Wednesday, 16 December 2015

What are the Tax Laws for Bahrain Residents?

Did you know that according to the Bahrain Tax Law i.e. the Amiri Decree 22/1979, there is no corporate tax for most companies in Bahrain but an income tax of 46 per cent is levied only on the profits of oil companies? Any institution that engages in oil, gas or petroleum activities is taxable by the state, irrespective of whether or not it is incorporated in the Kingdom of Bahrain says the Deloitte International Tax report on Bahrain in 2015. The liberal tax free environment is sustained by the profits made by the oil and petroleum industry which more than compensates for the government's fiscal needs. This coupled with the fact that Bahrain has one of the lowest cost of living in the MENA region makes it an attractive destination to live and work in. According to the InterNations Expat Insider Survey of 2015, Bahrain is the top choice in the Middle East, and the seventeenth best place in world to live and work in.

Bahrain Tax Levied on Expatriates

Social Insurance Tax: Bahraini citizens who are employed are required to pay a contribution of 7% towards social security which covers old age, disability, death and unemployment benefits. This contribution is reduced to 1% for expatriates covering unemployment benefits only. Some exceptions to this tax are applied for military personnel and elected officials. On the other hand, the employer's contribution to social insurance is 12% and for expatriate employees, it is 3% which covers employment injuries. Rather than a tax, this is more of an insurance scheme that protects employees from unforeseen circumstances.

Municipal Tax: A 10% municipality tax is levied on expatriates who inhabit commercial or residential properties in the kingdom. While rents in the country increased by 2.2 per cent in 2014, it is at par with other markets like the UAE. However, according to Clutton's report government policies are likely to contribute to flatter rental levels in 2016.

Consumer Products: There are no Value Added Taxes (VAT) on purchase of consumer products, but there is a charge of 12% on the sale of fuel. Imported goods can be expected to be overpriced as there are heavy duties charged on these products.

Tax Treatise: If an expatriate is looking to send money home through a fund transfer mode, these funds may be subject to taxation in their home country. However, Bahrain Tax treaties with various countries of the world exempts the nationals of those countries from double taxation. The Economic agreement between GCC countries allows many benefits to the workers of these countries who are residents of Bahrain.