Employers in Bahrain have a responsibility to contribute to the Social Insurance Organization (SIO) for both Bahraini and expatriate employees. These contributions fund various social benefits, including pensions, disability support, and unemployment insurance. The current rates are 12% of the employee's gross salary for Bahraini employees and 3% of the employee's gross salary for expatriate employees. Contributions are due monthly and must be remitted to the SIO.

Social Insurance Contributions

• Bahraini employees: 12% of the employee's gross salary (paid by the employer)
• Expatriate employees: 3% of the employee's gross salary (paid by the employer)

Work Injury Insurance

Employers are also required to contribute towards work injury insurance. The contribution rates are 3% of Bahraini employees' salaries, and 1% of expatriate employees' salaries.

Other Potential Employer Contributions

There are other potential contributions that employers may be required to make. These include:

• Municipal Fees: Businesses may be subject to certain municipal fees based on their location and activities.
• Training Levy: Companies employing over 50 workers that do not provide sufficient training may incur a training levy of 3% of annual payroll.

In Bahrain, employees are not subjected to any income tax deductions from their salaries. However, they are required to contribute to the country's social security scheme, which is managed by the Social Insurance Organization (SIO). These contributions provide coverage for old age, disability, death, and unemployment benefits.

Social Insurance Contributions

The current rates for social insurance contributions are as follows:

• For Bahraini employees, the rate is 7% of the gross salary.
• For expatriate employees, the rate is 1% of the gross salary.

These contributions are typically withheld directly from an employee's paycheck by their employer.

Additional Potential Deductions

There are other potential deductions that employees might encounter:

• Work Injury Insurance: While employers are responsible for covering work injury insurance, employees may see a 1% contribution reflected on their pay stub as part of this insurance scheme.
• Other Voluntary Deductions: Employees may have additional deductions based on voluntary contributions to pension schemes, savings plans, or union dues (if applicable).

The standard VAT rate in Bahrain is currently 10%. This rate applies to most services provided within the country, unless they fall under specific exemptions or zero-rating categories.

Zero-Rated Services

Certain services are zero-rated for VAT purposes in Bahrain. This means that no VAT is charged on the supply of these services, and businesses providing them can still claim back any input VAT incurred. Examples of zero-rated services include:

• Exports of services to customers outside the GCC countries
• Basic healthcare services
• Educational services
• New residential property (first supply)
• Local passenger transport

Exempt Services

Some services are exempt from VAT. This means that VAT is not charged on these services, and businesses providing them cannot recover input VAT incurred on related purchases. Examples of exempt services include:

• Financial services
• Residential property rentals (other than the initial supply)

VAT Registration

Businesses with annual taxable supplies exceeding BHD 37,500 are required to register for VAT. Businesses exceeding a turnover of BHD 5,000,000 have the option to register voluntarily.

VAT Invoicing

VAT-registered businesses must issue tax invoices for all taxable supplies of services. The invoice must include specific details such as:

• Supplier's name, address, and VAT registration number
• Customer's name and address (if a VAT-registered business, their registration number)
• Invoice date and unique number
• Description of the services supplied
• Value of the supply
• Amount of VAT charged

VAT Reporting and Payment

VAT-registered businesses must file VAT returns on a regular basis (usually quarterly or monthly). The VAT return reports the business's output VAT (collected on sales) and input VAT (paid on purchases). Any VAT payable must be remitted by the due date.

Bahrain offers a significant tax advantage with a 0% corporate income tax rate. This applies to businesses across all sectors, regardless of the size or origin of the company.

No Withholding Taxes

In addition to the corporate income tax advantage, Bahrain does not impose withholding taxes on dividends, interest, or royalties paid to non-residents. This can be attractive for foreign investors and companies operating in Bahrain.

100% Foreign Ownership

Bahrain allows 100% foreign ownership in many business sectors, providing an encouraging environment for foreign direct investment. This removes the need for local partners in most cases.

Free Trade Agreements

Bahrain is a member of the Greater Arab Free Trade Area (GAFTA) and has a Free Trade Agreement with the United States. These agreements offer benefits like reduced or eliminated tariffs for trade with participating countries.

Industrial Areas and Incentives

Businesses operating in designated industrial areas may enjoy additional benefits, such as subsidized land, utilities, and other incentives.

Double Taxation Treaties

Bahrain has a network of double taxation treaties with various countries. These agreements help prevent businesses from being taxed twice on the same income in different jurisdictions.