Kingdom of Bahrain must undergo a financial audit once a year. Our company, Dynasty Business Adviser, leverages its eight years of experience to assist you with successfully registering offshore or onshore firms. Our managers are committed to providing individualized attention to each client to achieve their goals.
Taxation of Individuals in Bahrain
When considering the taxation of individuals in Bahrain separately, the absence of income tax for the population stands out. There are also no taxes on investment income and wealth in the country. These rules apply to both residents of the country and non-residents who have obtained residency status.
To get residency, it is sufficient to have an income of around $5,000 per month, significantly contributing to Bahrain’s economic development. Employed individuals must make contributions according to the rules of the Social Insurance Organization.
The absence of taxation on personal income allows individuals to earn well in Bahrain in various industries. This could involve real estate resale or rental, trading stocks, etc. However, it’s important to note that the transparent taxation system mentioned above does not apply to the oil and gas sector. This sector operates under its own rules and high taxes because the authorities are not particularly keen on foreigners getting involved in this vital sector of the Bahraini economy.
Taxation of Legal Entities in Bahrain
When considering taxes in Bahrain’s legal sphere, we want to highlight the favorable conditions and zero corporate tax rate. For this reason, this state in the Persian Gulf region has become one of the most attractive global offshore zones. Here, you can establish a business in a favorable environment, and the authorities will not hinder the process if the registration procedure is transparent and properly executed.
However, the government is only partially satisfied that foreign companies do not contribute funds to the country’s budget. Bahrain’s oil reserves are not limitless, so exploring other avenues to boost the economy is necessary. Thus, 2023 was likely the last year in Bahrain’s history when the corporate tax rate was zero.
Consultations are ongoing, and in 2024 a new corporate tax rate will be announced. The updated rate will affect all commercial companies except those involved in hydrocarbon extraction and individuals with passive income from investments. As for the oil extraction industry, specific tax conditions have been in place for a long time, so there will be little changes here.
Tax Incentives for Business in Bahrain
Bahrain does not offer tax incentives for companies since all legal entities benefit from a favorable corporate tax rate of 0%. Therefore, there is no need to implement any specific conditions. Perhaps, after the restructuring of the tax system in 2024, some incentives will be created for particular sectors of economic activity, but there is no concrete information on this yet.
Like residents, foreign citizens have equal access to commercial investments and business registration in Bahrain. This is one of the critical conditions for operating in this Arab kingdom, which remains on the list of countries with the lowest tax rates in the world.
This blog article is for informational purposes only and should not be interpreted as legal advice. For more detailed information and professional assistance, it is necessary to contact the managers of Dynasty Business Adviser. They will carefully review the issue and provide the optimal individual solution.
Where to Start Creating Your Business in Bahrain
Company registration in Bahrain takes approximately 3-4 weeks and follows a regulated procedure. Upon completion, shareholders and the board of directors can obtain an investor residency visa. Opening a firm involves the following steps:
- Defining the sector in which the company will operate and a unique name not yet registered, with the obligatory phrase “Company with limited liability.”
- Establishing the authorized capital and structural departments of the company.
- Opening a bank account and depositing the authorized capital into it before completing the registration process.
- Submit the necessary document package, including copies of all company founders’ passports, certification of corporate documents, and confirmation of the minimum authorized capital.
The procedure for starting a business in Bahrain is aligned with global standards. It is transparent and convenient, not significantly different from the schemes adopted in European countries, the USA, and other leading world states setting trends.
If you want to establish a company and benefit from minimal taxes in Bahrain, don’t hesitate to seek consultation from our experts at Dynasty Business Adviser. Leveraging their extensive experience, they’ve efficiently assisted foreign investors in the UAE for many years. They are well-versed in the regulatory frameworks of Gulf Cooperation Council countries, including the Kingdom of Bahrain.
Advantages of Cooperation with Dynasty Business Adviser
Benefits of collaborating with Dynasty Business Adviser for establishing a business in Bahrain are advantageous for both individuals and entities for several reasons:
- Expertise: With eight years of experience in facilitating market entry for new business players, we have thoroughly studied the nuances of the Arab mentality and legal framework.
- Comprehensive Solutions: Tailored market entry strategies are developed for each client, considering their desired field of activity and other parameters.
- Confidentiality: Collaboration occurs under anonymous conditions, adhering to our non-disclosure policy of client confidential information.
- Promptness: Our managers are available around the clock to immediately assist clients with any urgent issues requiring immediate resolution.
- Direct Collaboration: Working directly with clients without intermediaries fosters efficient operations.
- Attentive Approach: Every client is treated as a VIP, ensuring a high level of service regardless of the complexity of the request or the amount of funds paid.
Dynasty Business Adviser operates under official conditions and serves as a bridge for foreign clients seeking successful business registration in Bahrain and immediate profitability. Only by turning to professionals can this task be resolved without difficulty, as opening a business may seem straightforward at first glance but requires meticulous work collecting necessary documents, obtaining permits, paying required fees, and addressing other aspects.
