Income Tax Return Bahrain
The majority of people who have ever been employed and remunerated with a monthly salary are accustomed to the act of filing an income tax return, and most are willing if not eager to contribute to society and comply with their government’s demand to declare one’s income and net worth. However, the Kingdom of Bahrain is one of about a dozen independent nations around the world that does not impose taxes on the income of either corporations or individuals, with the exclusion of entities operating within the oil and gas industry (where a 46 percent corporate tax rate is applied as defined in Article 2 of the Bahrain Income Tax Law, 1979). Additionally, hotels and other entities operating in the realm of tourism were subjected to a tax rate amounting to five percent of revenue, but this levy was suspended in 2011 in an effort to buffer hotels against losses from a slowing stream of international visitors due to the civil unrest of recent years. Beyond the existing protections for local and regional petroleum companies, Bahrain’s Ministry of Finance does not impose taxes on dividends, capital gains, individual net worth, real estate, or inheritance.
While individuals and commercial entities operating in Bahrain stand to gain from the attractive zero-tax structure, citizens and foreigners working in the kingdom are obligated to make social security contributions amounting to 19 percent of monthly earnings for local employees and four percent for foreign employees, of which employers would be required to provide 12 percent and three percent respectively. These mandatory contributions are deducted from the maximum monthly salary of 4,000 Bahraini Dinars (BD) by the employers and paid to the General Organization for Social Insurance (GOSI), but contributions are voluntary for sole proprietorships to the amount of 15 percent on earnings between BD 200 and BD 1,000. Voluntary and mandatory contributions both serve as pensions or disability and survivor compensation for Bahraini benefactors after a minimum of five consecutive years or more of contributions, but coverage is limited to unemployment insurance for foreign contributors.
While the bulk of Bahrain’s infrastructure upkeep costs and social security are absorbed by oil revenues and employment contributions respectively, municipality taxes were previously imposed (on both citizens and foreigners residing within the kingdom) to the amount of 10 percent of rental fees as protections for utility companies. The Municipal Council of Manama suspended this levy for citizens in 2017 with the objective of reducing living costs for Bahrainis living in the capital city, but excluded foreigners from consideration in these recent changes. The issue of municipality taxes is still a contentious one among foreigners, as many lower-income foreigners feel disadvantaged being the sole demographic with the burden of an additional 10 percent of rental.
Like many other nations that survived to the 21st century, the Kingdom of Bahrain found it necessary to legislate a Value Added Tax (VAT) policy to negate rising infrastructure costs. Bahrain’s VAT is part of a unified policy governing retail purchases of most consumer goods and services in the Gulf Cooperation Council (GCC) region. A VAT rate of five percent will be enforced starting from mid-2018, with some exceptions amounting to complete exemption (finance, petroleum, education, healthcare, real estate, transport, food, and export) with others amounting to significantly higher excise rates, such as tobacco and energy drinks (100 percent) in addition to carbonated beverages (50 percent). As Bahrain’s VAT implementation is just beginning at the time of this writing, it is still unclear how these new retail tax policies will coexist with existing laws governing the imposition of custom duties on imports. However commercial analysts seem to be in agreement and suggest that Bahrain’s customs regulations – and especially the Unified Customs Regulation “Law” of the GCC States, will take precedence with regards to the imports of goods.
Custom duties are levied on imports of goods into the kingdom by Bahrain’s Customs Affairs agency, operating under the control of the Ministry of Interior, with rates generally amounting to five percent of the value in cost, insurance, and freight (CIF). Exceptions are applied in favor of protecting local manufacturers of goods such as paper packaging and aluminum products, competing imports of which are taxed at the rate of 20 percent of value. Prohibitively higher rates for imposed for goods such as alcohol and cigarettes, which are taxed at the respective rates 125 percent and 100 percent of their value.
Stamp duties appear to be unaffected by the impending VAT policies, and will likely continue to be applied on property transfers to the rate of one and a half percent for properties valued up to BD 70,000, two percent exceeding that amount, and three percent on properties that are valued above BD 120,000.