A group of lawmakers in Bahrain have proposed a new corporate income tax aimed at promoting sustainable economic growth and collaboration between the public and private sectors. The proposed legislation seeks to achieve balanced development, contribute to the prosperity of citizens, and diversify the nation’s revenue sources beyond natural resources. The new bill aims to exempt lower-income individuals from taxation while imposing taxes on financial institutions and commercial companies engaged in specific economic activities.
During a parliamentary session in May 2023, the Bahraini government discussed plans to introduce a corporate income tax that aligns with the OECD’s BEPS project. This global initiative aims to prevent profit shifting by multinational enterprises to low-tax jurisdictions and promote fairer tax practices. By implementing a CIT, Bahrain would ensure that MNEs pay a minimum tax rate of 15% on their global income within the country, contributing to global tax fairness.
Experts suggest that Bahrain can look to neighboring nations and well-established tax systems for guidance in creating a straightforward, business-friendly, and easily managed tax regime. The Kingdom has the capability to develop and implement a strong CIT system that aligns with global best practices while remaining attractive to businesses. For CIT purposes, taxable income will be determined by adjusting a company’s net profit with eligible deductions or allowances, covering business expenditures such as rent, utilities, salaries, interest, depreciation, and bad debts.
The proposed CIT system in Bahrain will adopt a dual-tiered framework, with income up to BD37,500 subject to a zero rate and a standard rate of 5% to 10% applied to earnings exceeding this threshold. This dual-tiered approach is advantageous for small businesses and startups, allowing them to expand without immediate CIT imposition until their income surpasses the threshold. The deductions and allowances in the CIT system are intended to enable taxpayers to subtract legitimate expenses incurred in generating their net income, ensuring that taxes are levied only on actual profits and preventing unfair tax practices.
In summary, Bahrain’s proposed corporate income tax aims to promote sustainable economic growth, diversify revenue sources, and foster collaboration between the public and private sectors. By aligning with global initiatives such as the OECD’s BEPS project, Bahrain seeks to prevent profit shifting by multinational enterprises and promote fairer tax practices globally. The Kingdom has the potential to develop a strong CIT system that aligns with global best practices and remains attractive to businesses, with a dual-tiered framework and allowances for legitimate business expenses. This approach promotes equitable and transparent tax practices, benefiting both businesses and the economy in Bahrain.
