Bahrain Tax Regime

Bahrain has no general corporate income tax, no personal income tax, no capital gains tax and no wealth, inheritance or gift tax. This makes it one of the most tax-neutral jurisdictions in the Gulf Cooperation Council for ordinary trading and holding activity. The narrow exception is a targeted corporate tax on hydrocarbon activity — oil and gas exploration, extraction and refining — taxed at a steep 46% rate regardless of the taxpayer's residence. From financial years beginning on or after 1 January 2025, Bahrain has additionally introduced a Domestic Minimum Top-up Tax (DMTT) implementing the OECD's Pillar Two framework for large in-scope multinational groups, marking Bahrain's first broadly framed corporate tax instrument alongside the long-standing hydrocarbon levy. Indirect taxation (VAT, excise, stamp-style fees) and social-insurance contributions otherwise fund the state, and administration is centralised in the National Bureau for Revenue (NBR).

1.1 Sources

1.2 Recent developments

The most significant recent development is the introduction of Bahrain's Domestic Minimum Top-up Tax Law, effective for financial years starting on or after 1 January 2025, which applies a jurisdictional top-up tax to large multinational enterprise groups (global consolidated revenue of at least EUR 750 million in at least two of the preceding four fiscal years) whose aggregated Bahraini results fall below a 15% effective tax rate. Transitional country-by-country reporting and simplified-computation safe harbours, together with de minimis and initial-phase-of-international-activity exclusions, are available to reduce compliance burden during the transition. VAT, introduced in 2019 at 5% and raised to 10% from January 2022, continues at the standard 10% rate for 2026, with mandatory registration above BHD 37,500 of annual taxable supplies. There remains no indication of an imminent general corporate income tax or personal income tax.

Headline statutory corporate income tax rate for a resident company. Where sub-national (state, provincial, cantonal or municipal) corporate taxes apply, the combined rate reported by the OECD is shown. Projected 2026–2028 rates carry the current rate forward unless a change is already enacted or officially scheduled. As-of 2026.

Top marginal statutory personal income tax rate on employment income for a resident individual. Where sub-national (state, provincial, cantonal or municipal) income taxes are a standard part of the system, the combined top rate is shown. Projected 2026–2028 rates carry the current rate forward unless a change is already enacted or officially scheduled. As-of 2026.

2.1 Rates and residence

Bahrain imposes no general corporate income tax on trading, manufacturing, services, financial or holding company profits, irrespective of whether the company is Bahraini-incorporated or a branch of a foreign company. The sole longstanding exception is the taxation of businesses (local and foreign, regardless of legal form) engaged in the exploration, production or refining of hydrocarbons (oil and gas) in Bahrain, which are taxed at a flat 46% on net profits for each tax accounting period. From financial years beginning on or after 1 January 2025, the Domestic Minimum Top-up Tax described in section 2.10 applies as a separate, narrowly targeted top-up charge on large in-scope multinational groups; it does not convert Bahrain into a general corporate income tax jurisdiction for groups below the EUR 750 million revenue threshold or for purely domestic businesses.

2.2 Dividends and participation

Because there is no general corporate income tax, there is no separate dividends tax, withholding tax on dividends, or participation exemption regime to speak of — dividends paid by a Bahraini company to any shareholder, resident or non-resident, corporate or individual, are not subject to Bahraini tax. This is a structural feature of the absence of income taxation rather than a specific relief, and it applies equally to portfolio and controlling shareholdings, domestic and cross-border. Hydrocarbon-sector companies distributing after-tax profits face no additional shareholder-level tax on the distribution itself.

2.3 Income determination

Income determination rules are relevant only to the hydrocarbon tax base and, from 2025, to the Domestic Minimum Top-up Tax computation. For hydrocarbon activities, taxable profit is computed under the 1979 hydrocarbon tax decree-law based on net profits from exploration, extraction and refining activity carried on in Bahrain, with specific rules on allowable operating and capital expenditure relevant to the sector. For Pillar Two purposes, the DMTT computation follows the OECD GloBE income and covered-taxes framework applied to the aggregated results of Bahraini constituent entities of an in-scope group, which is a materially different exercise from an ordinary corporate income tax base since it operates at the jurisdictional (not single-entity) level and by reference to consolidated financial accounting income adjusted per the GloBE rules.

