Bahrain likely to hold off on corporate tax

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• Bahrain needs competitive edge
• ‘Golden’ residency plan a priority
• Multinationals targeted with 15%

Bahrain is unlikely to introduce corporate tax for as long as possible in order to maintain its competitive edge on Gulf rivals, a company formation expert has told AGBI, citing discussions with the kingdom’s minister of finance.

However, with the highest debt-to-GDP ratio in the GCC, some experts believe the island state may eventually be forced to introduce some form of corporate taxation in order to top up its balance sheet.

“Everyone understands that Bahrain cannot afford having corporate tax at the moment,” Nabil Khoury, managing partner at Sovereign Trust Consultancy in Bahrain, said.

“I have asked the minister of finance if Bahrain will be forced to [implement] a corporate tax. He said, no. [He did not] guarantee that there will not be any corporate tax in the future, but it’s not going to happen anytime soon.”

Khoury emphasised that Bahrain’s unique economic situation and small size – with a population of fewer than 2 million – make it an exception in the region even as it commits to the Organisation for Economic Co-operation and Development’s global minimum tax rules.

The country’s strategy is to remain competitive in the Gulf’s growing ‘golden’ residency and investment race, despite neighbouring states such as Saudi Arabia and the UAE moving forward with corporate tax frameworks.

“Bahrain is trying to be attractive by many different methods, and [one] of them is zero corporate tax,” Khoury said.

“Qatar has the oil and gas advantage, and the UAE has attracted businesses and talent for a long time. The whole world understands that Bahrain is a very small island and we can treat it as an exception in the region.”

Bahrain recently introduced a 15 percent tax targeting large multinational companies with revenues exceeding €750 million ($830 million), set to take effect in January. 

However, Khoury referred to this as “a different story” for large corporations and stressed that Bahrain’s zero-tax regime for smaller businesses remains “one of its best advantages”.

He added that some business owners in the UAE are already inquiring about moving to Bahrain to avoid the Emirates’ 9 percent corporate tax, which came into effect in June last year.

While Bahrain’s government has made no official announcements about a broad-based corporate tax, other experts believe a standard corporate income tax is inevitable.

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“With the geopolitical noise echoing around taxation, we would not be surprised if Bahrain is seeking to release and implement a more general federal corporate tax on businesses within 2025,” said Vishal Sharma, managing director of Alvarez & Marsal Tax in Dubai.

“This would be a logical next step following the recent release of Bahrain’s global minimum tax legislation levied on large multinationals operating in Bahrain.”

Nils Vanhassel, a senior associate at DLA Piper’s Middle East tax team, pointed out that several members of Bahrain’s parliament proposed a bill to introduce corporate tax in June 2024 but this was not approved.

“This indicates that the concept is under consideration,” he said. “In my view, the introduction of corporate income tax remains likely in the near future.

“This move would make sense from a fiscal policy standpoint as it would boost non-oil revenues.”