Expat taxes in Bahrain 2021

Expat taxes in Bahrain 2021 – that will be the topic of today’s article.

Nothing written here should be considered formal tax, financial, legal or any other kind of advice advice, and is for entertainment purposes only.

The facts might have also changed since this article was written, such as the implementation of new taxes in a post-Covid world, but we have done our best to ensure its accuracy. 

For any questions, or if you are looking to invest as an expat, you can contact me using  this form, or use the WhatsApp function below.

I specialise in expat investment and financial planning. The best time to review your situation is often when you are moving to a new country.

Introduction

Modern Bahrain was known as the “Garden of Eden” during the ancient civilizations of the East. Many are even inclined to think that it was here that the biblical Garden of Eden was located. 

Modern Bahrain is deserted, but its main advantages include bright sun (almost 360 days a year), warm sea and colorful Arabian architecture. 

Almost the entire coast of the archipelago is one giant beach, intensively built up by resort complexes. The development of tourism in the country is included in the category of state programs, and therefore it is proceeding extremely quickly.

The capital of the country – Manama – is located in the northeastern part of the island of Bahrain. It is a rather small but very picturesque city, famous for its mosques, historic sites, markets and ultra-modern architecture. 

According to scientists, the first human settlements at this place date back to the fourth millennium BC. However, the rapid development of Manama began only with the beginning of the “oil boom” in the middle of the 20th century.

Bahraini people speak the Bahraini dialect of the Arabic language. Distinguish between Old Bahraini – the language of the indigenous people and New Bahraini – the language of immigrants.

In this article we will talk about tax system in Bahrain, what are the taxes for expats, and how can you register a company in Bahrain as an expat. 

Best Tax Harbor in the World – Bahrain

The Best Tax Haven in the World – Bahrain The Kingdom of Bahrain, along with other countries around the world that do not have significant oil reserves, were forced to start developing alternative industries, among which the most attractive is the sector of providing financial services.

During the heyday of the Persian Empire, Bahrain became an important trading center, especially in the pearl industry – occupying a strategic position halfway across the Persian Gulf.

In 1913, Bahrain became a British protectorate under an agreement between the Turks and the British. With the support of Great Britain, Al-Khalifa became the ruler of Bahrain.

Bahrain’s development as a financial center began in 1961. It was already known then that the country’s oil reserves were not as large as those of its neighbor were. Therefore, Sheikh Isa Bin-Salman Al Khalifa pioneered the diversification of the local economy through the creation of a strong financial services industry.

In 1971, Bahrain received official independence from Great Britain, and became the embodiment of the West in the Middle East.

Bahrain Companies

Bahrain has 0% corporate tax, except for companies that operate in the oil industry. Also, there are no other taxes for companies.

Setting up a company in Bahrain is a very expensive undertaking and takes about 2-3 weeks, but it is an excellent alternative to the United Arab Emirates (UAE).

There are several types of companies available in Bahrain, the most attractive are:

• WLL — With Limited Liability: similar to SàRL or GmbH;
• BSC — Bahrain Shareholding Company: Similar to Private Limited;
• SPC — Single Person Company: limited liability companies with sole ownership.

These three types of companies allow 100% foreign ownership, including corporate shareholding. The office of the company should be managed from Bahrain, but as a rule, the office of a reputable lawyer or accounting company will suffice.

No local sponsorship needed. Sale within Bahrain is permitted and the register with the names and citizenship of shareholders and directors is open.

Bahrain Banking Sector

Best Tax Harbor in the World – Bahrain Bahrain’s modern banking sector began its existence almost immediately after the country’s independence in 1973, and immediately began to offer services to offshore companies in Bahrain.

The Lebanese civil war triggered an inflow of capital from Beirut to Bahrain, which is still in Bahrain. After the Arab Spring protests in 2011, when Bahrain in turn suppressed the protests very sharply, Bahrain retained the status of a more stable state than the UAE.

Today, there are over 100 licensed banks in Bahrain (including branches of international foreign banks). So in Bahrain, there are both local and international banks.

Banking and customer service are of a high standard, but there is a big difference between small and large banks. Local banks often have close ties to Dubai and Kuwait.

Personal banking in Bahrain is a very rare product for non-residents, unless of course you can persuade a bank to open a savings or savings account for you. If you are a non-resident or do not have strong arguments for opening an account for a non-resident, it will be very difficult to open an account in Bahrain.

Private banking in Bahrain differs from the provision of this service in some banks in Europe. The fact is that often the clients of private banking are clients from the oil industry, and from countries such as India and Pakistan. This allows you to get great investment opportunities and a wider range of services for trading companies in order to develop their business.

Corporate banking is a direction that is developed in many banks in Bahrain, both for local and non-residents. Non-residents, but regional companies from the UAE (Dubai and RAC) can also quite easily get a corporate banking service in Bahrain.

