BahrainTax Obligations Detailed

In Bahrain, employers face specific tax obligations related to social insurance contributions and a new Domestic Minimum Top-Up Tax (DMTT) for large multinational enterprises (MNEs) starting in 2025.

Social Insurance Contributions

• Bahraini Nationals: Employers contribute 12% of the employee's basic salary and fixed recurring allowances up to a monthly maximum of BHD 4,000. Employees contribute 7% up to the same limit.
• Expatriate Employees: Employers contribute 3% of the employee's basic salary and fixed recurring allowances up to a monthly maximum of BHD 4,000. Employees contribute 1% up to the same limit.

Domestic Minimum Top-Up Tax (DMTT)

• Applies to MNEs with consolidated annual revenue exceeding €750 million in at least two of the preceding four fiscal years.
• Effective tax rate is 15% of the net accounting income, subject to certain adjustments.
• Takes effect for fiscal years beginning on or after January 1, 2025.

Other Taxes

• There are no payroll taxes or personal income taxes. A real estate stamp duty of 2% is due upon property transfer but is reduced to 1.7% if paid within 60 days of transaction.

Additional Employer Responsibilities

Employers must issue detailed payslips and adhere to the agreed-upon payment schedule (monthly, project-based, or hourly). While no mandatory deductions exist for expatriate wages, employers can deduct social security contributions and court-ordered payments from Bahraini employee wages. For MNEs subject to the DMTT, additional reporting and compliance requirements exist.

In Bahrain, employee tax deductions primarily involve social security contributions, as there is no personal income tax on salaries.

Social Security Contributions

• For Bahraini Nationals: Total contribution is 19% of the gross salary up to a maximum of BHD 4,000. This is split between the employer (12%) and the employee (7%).
• For Expatriate Employees: Total contribution is 4% of the gross salary up to a maximum of BHD 4,000. This is split between the employer (3%) and the employee (1%). Often, employers cover the full cost for expats.
• Deduction Limits: The maximum amount deductible from an employee's wage for social security is capped at BHD 4,000 per month. As of 2025, a domestic minimum top-up tax of 15% has been introduced that affects multinational enterprises with consolidated revenue over €750 million.

Other Deductions

While not strictly taxes, other potential deductions from an employee's salary can include:

• Court-Ordered Payments: Deductions for legally mandated payments, such as alimony or debt repayments, can be made.
• Compensation for Loss or Damage: Employers are permitted to deduct up to five days' worth of basic salary for damages or losses caused by the employee, not exceeding two months' total wages.

Employer Responsibilities

• Registration: All employees, both local and foreign, must be registered with the Social Insurance Organization (SIO).
• Payment: Employers are responsible for calculating, withholding, and remitting social security contributions to the SIO. These payments should be made in Bahraini Dinars (BHD).
• Payslips: Employers are required to provide detailed payslips to employees outlining all earnings and deductions.
• Compliance: It is crucial for employers to stay up-to-date with Bahraini labor and social security laws and regulations to ensure full compliance.

It is important to note that this information is based on the available knowledge as of today, February 5, 2025, and might be subject to change due to potential future legislative updates. Consulting with a local payroll or legal expert is recommended for the most up-to-date and specific guidance.

In Bahrain, a 10% Value Added Tax (VAT) applies to most goods and services, with certain exceptions.

VAT Registration

• Mandatory Registration Threshold: BHD 37,500 annual taxable turnover. Businesses exceeding this threshold must register within 30 days of the date the threshold is met or expected to be met. This is a rolling 12-month assessment.
• Voluntary Registration Threshold: BHD 18,750 annual taxable turnover.
• Non-Resident Businesses: Businesses supplying goods or services to non-VAT registered customers in Bahrain must register within 30 days of their first taxable supply regardless of the value.

VAT Filing and Payment

• Monthly Filing: Businesses with taxable turnover exceeding BHD 3 million.
• Quarterly Filing: Businesses with taxable turnover below BHD 3 million.
• Annual Filing: Resident businesses with taxable turnover below BHD 100,000 can apply to file annually.
• Deadline: Last day of the month following the end of the tax period.
• Submission: Online through the National Bureau for Revenue (NBR) portal.

VAT Rates and Exemptions

• Standard Rate: 10% (increased from 5% on January 1, 2022).
• Zero-Rated: Certain essential goods and services like basic food items, transportation, healthcare, education, and specific exports.
• Exempt: Financial services (excluding explicit fees, commissions, discounts), bare land sales/leases, local supplies of certain imported goods (e.g., zero-rated or exempt if supplied locally, necessities with proper documentation, duty-free imports under specific categories).

Additional Information

• Legislation: The VAT framework is governed by Decree-Law No. 48/2018 and its Executive Regulations (Decision No. 12/2018).
• Administration: The NBR is responsible for VAT implementation and collection.
• Refunds: Non-resident businesses may be eligible for VAT refunds.
• Digital Services: Non-resident providers of digital services to Bahraini consumers are subject to VAT, regardless of turnover. Examples include software, telecoms, web hosting, e-learning, and online media. Marketplaces acting as intermediaries are responsible for VAT collection and reporting.
• Domestic Minimum Top-up Tax (DMTT): As of January 1, 2025, a 15% DMTT has been introduced for Multinational Enterprises (MNEs) with global revenues exceeding EUR 750 million, aligning with OECD guidelines.

It is important to consult the official NBR resources and seek professional tax advice for specific circumstances. This information is current as of February 5, 2025, and may be subject to change.

Bahrain offers a generally tax-free environment, particularly appealing to businesses and individuals. However, recent changes introduce nuances to this landscape.

Corporate Tax

• Standard Corporate Tax: Generally, Bahrain does not levy corporate income tax. A notable exception is the oil and gas sector, subject to a 46% tax rate.
• Domestic Minimum Top-up Tax (DMTT): Effective January 1, 2025, Bahrain introduced a 15% DMTT, aligning with OECD guidelines. This applies to multinational enterprises (MNEs) with consolidated revenues exceeding EUR 750 million for at least two of the four preceding fiscal years.

Personal Income Tax

Bahrain does not impose personal income tax on residents or expatriates.

Value Added Tax (VAT)

• Standard Rate: The standard VAT rate is 10%, introduced in 2022 as an increase from the initial 5%. Certain essential sectors like healthcare and education are exempt.
• Registration Thresholds: Businesses with annual revenues below BHD 37,500 are exempt from VAT registration, while those between BHD 37,500 and BHD 500,000 can register voluntarily. Businesses exceeding BHD 500,000 must register.

Other Taxes and Incentives

• Customs Duty Exemptions: Available for specific imports, re-exports, and certain strategic industries. Free zones often offer complete customs duty waivers.
• Double Taxation Treaties: Bahrain has agreements with over 40 countries to prevent double taxation on the same income.
• Free Zone Incentives: Businesses in designated free zones benefit from 100% foreign ownership allowance, extended tax holidays (potentially up to 50 years and renewable), customs duty waivers, and streamlined business setup processes.
• Social Insurance Contributions: Applicable to both employers and employees, with varying rates for Bahraini nationals and expatriates.

It's important to note that this information is current as of today, February 5, 2025, and might be subject to change due to evolving regulations. Consulting with a tax advisor is recommended for the most up-to-date and personalized advice.