Bahrain is a small island country located in the Persian Gulf region. In this article, we will discuss how the taxation system works in Bahrain, whether the country offers any double taxation agreements, the main taxes expats need to be aware of, any special tax breaks that could apply to expats, how and when to file a tax return as an expat, and the tax exit procedures for anyone leaving Bahrain to move abroad.
How the taxation system works in Bahrain
Bahrain operates a territorial taxation system, which means that only income generated within Bahrain is subject to taxation. The income tax system in Bahrain is based on a self-assessment model, where taxpayers are required to calculate and report their income tax liability to the National Bureau for Revenue (NBR).
Individuals are subject to income tax if they are considered to be tax resident in Bahrain, which is determined by their physical presence in the country. Companies are subject to corporate tax on their profits generated in Bahrain.
Double taxation agreements
Bahrain has signed double taxation agreements with several countries, including the United States, the United Kingdom, Canada, and many others. These agreements aim to prevent taxpayers from being taxed twice on the same income. Under these agreements, taxpayers may be able to claim a credit for the tax paid in one country against the tax liability in the other.
Main taxes expats need to be aware of in Bahrain
As an expat in Bahrain, there are several taxes that you need to be aware of. The main taxes include income tax, corporate tax, and value-added tax (VAT).
Individuals who are considered tax resident in Bahrain are subject to income tax on their worldwide income. The tax rates vary depending on the level of income, with the highest tax rate being 28%. Expats who are non-resident in Bahrain are only subject to income tax on their income generated in Bahrain.
Companies that operate in Bahrain are subject to corporate tax on their profits generated in the country. The standard corporate tax rate is 20%, although certain industries may be eligible for a reduced rate.
Value-added tax (VAT)
Bahrain introduced VAT in 2019, with a standard rate of 5%. VAT is applied to most goods and services in Bahrain, including imports.
Special tax breaks for expats
Bahrain offers several tax breaks for expats, including tax exemptions for certain types of income. For example, income from employment in Bahrain’s financial sector is exempt from income tax for a period of 10 years. Additionally, expats who invest in certain industries may be eligible for tax incentives.
Filing a tax return in Bahrain as an expat
As an expat in Bahrain, you may be required to file a tax return with the National Bureau for Revenue (NBR). The tax year in Bahrain runs from January 1st to December 31st, and tax returns must be filed by the end of April of the following year.
To file your tax return in Bahrain, you will need to obtain a tax identification number (TIN) from the NBR. You will also need to gather all the necessary documentation, including income statements and receipts for any deductions. The tax return can be filed online through the NBR’s portal, or it can be filed in person at one of their offices.
Tax exit procedures for leaving Bahrain
If you are an expat leaving Bahrain to move abroad, you will need to follow certain tax exit procedures. The first step is to inform the NBR that you are leaving the country and that you are no longer a tax resident. You will need to provide a deregistration form to the NBR, which should include your personal details, the date of departure, and your new country of residence.
Once you have informed the NBR of your departure, you will need to settle any outstanding tax liabilities. This includes paying any taxes owed, submitting any required tax returns, and obtaining any necessary clearance certificates. If you have any assets in Bahrain, such as property, you may also need to pay any applicable taxes, such as stamp duty or property tax, before you can transfer ownership.
Bahrain’s taxation system is based on a territorial taxation system, where only income generated within the country is subject to taxation. Expats in Bahrain are subject to income tax, corporate tax, and value-added tax (VAT). Bahrain offers several tax breaks for expats, including tax exemptions for certain types of income and tax incentives for certain industries. If you are an expat in Bahrain, you may be required to file a tax return with the National Bureau for Revenue (NBR). If you are leaving Bahrain to move abroad, you will need to follow certain tax exit procedures, including informing the NBR and settling any outstanding tax liabilities.