As for non-regional foreign companies, it will be very difficult for them to open an account in Bahrain. This is certainly possible, but it will take a lot of time and effort.

In terms of transparency and banking secrecy, Bahrain lost it after agreeing to implement an OECD recommendation. To date, the kingdom has signed 43 agreements and the state is able to exchange banking information.

Life in Bahrain

Best Tax Haven in the World – Bahrain Just as there is no corporate tax in Bahrain, there is no tax on private income in the country. The only tax levied on individuals is social tax (1% for foreigners) or nominal stamp duty on real estate transactions. Bahrain is one of the lowest tax jurisdictions in the world.

Bahrain has worked hard to become an attractive tourist destination. Bahrain welcomes guests of different nationalities and from all corners of the planet. Many tourists can get a visa directly at Bahrain Airport.

Another issue is obtaining a permanent residence permit. Special conditions exist for citizens of the GCC (Gulf Cooperation Union) – these are citizens of countries such as Kuwait, Saudi Arabia, Qatar, UAE, and Oman. For the rest, it will take about 10 years or more to obtain permanent residence in Bahrain.

There are several different programs that are available under different conditions. Basically, these are real estate investment programs, several years of employment in Bahrain, or the establishment of a local company. Almost all non-GCC non-residents reside in the country on the basis of a work permit.

Bahrain today can be safely called a very conservative Muslim country. It is not as conservative as neighboring Saudi Arabia, but not as liberal as the UAE. While integration in Dubai and other UAE countries is a very simple process for many foreigners, Bahrain will take a lot of getting used to.

Many people speak English, as it is closely related to the history of the country. Therefore, it is quite possible to live in Bahrain without Arabic, but Arabic is still needed for full integration into society.

The temperature in Bahrain in summer can reach + 50 ° C, which may not always be comfortable, especially for representatives of more northern peoples.

As far as human rights are concerned, they are quite poor. Those who criticize the government are jailed and anti-government pressures are suppressed.

If you look at Bahrain as a whole, it is not a very popular offshore center where you can get high quality service by owning an offshore company in Bahrain, UAE or a Lebanese company.

Despite the attractiveness of Bahrain’s financial center for the registration of offshore companies, the number of registered companies is significantly less than in the UAE. And weak maintenance of human rights can scare off a significant proportion of Western investors and entrepreneurs, compared to Dubai, where human rights are valued and respected.

However, it is worth noting that everything is changing very quickly, and shortcomings can become the privileges of an offshore jurisdiction overnight. That is why it is very important to always keep abreast of the latest offshore developments and strive for maximum diversification.

No taxes in Bahrain?

Bahrain has no taxes on income, sales, capital gains or property, except in some cases for businesses (local and foreign) that operate in the oil and gas sector or profit from the extraction or processing of minerals. fuel (defined as hydrocarbons) in Bahrain. 

For such companies, a tax rate of 46% is levied on the net profit for each reporting tax period, regardless of the taxpayer’s place of residence.

Bahrain does not have a Personal Income Tax (PIT) regime. However, individuals employed by an individual or entity or business in the Kingdom of Bahrain are required to pay contributions in accordance with the rules of the Social Security Organization (SIO) in Bahrain (see Social Security Contributions under Other Taxes).

Capital gains and income of residents or non-residents not paid in Bahrain are not subject to taxation or social insurance rules in Bahrain.

Whether you are looking to start or relocate your business overseas, Bahrain has created a more profitable business environment for your business to flourish. Between a forward-looking government and an agile business environment, there are many advantages to starting your company here in Bahrain, such as:

• 0% corporate tax rate
• No personal income tax
• No taxes on wealth or capital gains
• Some of the lowest operating costs in the Gulf countries
• Flexible foreign ownership laws

Keep reading to learn more about how you can register your own company in Bahrain and understand why this place on earth might be the best destination for your next venture.

Your own company in “tax heaven” – Bahrain

Surely, you have heard more than once about the possibility of registering a company in the OAU, the advantages and prestige of this jurisdiction, but no one has ever offered you Bahrain! 

Few people know that a company in the Kingdom of Bahrain offers many tax and corporate benefits that are in no way inferior to those of other offshore countries. 

Oil and natural gas play a dominant role in Bahrain’s economy, but the government’s government steadily finances the profits earned for the development of other sectors of the economy.

Benefits of a company in Bahrain

The state’s GDP is in the region of 75 billion and has been showing stable growth over the past 10 years. GDP per capita is 49,000 USD, one of the highest in the world. Bahrain, according to the ranking of doing business, has carried out a record number of effective economic reforms and, as of today, ranks 43rd in the world in terms of ease of doing business. 

Bahrain has more than 30 double taxation treaties with key countries, which further strengthens the position of the state and, in addition, Bahrain has a number of signed and valid bilateral investment treaties and free trade agreements. 