2.4 Interest limitation

There is no general interest-deductibility limitation rule in Bahrain because there is no general corporate income tax base against which deductions are measured. Interest expense is relevant only within the hydrocarbon tax computation (where ordinary commercial deductibility principles under the 1979 decree-law apply) and within the DMTT computation, which incorporates the OECD GloBE model rules' own treatment of interest and other expenses in arriving at GloBE income for in-scope groups; it does not import a fixed-ratio or EBITDA-based limitation into Bahraini domestic law for other taxpayers.

2.5 Losses

As with interest, loss relief is only a meaningful concept within the hydrocarbon tax regime and the DMTT computation. Hydrocarbon-sector losses are relieved against future hydrocarbon profits under the 1979 decree-law and related executive regulations. The DMTT framework incorporates the GloBE rules' own loss and deferred-tax mechanics (including the GloBE loss election and transitional deferred tax asset rules) for in-scope groups; there is no general corporate loss carryforward regime for the wider Bahraini economy because there is no general corporate tax base to carry losses against.

2.6 Group taxation

There is no formal group relief, fiscal unity or consolidation regime for Bahraini corporate income tax purposes, again reflecting the absence of a general corporate tax. For DMTT purposes, however, the top-up tax is explicitly computed on a jurisdictional (aggregated) basis across all Bahraini constituent entities of an in-scope multinational group, meaning the results of Bahraini group members are effectively pooled for the purpose of measuring the group's Bahraini effective tax rate, even though no such pooling exists for any other Bahraini tax purpose.

2.7 Controlled foreign companies

Bahrain has no controlled foreign company (CFC) attribution regime, consistent with the absence of a worldwide-income corporate tax base to which foreign attributed income could be added. Bahraini-headquartered groups with foreign subsidiaries face no domestic CFC exposure on undistributed foreign profits, though outbound investments may of course be taxed under the CFC rules of counterparty jurisdictions or brought into account for a parent entity's own DMTT or Pillar Two IIR analysis in a jurisdiction that has adopted the income inclusion rule.

2.8 Transfer pricing

Bahrain does not operate a general statutory transfer pricing regime with domestic documentation thresholds for ordinary corporate taxpayers, again because there is no general corporate income tax base to protect. Country-by-country reporting obligations apply, however, to Bahraini-headquartered multinational groups meeting the OECD CbCR threshold (consolidated group revenue of at least BHD/EUR-equivalent 750 million) under Bahrain's participation in the OECD's BEPS minimum standards, and arm's-length pricing principles are applied within the DMTT/GloBE computation for in-scope groups. Hydrocarbon-sector related-party transactions are reviewed under sector-specific rules to protect the hydrocarbon tax base.

2.9 Incentives

Because there is no general corporate income tax, Bahrain's investment incentives operate primarily through customs, licensing, land and free-zone arrangements rather than tax credits or holidays. Free zones and the Bahrain Investors Centre offer streamlined licensing, 100% foreign ownership in most sectors, and duty exemptions on qualifying imports and re-exports. The absence of corporate, personal, capital gains, withholding and wealth taxes is itself Bahrain's principal 'incentive' relative to regional and international competitors, though this calculus now needs to be read alongside the DMTT for large in-scope groups, which caps the benefit of Bahrain's zero-tax environment at the 15% global minimum for those groups specifically.

2.10 Pillar Two — Domestic Minimum Top-up Tax

Bahrain's Domestic Minimum Top-up Tax (DMTT) Law introduces a jurisdictional-level top-up tax targeting large multinational enterprise groups, ensuring a minimum effective tax rate (ETR) of 15% is met on Bahraini activity. Where the aggregated results of a group's Bahraini constituent entities do not reach a 15% ETR (measured under GloBE principles, factoring in the near-total absence of ordinary Bahraini corporate tax for non-hydrocarbon activity), Bahrain imposes additional tax to bring the ETR up to 15%. The DMTT Law applies only to MNE groups with global consolidated revenue of at least EUR 750 million in at least two of the preceding four fiscal years — capturing both Bahrain-headquartered groups and foreign groups with Bahraini operations — and expressly does not apply to purely domestic businesses without operations outside Bahrain. Safe harbours include a transitional country-by-country reporting safe harbour (de minimis test, ETR test, routine-profits test) and a simplified computation safe harbour; exclusions include a de minimis exclusion (average Bahraini revenue below EUR 10 million and average income below EUR 1 million, or a loss) and an initial-phase-of-international-activity exclusion for groups with limited international footprint, available for up to five years. The DMTT Law is effective for financial years starting on or after 1 January 2025.

