Income Tax in Bahrain
There is no personal income tax (PIT) regime in Bahrain. However, individuals employed by a natural person or a legal entity or an enterprise in the Kingdom of Bahrain are subject to contributions to the Social Insurance Organisation (SIO) rules in Bahrain.
Social Insurance applies to every person who is employed in Bahrain. The employer contribution is calculated at the following rates (on the employees’ monthly salaries):
· 12% for Bahraini workers.
· 3% for non-Bahraini workers.
Employees are also required to contribute for Social Insurance at the following rates (calculated on monthly salaries):
· 7% for Bahraini workers.
· 1% for non-Bahraini workers.
* The above rates apply up to an income ceiling of BHD 4,000 per month. No contributions are payable for income above this ceiling.
Capital gains and income of residents or non-residents not paid in Bahrain are not subject to tax or social insurance rules in Bahrain.
There are no taxes in Bahrain on income, sales, transfer, capital gains or estates, unless a company is involved in operations within the oil and gas sector, in which case it will be subject to a tax rate of 46% on its net profits for each accounting period.
Profits from branch income are taxable in Bahrain, at the rate of 46% if they are derived from activities in the oil and gas sector. Profits from branches derived from other activities are not subject to corporate income tax.
The introduction of a Corporate Income Tax is presently being considered by the Bahraini Government. However, no official communication has been made by the Bahraini authorities as to when such tax might be implemented.
The law generally allows deductions for all costs associated with taxable activities in Bahrain, such as the cost of production, refinement, remuneration of employees associated with these taxable activities (including social insurance and pensions paid for the benefit of these employees), and other operational losses.
All reasonable and justifiable costs of production and exploration of products sold during the current taxable year are deductible for tax purposes, provided that these expenses have not been deducted elsewhere in calculating net taxable income.
Depreciation and depletion
Tax deductions may be claimed with respect to reasonable amounts for depreciation, obsolescence, exhaustion, and depletion incurred during the taxable year for properties used by the taxpayer in a trade or business from which income, taxable under the income tax law, is derived. Generally, such amounts may be claimed on a straight-line basis over the estimated remaining useful life of the properties, unless otherwise approved by the Minister of Finance.
All taxes and duties not imposed by the Bahrain income tax law, including customs duties, may be deducted from taxable income as stipulated in Bahrain's income tax law.
Net operating losses
Unutilised losses may be carried forward and deducted up to an amount equivalent to the net income in future years as defined by the Bahrain income tax law. Carryback of losses is not permitted.
Payments to foreign affiliates
There are no specific restrictions in the income tax law pertaining to payments made to foreign affiliates.
Note: Information placed here in above is only for general perception. This may not reflect the latest status on law and may have changed in recent time. Please seek our professional opinion before applying the provision. Thanks.