Bahrain has no foreign exchange controls on the repatriation of capital, profits and dividends, which ensures the full financial transfer of capital, profits and dividends without tax losses. Bahrain currently does not levy taxes on personal or corporate income.

It is important to note that Bahrain is a fairly liberal state in terms of foreign ownership requirements, because it allows 100% foreign ownership of companies.

Activities for which 100% foreign ownership is permitted

Holding company – companies incorporated for the purpose of holding shares in other companies in Bahrain or outside of it. They do not engage in commercial activities and do not provide goods or services. The types of assets a holding company owns can be shares in other corporations, as well as private equity funds, hedge funds, bonds, real estate, patents, trademarks, and other valuable assets.

Trading Company – Companies registered for the purpose of buying and selling goods outside Bahrain and without bringing such goods into Bahrain.

Management and Consulting – Companies established to provide advice, guidance and operational assistance to enterprises and other organizations in the management of companies.

Management company – companies created for the purpose of monitoring and managing other divisions of a company or enterprise and exercising operational control and operational management of the relevant divisions, which may be located both in and outside Bahrain.

Trading for own funds – companies registered for the purpose of trading stocks, bonds, currencies, commodities or other financial instruments at their own expense.

A package of documents required for registration of a company

To register an enterprise where a shareholder is an individual, a copy of the passport and a document confirming the address are enough. In the case where the shareholder is a legal entity, a copy of the passport of all major co-owners of the business will be required. Copies of corporate documents must be duly certified.

As already mentioned above, the main forms of doing business available to a foreigner:

• Limited Liability Company (WLL).
• Joint Stock Company (BSC).
• Personal company (SPC).

The minimum capital requirements for registering a company have been reduced, which makes such companies more profitable and attractive to register a company in this jurisdiction. 

Specifically, the minimum capital requirement for holding companies has been lowered from BHD 250,000 (USD 658,000) to BHD 50 (USD 130), and the minimum capital requirement for a new business has been reduced from BHD 20,000 (USD 50,000 ) up to 50 BHD ($ 130).

The most popular form of company registration is WLL. The main requirements that must be taken into account for its registration:

• There are no requirements for the composition of directors.
• To not be taxed on income, activities must be carried out outside the country (except for licensed activities).
• The name must contain the words: Company with limited liability.
• The term of registration of the company is 20 – 25 working days.
• Registration of a company entitles both shareholders and directors to obtain an investor resident visa. But this right is not mandatory, as in the UAE.

Opening a company in Bahrain is a detailed regulated procedure, consisting of successive stages:

1. First of all, it is necessary to determine the scope of the company, choose the name of the company: it should not repeat the existing ones.
2. Next comes the formation of the company’s structure and statutory fund, the development of a memorandum of association and charter.
3. Opening a current account of the company. As required by law, a bank account must be opened before the registration of the company and the share capital must also be deposited before the very registration of the company, which is similar to Switzerland. Thus, with minimal financial losses, you understand that if the account is not opened for some reason, then you will not register the company either. This is a strong advantage over other countries.
4. Submission of the entire package of documents for registration.

The only tax you have to pay is the VAT tax. As in the Emirates, Bahrain has a 5% VAT if you were doing business domestically. That is, your company will have an obligation to submit VAT reports, even if the value added tax itself does not arise. Also the company must pass an audit once a year.

To sum up 

Bahrain attracts expats from all over the world, in large part because of its generous tax laws. People who work in Bahrain, including expats, are free from income tax, which is amazing and makes the quality of life in the country very good and residents/non-residents can easily save money and enjoy life in Bahrain. 

Bahrain offers really good conditions for both working and opening business there, no taxes is something very rare nowadays.

However, there are still some forms of taxation that expatriates should be aware of, such as VAT. 

Bahrain has very few taxes to be aware of. There is no sales tax or value added tax, except for fuels, which are taxed at a rate of 12%. However, a value added tax is planned to be introduced at the end of 2018, so this may change.

Although there is no sales tax, some products may be more expensive than in your country due to import taxes paid by the business.

Bahrain has no inheritance tax or property tax, and there is no capital gains tax on the sale of property.

If you own or operate a business in Bahrain, corporate income is not taxed, with the exception of the oil and gas industry, which is taxed at a rate of 46%. Discussions are underway to introduce a corporate income tax in Bahrain that will apply to all businesses, but this has yet to be confirmed.

In conclusion, we can say that Bahrain is indeed an alternative not just to offshore companies, but also to the Emirates, the cost of registration and full maintenance of which has grown dramatically lately. 

For more information about the jurisdiction, you can contact the specialists, who will easily determine how this jurisdiction is suitable for your future business. Registration of a company is a seemingly simple process, but without knowledge of the legislation of an Arab country, it is difficult to take into account all the points. 

This is why you will need a professional with you, to be aware of all the details and not face a problem that will interfere your further business success.

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