2.11 Branch income and reorganisations

Branches of foreign companies operating in Bahrain outside the hydrocarbon sector face the same absence of general corporate income tax as locally incorporated companies, and there is no branch profits or remittance tax. Hydrocarbon-sector branches are taxed at the 46% rate on Bahraini-attributable profits under the 1979 decree-law regardless of legal form. There is no statutory domestic reorganisation relief regime comparable to jurisdictions with a general corporate tax, since mergers, demergers and asset transfers between non-hydrocarbon Bahraini entities do not in any event trigger a corporate income tax charge; company-law and commercial-registration requirements (rather than tax rules) govern the mechanics of such transactions.

3.1 Residence and rates

Bahrain levies no personal income tax on salaries, business income, investment income or capital gains for residents or non-residents. There is accordingly no concept of tax residence for income tax purposes, no annual personal tax return, and no progressive rate schedule to describe. This is a structural, long-standing feature of the Bahraini tax system rather than a temporary relief, and applies equally to Bahraini nationals, GCC nationals and foreign expatriates working in Bahrain.

3.2 Capital income and real estate

There is no capital gains tax on the disposal of shares, securities or real estate by individuals, and no tax on dividend or interest income received by individuals. Real estate transactions are instead subject to a registration fee levied by the Survey and Land Registration Bureau on transfer of title (see section 6.2), which functions as a transaction cost rather than an income or capital gains tax. Rental income received by individuals is likewise not subject to income tax, though municipal fees may apply to certain lettings.

3.3 Social security and payroll

Bahrain operates a social insurance system administered by the Social Insurance Organisation (SIO), covering old-age pension, unemployment and employment-injury insurance. For Bahraini nationals, combined employer and employee contributions total approximately 19–20% of salary (split roughly 15% employer / 5% employee for pension, plus unemployment insurance contributions shared 1%/1%), subject to a monthly salary ceiling. For expatriate employees, contributions are lower and generally limited to employment-injury and unemployment insurance, since expatriates are not eligible for the Bahraini pension scheme. These social insurance contributions are the closest Bahrain comes to a payroll-based levy on employment income, and they are not, in substance, an income tax.

3.4 Inbound individuals

There is no wealth tax, inheritance tax or gift tax in Bahrain. Foreign employees relocating to Bahrain face no personal income tax registration or filing obligations of any kind, though work permit and residency (visa) procedures administered by the Labour Market Regulatory Authority apply. Because there is no personal income tax treaty network relevant to individuals (Bahrain's double tax treaties are oriented toward business profits, given the absence of a domestic personal income tax base), inbound individuals typically face no double-taxation exposure on Bahraini-source employment income, though they may remain taxable in their home jurisdiction on a worldwide-income basis depending on that jurisdiction's rules and any available foreign tax credit (which will be limited, since no Bahraini tax is actually paid).

Bahrain levies no withholding tax on dividends, interest or royalties paid to residents or non-residents, consistent with the absence of a general corporate income tax base from which such withholding would typically be carved. This is a materially different position from most jurisdictions in this handbook series and is a deliberate feature of Bahrain's investment climate. Bahrain has nonetheless built a treaty network of more than 40 double tax conventions, which principally serve to allocate taxing rights over business profits, shipping and air transport income, and to provide mutual agreement and information-exchange mechanisms, rather than to reduce withholding rates that do not exist domestically in the first place. Treaty benefits remain relevant for Bahraini investors receiving income from treaty-partner jurisdictions that do levy withholding tax, and for hydrocarbon-sector profits potentially subject to double taxation.

