Bahrain Corporate Tax Guide

Bahrain

Manama GMT +3

EY

+973 1753-5455

Fax: +973 1753-5405 P.O. Box 140 Manama Bahrain Street address: 10th Floor East Tower

Mail address:

Bahrain World Trade Center Manama Bahrain

Principal Tax Contact

 Koen Desloover

+973 1753-5455

Mobile: +973 3356-1182 Email: koen.desloover@bh.ey.com

Business Tax Services and Global Compliance and Reporting

 Koen Desloover +973 1753-5455

Mobile: +973 3356-1182 Email: koen.desloover@bh.ey.com

Tomin Jose +973 1751-4851 Mobile: +973 3352-3366 Email: tomin.j@bh.ey.com

International Tax and Transaction Services – International Corporate Tax Advisory

 Joe Kledis +973 1753-5455

Mobile: +973 3356-1183 Email: joe.kledis@bh.ey.com

Aaron Stonecash +973 1753-5455 Mobile +973 3360-1118 Email: aaron.stonecash@bh.ey.com

Shankar PB +973 1751-4762

Mobile: +973 6674-4689 Email: shankar.pb@bh.ey.com

International Tax and Transaction Services – Transfer Pricing

 Patrick Oparah +973 1713-5194

Mobile: +973 3358-7450 Email: patrick.oparah@bh.ey.com

International Tax and Transaction Services – Global Tax Desk Network

Josh McKniff, +973 1713-5122

United States

People Advisory Services

 Roman Gusev

Indirect Tax

 Gavin Needham

Mobile: +973 3360-1050 Email: josh.mckniff@bh.ey.com

+973 1753-5455

Mobile: +973 3365-1121 Email: roman.gusev@bh.ey.com

+973 1751-4888

Mobile: +973 3360-7477 Email: gavin.needham@bh.ey.com

A. At a glance

Corporate Income

Capital Gains

Tax

Oil and gas

B. Taxes on corporate income and gains

Except for the income tax levied on oil and gas companies, no taxes are levied on corporate income or gains. Oil and gas compa nies are subject to tax on income derived from the sale of finished or semifinished products manufactured from natural hydrocarbons in Bahrain and from the sale of such raw materials if produced from the ground in Bahrain. The rate of tax is 46%.

C. Other significant taxes

The following table summarizes other significant taxes.

Nature of tax Rate

Value-added tax (VAT); the scope of VAT includes supplies of all goods and services made in Bahrain as well as imports; certain supplies are zero-rated or exempt

Standard rate 10%

Customs duties; effective from 1 January 2003, the customs duties of the Gulf Cooperation Council (GCC) countries (Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates) are unified; Bahrain applies the unified tariff in accordance with the Harmonized System codes, issued by the World Customs Organization (WCO); under the unified customs tariff, for all products, except for tobacco and tobacco-related products, customs duties are calculated by applying percentage rates; for tobacco and tobacco-related products, the customs duty equals the higher of an amount calculated by applying a rate of at least 100% to the value of the product or an amount based on the quantity or weight; in general, products are divided into four groups

Rates for the four groups

Social insurance contributions; payable on compensation of up to BHD4,000 per month for each employee Pension fund contributions; applicable to base salaries of Bahraini nationals

Free duty/ 5%/20%/100%/125%

Employer 12%

Employee 6%

Insurance against employment injuries; payable by employers; applicable to base salaries of Bahraini nationals and expatriates; paid by Employer 3%

Nature of tax Rate

Employee 1%

(The above contributions are to cover employment injuries and do not include any pensions or gratuities.)

Municipal tax; payable by companies and individuals renting property in Bahrain; the tax rate varies according to the nature of the property and the payer of the utilities (that is, landlord or tenant)

7% to 10% Foreign workers levy; payable monthly by all private and public companies with respect to each employed expatriate

BHD5 for the first five expatriate employees and BHD10 for each additional expatriate employee

Excise duty; imposed on goods harmful to human health and the environment that are listed by the GCC Financial and Economic Cooperation Committee

Carbonated drinks 50% Energy drinks 100% Tobacco 100%

D. Miscellaneous matters

Foreign-exchange controls. Bahrain does not impose foreignexchange controls.

