Last updated on 3 de April de 2023
Bahrain is a prosperous country and an excellent destination for expats in the Middle East. We will guide you through the most important taxes in Bahrain.
Content
- Introduction
- Taxes on Earned Income
- Capital Income Taxes
- Corporate Tax
- VAT
- Real Estate Taxes
- Inheritance and Gift Tax
- Conclusion
Introduction
Bahrain is a small country located on the Persian Gulf. It has huge reserves of both oil and natural gas. Those have allowed the Bahrain to develop economically and offers its citizens and residents a very attractive tax regime.
Of a population of about 1.5 million people, more than half are foreigners who have relocated in order to work there.
This is because the government is able to finance most of its budget with revenues from the sale of fossil fuels. As a result, it barely needs to tax its population and corporations.
When it comes to the currency, the country uses the Bahraini Dinar (BHD), whose value is pegged to the United States Dollar (USD), at a fixed rate of 1 BHD = 2.65 USD. This makes the Bahraini Dinar the second currency with the highest nominal value in the world.
Taxes on Earned Income
Let us start our analysis of taxes in Bahrain by looking at how income from work is taxed.
Social Security (SIO)
Bahrain has a social security system similar to those that can be found in most Western countries. The system is called SIO, or Social Insurance Organization.
The amount to be paid to the SIO depends on whether a worker is a national citizen of Bahrain or a foreign resident in the country.
Payments for foreign workers are very low. The workers must pay 1% of their gross salary in social security contributions. Meanwhile, its employer must pay the equivalent of 3% of the employee’s salary to the SIO. Consequently, the aggregate percentage of social security payments for expats in Bahrain is 4%.
Bahraini nationals working in the country must contribute 7% of their gross salary to the SIO. For their part, employers must contribute 12%, bringing the total burden to 19% of the worker’s gross salary.
Income Tax
Income tax does not exist in Bahrain. This applies to both domestic and foreign workers.
As a result, the net salary will be what remains left after the employee has paid in SIO contributions, either 1% for expats or 7% for nationals.
Capital Income Taxes
For those tax residents in Bahrain, there are also no taxes on income they get from their savings and investments. This is valid regardless of the type of capital income received: interest, dividends or rental payments.
Additionally, capital gains are never taxes either.
It should be noted that Bahrain has no wealth tax.
Corporate Tax
Most companies operating in Bahrain also receive a very favorable tax treatment. In fact, it has one of the best corporate tax regimes in the entire region.
The general corporate tax rate in Bahrain is 0%.
The only companies that do have to pay corporate tax in Bahrain are those that are engaged in economic activities related to the extraction and export of hydrocarbons, such as oil and natural gas. In this case, the applicable rate will be 46%.
In fact, corporate tax revenues related to fossil fuels are one of the main sources of funding for the Bahraini government.
VAT
The consumption of most goods and services in Bahrain is subject to VAT.
The general VAT rate in Bahrain is 10%. This percentage is valid from January 1, 2022.
Previously, the VAT rate was 5%, a percentage that was introduced in early 2019. Prior to that, Bahrain was one of the few countries in the world that did not tax consumption.
The introduction of a VAT in Bahrain has been similar to those of Saudi Arabia and the United Arab Emirates in recent years.
Real Estate Taxes
The purchase of real estate in Bahrain is subject to the payment of real estate transfer taxes. Upon acquiring a property, the buyer must pay 2% of the transaction value to the tax authorities.
However, it should be added that, if the payment of this tax takes place in the two months following the completion of the purchase, the applicable rate will be somewhat lower, at 1.7%.
As owners of real estate in Bahrain, we must pay municipal taxes every year. Those will be equivalent to 10% of the estimate rental value of the property.
Inheritance and Gift Tax
Inheritance and gift taxes do not exist in Bahrain. Consequently, a tax resident in the country is free to transfer their assets to anyone without triggering any tax event for either party in the transaction.
Conclusion
As we have seen, Bahrain is one of the best tax jurisdictions for expats on the planet. And companies operating there also tend to offer very high remuneration packages.
While it may not be the number one choice from a lifestyle perspective, it offers a very high standard of life and is one of the safest countries we can find.
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