Because Bahrain does not withhold tax on outbound dividend, interest or royalty payments, inbound investors generally structure Bahraini operations without the withholding-tax planning that dominates holding-company analysis in higher-tax jurisdictions. The principal cross-border tax consideration for large groups is instead the DMTT (and, where relevant, a foreign parent's own Pillar Two income inclusion rule), which can claw back some of the benefit of Bahrain's zero-withholding, zero-corporate-tax environment for in-scope multinational groups specifically, while leaving smaller groups and domestic businesses unaffected.

5.1 General anti-abuse and hybrids

Bahrain has no general anti-avoidance rule (GAAR) targeting corporate income tax avoidance, again reflecting the absence of a general corporate income tax base for such a rule to protect. Anti-abuse concepts are, however, embedded in the DMTT Law and its incorporation of the OECD GloBE model rules, which include their own integrity measures (such as restrictions on artificial arrangements designed to reduce a group's Bahraini ETR below 15% or to inappropriately access safe harbours). Hybrid mismatch rules of the kind found in ATAD-influenced jurisdictions have no counterpart in general Bahraini law, though the GloBE rules applied for DMTT purposes carry their own hybrid-arrangement adjustments for in-scope groups.

5.2 Exit taxation and disclosure

There is no exit tax on companies or individuals ceasing Bahraini residence or operations, consistent with the absence of a general corporate or personal income tax base against which an exit charge could be levied. Bahrain participates in the OECD's exchange-of-information standards, including the Common Reporting Standard for financial account information and country-by-country reporting for large multinational groups under the BEPS minimum standards referenced in section 2.8. In-scope groups under the DMTT Law face registration, notification and GloBE-aligned information return obligations to the National Bureau for Revenue, which represents Bahrain's most significant new cross-border tax disclosure regime to date.

6.1 VAT

Value-added tax was introduced in Bahrain in January 2019 and increased from 5% to a standard rate of 10% with effect from 1 January 2022, where it remains for 2026. Certain supplies are zero-rated (basic foodstuffs, healthcare, education, oil and gas exports, international transport, new-build residential real estate on first supply) or exempt (financial services margins, the sale/lease of undeveloped bare land, and specific residential leasing arrangements). Mandatory registration applies to businesses with annual taxable supplies exceeding BHD 37,500, with voluntary registration available above BHD 18,750. VAT returns are generally filed quarterly (monthly for larger taxable persons), with payment due alongside the return, and the National Bureau for Revenue administers registration, filing, refunds and audit.

6.2 Transaction and other taxes

Real estate transfers attract a registration fee levied by the Survey and Land Registration Bureau, generally around 2–3% of the property value (with variations for first-time buyers and specific categories), functioning similarly to a transfer tax though formally structured as a registration fee. Municipal fees apply to certain rented commercial and residential premises. Excise tax applies to tobacco products, energy drinks and carbonated/sweetened drinks at rates ranging up to 100% (tobacco and energy drinks) and 50% (carbonated and sweetened drinks) of the retail or import value. There is no net wealth tax, no stamp duty of general application, and no inheritance or gift tax, consistent with the overall absence of income and capital taxation for individuals described in section 3.

7.1 Filing, assessment and audit

The National Bureau for Revenue (NBR) administers VAT, excise tax and, from 2025, the Domestic Minimum Top-up Tax; the Ministry of Finance and National Economy retains oversight of hydrocarbon-sector taxation under the 1979 decree-law. VAT-registered businesses file periodic returns (generally quarterly, or monthly for larger taxpayers) through the NBR's online portal, with electronic payment. In-scope DMTT groups are expected to register with the NBR and file GloBE-aligned information and top-up tax returns following the OECD's standard filing timelines (broadly within 15 months of fiscal year-end, 18 months for the first year in scope), mirroring the administrative architecture other Pillar Two jurisdictions have adopted. The NBR conducts risk-based VAT audits and has authority to request supporting records, which must generally be retained for five years.

7.2 Rulings, appeals and penalties

The NBR provides private clarification and ruling requests on VAT and excise treatment of specific transactions, and taxpayers may seek reconsideration of NBR decisions internally before escalating to Bahrain's civil courts, which retain jurisdiction over tax disputes in the absence of a dedicated tax tribunal. VAT penalties include fixed and percentage-based fines for late registration, late filing, late payment and incorrect returns, with more severe penalties (including potential criminal sanctions) for deliberate evasion. The DMTT Law is expected to carry its own penalty regime for late registration, late filing and underpayment, calibrated to the scale of large in-scope multinational groups, though as a newly effective regime (financial years from 1 January 2025) detailed enforcement practice is still developing through 2026.