Base Erosion and Profit Shifting. On 11 May 2018, the Organisation for Economic Co-operation and Development (OECD) announced that Bahrain has joined the Base Erosion and Profit Shifting (BEPS) Inclusive Framework (BEPS IF). As a member jurisdic tion of the BEPS IF, Bahrain is now a BEPS Associate and will be able to work alongside the OECD and G20 countries on devel oping standards on BEPS-related issues and the implementation of monitoring processes. Bahrain is also now committed to implementing the minimum standards of the BEPS plan, which are Actions 5, 6, 13 and 14. Bahrain is also in compliance with the international standard on transparency and exchange of infor mation, which incorporates beneficial ownership information of all the relevant legal entities and arrangements in line with the definition used by Financial Action Task Force Recommendations.

In line with the BEPS Action 5, Bahrain enacted legislation con cerning economic substance requirements for certain regulated financial activities, effective from 1 January 2019, as well as for certain non-regulated activities, effective from 1 July 2019. Companies engaged in banking, insurance, fund management, investment holding, financing and leasing, distribution and ser vice center, headquarter companies and intellectual property activities in Bahrain should ensure that they meet the substance requirements. All in-scope entities are required to file an annual report to the authorities within three months after the end of their financial year. Failing to do so may result in penalties, fines, spontaneous exchange of information and potentially deregistra tion.

Country-by-Country Reporting. In line with BEPS Action 13, Bahrain introduced Country-by-Country (CBC) Reporting legis lation which is applicable for fiscal years beginning on or after 1 January 2021. The rules apply to multinational groups with consolidated revenue above BHD342 million (USD907 million). Bahrain-headquartered multinational groups are required to file their CBC Report and notification in Bahrain. Bahrain entities belonging to foreign multinational groups may be subject to CBC notification requirements.

E. Tax treaties

Bahrain has entered into tax treaties with Algeria, Austria, Bangladesh, Barbados, Belarus, Belgium, Bermuda, Brunei Darussalam, Bulgaria, China Mainland, Cyprus, the Czech Republic, Egypt, Estonia, France, Georgia, Hungary, Iran, Ireland, Isle of Man, Jordan, Korea (South), Lebanon, Luxembourg, Malaysia, Malta, Mexico, Morocco, the Netherlands, Pakistan, Philippines, Portugal, Seychelles, Singapore, Sri Lanka, Sudan, Switzerland, Syria, Tajikistan, Thailand, Turkey, Turkmenistan, the United Kingdom, Uzbekistan and Yemen.

In addition, Bahrain has initialed agreements with Guernsey, Liechtenstein and Spain. It is currently in negotiations with the Hong Kong Special Administrative Region, Jersey, Kyrgyzstan and Latvia.

On 27 November 2020, Bahrain signed the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (Multilateral Instrument or MLI). The MLI will amend tax treaties between Bahrain and other countries listed as Covered Tax Agreements (CTAs), sub ject to the ratification of the MLI by both Bahrain (that had not yet occurred as of the date of writing) and the other CTA party and the subsequent entry into force of the MLI. A tax treaty is considered a CTA if both Bahrain and the other treaty jurisdiction have indicated that it is subject to the MLI. The most important impact will be introduction of (or amendments of the existing) clauses related to the principal purpose test and prevention of treaty abuse as well as an enhancement of dispute resolution processes through the mutual agreement procedure.

Bahrain has listed 25 tax treaties to be CTAs, namely its tax treaties concluded with Barbados, Belgium, Bulgaria, China Mainland, Cyprus, Egypt, Estonia, France, Hungary, Ireland, the Isle of Man, Jordan, Korea (South), Luxembourg, Malaysia, Malta, Mexico, Morocco, the Netherlands, Pakistan, Portugal, Seychelles, Singapore, Turkey and the United Kingdom.

The list of CTAs and MLI effects can be changed, subject to the signing of the MLI by other jurisdictions and/or changes in posi tions by Bahrain and/or other jurisdictions.