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Bahrain - Taxation

The issue of taxation in Bahrain is relatively straightforward. The taxes that are paid are minimal and there is no income tax system as there is in other countries such as the US or the UK. However, in the last few years a small tax has been imposed on all workers, but this is considered to be a ‘social insurance tax’ rather than an income tax.

This tax applies to all workers and amounts to 1% of the total salary earned. This has been implemented in order to fund a scheme for the unemployed. Some groups are exempt from this tax including military personnel and elected officials. The money is to be used to pay an unemployment benefit for those who have a university degree as well as provide training schemes for those eligible. This scheme is also available to expats who have made contributions for a minimum of 12 months. This is in addition to the 5% contribution that all Bahraini workers pay as a social security contribution. There is no need to complete an income tax return to make this payment as it is automatically deducted from the salary.

There are several other forms of income which are not subject to an income tax in Bahrain. Those who own and rent out property do not have to make contributions from the money they receive. Capital gains from sale of property or assets are not taxed and there is no system of filing a tax return. Property and wealth obtained by inheritance are also untaxed and there is no wealth tax payable either. The fiscal year in Bahrain is the same as the calendar year although this is not a concern for individuals as there are no tax returns to be completed.

Municipal tax is one that must be paid by all those in rented property and expats will have to pay a 10% fee (based on the value of the property) to the local authorities. There is no equivalent of Value Added Tax except on the sale of fuel, and a charge of 12% is made. However, some goods in the shops may be higher in price than expected due to the import duty that is paid on them.

Expats who have chosen to work in Bahrain may be doing so in order to earn money to send home to their families. It should be noted that in some cases this money may be subject to taxation in their own country and the regulations on transferring funds home should be checked before you begin work in Bahrain. These will vary depending upon the country of origin and should be taken into consideration when deciding how much to transfer home and how best to do so.

There are a number of tax treaties in place with other countries which have been set up so that information can be easily exchanged between countries and for Bahraini citizens can take advantage of the benefits of the treaties. It is a good idea to check with your own tax office before you move to Bahrain in order to find out if your own country has entered into one of these treaties and find out exactly what it means for you. Details can also be obtained from the Ministry of Finance website of the Bahraini government.

Bahrain is able to offer this tax-free system thanks to the relatively small size of the country and the large gas and oil industries that are established there. The funds that the businesses pay in taxes more than cover the requirements of the government and these funds are added to by the charges levied on importation of goods into the country.

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