Because Bahrain has no corporate income tax return, no personal income tax return and no CIT advance payment system for the vast majority of businesses, its compliance calendar is unusually light by regional and international standards — dominated by VAT and, for hydrocarbon-sector and now DMTT-in-scope taxpayers, sector- or regime-specific filings. Businesses should nonetheless track the evolving NBR guidance on DMTT registration and filing deadlines closely during 2026, as detailed administrative timelines are still being finalised following the law's 1 January 2025 effective date.

9.1 Entity choice

The With Limited Liability Company (W.L.L.) is Bahrain's standard vehicle for foreign and domestic investment, permitting up to 100% foreign ownership in most sectors following liberalisation of the Commercial Companies Law, with a nominal minimum capital requirement for most activities. The Bahrain Shareholding Company (B.S.C., closed or public) suits larger or capital-market-oriented ventures. Branches of foreign companies are permitted for many activities and, outside the hydrocarbon sector, face the same absence of corporate income tax as a locally incorporated entity. Given the absence of general corporate tax, entity choice in Bahrain is driven primarily by licensing, foreign-ownership, sector-specific regulatory requirements (notably in financial services, which the Central Bank of Bahrain regulates closely) and commercial considerations rather than by tax-rate arbitrage.

9.2 Structuring and incentives

Because there is no corporate income tax, no withholding tax and no capital gains tax for non-hydrocarbon activity, conventional international tax structuring techniques (participation exemptions, interest-stripping limits, treaty shopping for reduced withholding) are largely irrelevant to Bahraini operating and holding structures below the Pillar Two threshold. For groups within DMTT scope, however, structuring attention shifts to GloBE income and covered-tax computations, safe-harbour eligibility (transitional CbCR safe harbour, simplified computation safe harbour, de minimis and initial-phase-of-international-activity exclusions), and coordination with any income inclusion rule applied by a foreign parent jurisdiction, to avoid double counting or unrelieved top-up tax. Financial-sector entities should also factor in Central Bank of Bahrain capital and licensing requirements, which operate independently of the tax regime.

9.3 Worked effective-rate illustration

Illustration A — ordinary (non-hydrocarbon, below Pillar Two threshold) company: a Bahraini W.L.L. earns EBITDA of BHD 2,000,000, with depreciation of BHD 200,000 and interest expense of BHD 100,000, leaving accounting profit of 2,000,000 minus 200,000 minus 100,000 = BHD 1,700,000. Because there is no general corporate income tax, no dividends tax and no withholding tax on distribution, the full BHD 1,700,000 can be distributed to shareholders tax-free, giving an effective tax rate of 0%. Illustration B — hydrocarbon-sector company: an oil and gas company earns net taxable profit (per the 1979 decree-law) of BHD 10,000,000; tax at 46% is BHD 4,600,000, an effective rate of 46.0%, with the after-tax BHD 5,400,000 distributable tax-free at shareholder level. Illustration C — large in-scope MNE group member subject to DMTT: if a Bahraini constituent entity's GloBE income results in a jurisdictional ETR of only 4% before top-up (since no ordinary corporate tax is paid), the DMTT tops that up by 11 percentage points to reach the 15% minimum — on GloBE income of BHD 10,000,000, that is a top-up tax of 11% × 10,000,000 = BHD 1,100,000, bringing the group's Bahraini effective tax rate for that entity from 4% to the required 15%.

9.4 Compliance

Expect VAT registration and periodic (quarterly or monthly) filing for most operating businesses above the BHD 37,500 threshold, excise tax compliance for in-scope products, commercial registration renewal with the Ministry of Industry and Commerce, and — for hydrocarbon-sector businesses — sector-specific tax filings under the 1979 decree-law. Large multinational groups should establish Pillar Two / DMTT readiness: mapping Bahraini constituent entities, assessing safe-harbour eligibility, and preparing for NBR registration, notification and GloBE-aligned information return obligations on the 15/18-month cycle. There is no corporate or personal income tax return of any kind for the great majority of Bahraini businesses and individuals.