Bahrain is one of the most tax-efficient jurisdictions in the Gulf, attracting international investors with its zero personal income tax, no capital gains tax, and no withholding tax on dividends, interest, or royalties. This pro-business framework makes it an appealing destination for those looking to minimize tax liabilities while operating within legal boundaries.
Recent Tax Developments
While Bahrain historically maintained a tax-free environment, key changes have reshaped its fiscal landscape in recent years. Excise tax was introduced in 2017, followed by Value Added Tax (VAT) in 2019. Now, in 2025, Bahrain is rolling out a Domestic Minimum Top-Up Tax as part of its alignment with global tax standards.
Personal and Corporate Tax in Bahrain
Personal Taxation
No taxation on personal income, capital gains, or inheritance
Income earned outside Bahrain is also not taxed
Social insurance contributions apply:
Bahraini nationals: 7% (employee), 12% (employer)
Expatriates: 3% employer contribution
Salary cap: BHD 4,000/month (approx. USD 10,500)
Corporate Tax in Bahrain
While corporate tax in Bahrain is generally not applied to most businesses, oil and gas companies are subject to a 46% corporate tax on profits. This exception aside, Bahrain does not impose withholding taxes or enforce controlled foreign corporation (CFC) or transfer pricing rules in most sectors.
For businesses looking to understand their obligations and optimize tax efficiency, consulting a corporate tax advisor in Bahrain is highly recommended, especially in light of evolving global requirements.
Domestic Minimum Top-Up Tax (2025 Onward)
Starting in 2025, Bahrain will implement the Domestic Minimum Top-Up Tax (DMTT). This applies to Bahrain-resident entities that are part of large multinational enterprise (MNE) groups with consolidated annual revenues of at least EUR 750 million.
This qualified domestic minimum top-up tax ensures that such MNEs pay a minimum effective tax rate of 15%, aligning Bahrain with the OECD’s Pillar Two global tax reform.
Although this regulation will not impact most local businesses, it is a crucial consideration for multinational companies. Working with a seasoned corporate tax advisor in Bahrain can help determine whether your entity falls under this scope and how to remain compliant.
International Tax Compliance and Treaties
As a member of the OECD/G20 Inclusive Framework on BEPS since 2018, Bahrain has taken meaningful steps to increase tax transparency:
Introduced Country-by-Country Reporting (CbCR) in 2021 for qualifying MNEs
Ratified the OECD Multilateral Instrument (MLI) in 2022, modernizing existing double taxation agreements (DTAs) without the need for renegotiation
Bahrain has over 45 DTAs with key economies such as the UK, France, China, and Singapore.
VAT and Excise Tax in Bahrain
VAT
Introduced in 2019, increased to 10% in 2022
Standard rate: 10% (applies to most goods and services)
VAT thresholds:
Mandatory registration: BHD 37,500
Voluntary registration: BHD 18,750
Non-resident businesses must register from their first taxable transaction
The National Bureau for Revenue (NBR) manages VAT compliance and enforcement.
Common Challenges and Practical Solutions
Businesses often face hurdles when handling VAT compliance:
Understanding Regulations: VAT rules can be detailed and difficult to interpret.
Pro Tip: Work with experienced VAT consultants to ensure correct application and compliance.
Records Maintenance: Manual management of financial records can be challenging and less accurate, which is a headache for many businesses.
Pro Tip: Use modern accounting tools to automate and simplify record management.
Meeting Deadlines: Staying on top of VAT filing dates requires consistent attention.
Pro Tip: Set up internal workflows and reminders to ensure timely submissions.
Taking a proactive approach to these issues can significantly reduce the risk of errors and penalties.
Excise Tax
Since 2017, Bahrain has levied an excise tax on harmful products:
100% on tobacco and energy drinks
50% on carbonated beverages
The list of taxable items may expand as public health policies evolve.
Free Zones and Tax Incentives
Bahrain’s free zones provide additional tax advantages to attract foreign investors, particularly in the logistics, manufacturing, and trading sectors. Incentives include:
Full exemption from income tax
No restrictions on capital flows
Repatriation of profits and customs duty exemptions
To maintain tax benefits, companies must comply with regulatory requirements and operate within the scope defined by the free zone authority.
The Bottom Line
Bahrain’s tax system offers transparency, low rates, and a strong alignment with global standards. While corporate tax in Bahrain is minimal outside select industries, regulations like the Domestic Minimum Top-Up Tax and qualified domestic minimum top-up tax provisions introduce new layers of complexity for multinational groups.
Whether you’re a startup or a global enterprise, partnering with an experienced corporate tax advisor in Bahrain is essential to ensure full compliance, avoid penalties, and make informed decisions.
