Adding up: Tax and incentive regime makes for an investment-friendly environment

Bahrain has the lowest corporate and personal taxes of all the GCC states. There is no personal income tax; no tax on capital gains; no withholding tax; no restriction on repatriation of capital, profits or dividends; and very few indirect taxes. There is also no value-added tax, property tax, inheritance tax or production tax. There were recommendations during the National Dialogue in 2011 for the government to consider levying indirect and corporate taxes; however, there have been no such announcements made to date.

CORPORATE INCOME TAX: The only corporate income tax is a 46% tax on the profits of companies in the oil sector engaged in exploration, production or refining. The tax is levied on net profits generated in the country, which is calculated by subtracting business expenses from business income. An estimated tax declaration must be filed by March 15th and the tax is then paid in 12 monthly instalments. Trading losses can be carried forward indefinitely but cannot be carried back. Aside from this, there are no corporate taxes in Bahrain.

COMMERCIAL REGISTRATION: A BD30 ($79.21) fee is applied for commercial registration in the Kingdom. There are plans to increase the charge to BD50 ($132), which initially was meant to have taken effect on April 1, 2012. However, the increase in the fee has been delayed until further notice.

PERSONAL INCOME TAX: There are no personal income taxes in Bahrain; however, workers must pay into social insurance and unemployment schemes.

SALES TAX: The only sales tax is a tax on petrol, which is levied at a rate of 12%.

TOURISM LEVY: A tourism levy is normally charged at 5% for guests using hotel facilities, and a 15% service charge is generally added to the total bill.

SOCIAL INSURANCE TAX & OTHER CONTRIBUTIONS: undefined The total contribution for a Bahraini employee is 18% of their basic wages, with the employer paying 12% and the employee paying 6%. The employer pays an additional 3% of the basic wages for both Bahraini and expatriate workers to cover injuries potentially sustained during employment. All employees pay 1% for unemployment insurance, which is capped at BD40 ($105.61) per month.

LABOUR TAX: Every business entity that is registered with the Labour Market Regulatory Authority (LMRA) is required to pay BD10 ($26.40) monthly for every expatriate employee in Bahrain.

There has been a moratorium placed on fees levied by the LMRA since April 2011 and it is currently still in place as of the time of publication.

Companies with 50 or more employees are liable to pay a training levy at a rate of 4%. The base for the calculation of the training levy is the gross salary of expatriate employees who are registered with the Social Insurance Organisation, but this is limited to BD4000 ($10,560.80) per employee per month. This training levy applies only to expatriate salaries.

An end-of-service benefit is available for expatriate employees at the completion of their employment contracts in Bahrain provided they have completed a minimum of three years of continuous service with the same employer. It is calculated as 15 days’ salary for every year of employment for the first three continuous years, and an additional one month’s salary for every subsequent year thereafter.

MUNICIPAL TAX: There is a municipal tax payable by individuals or companies renting property in Bahrain. The rate is levied at 10% for the rental of both residential and commercial property.

LAND REGISTRATION TAX: There is a one-time land registration tax payable on the transfer of real estate property. The registration dues are as follows:

• BD1-70,000 ($2.64-184,814) – 1.5%

• BD70,000-120,000 ($184,814-316,824) – 2.5%

• BD120,000 ($316,824) and above – 3% CUSTOMS DUTIES: Bahrain has been a member of World Trade Organisation (WTO) since 1993. Bahrain applies its Customs tariffs according to the codes issued by the World Customs Organisation. This includes no duty on vegetables, fruits, fresh and frozen fish, meat, books, magazines and catalogues; a 5% duty on all other imported items such as clothes, cars, electronics and perfumes; a 100% duty on tobacco and tobacco-related products; and a 125% duty on alcohol.

Duty-free import of machinery and raw materials to be used in new industries for processing in Bahrain is offered. This includes machinery associated with direct operations, spare parts and packaging materials, as well as raw materials.

There are no Customs tariffs on financial transactions or trade of locally manufactured goods between GCC member states under the following conditions: the producer of the goods must be at least 51% locally owned and value added in Bahrain must exceed 40%.

FREE ZONES: Three free trade zones exist in Bahrain. Mina Salman provides a free transit zone to facilitate the duty-free importation of machinery and equipment. Another free zone is located in the North Sitra Industrial Estate. The two free zones are used for the temporary import of goods that are destined for reexport. Hidd is the third zone and is adjacent to the new Khalifa Bin Salman Port, where foreign investors may set up their operations.

Manufacturers in the country’s free zones are exempt from Customs duties on the import of raw materials and capital equipment. Leases run for 25 years and rentals are subject to re-adjustment every five years. In a government move to assist industry, ground rents in the industrial free zones are very low.

BAHRAIN INTERNATIONAL INVESTMENT PARK: The Bahrain International Investment Park (BIIP) is a new, 247-ha business park that has been developed by the Ministry of Industry and Commerce. The park is conveniently located, with excellent connectivity and access to both the Bahrain International Airport and the Khalifa Bin Salman Port in Hidd. In addition, BIIP enjoys direct motorway access to Saudi Arabia via the 25-km King Fahd Causeway, and it will enjoy the same connectivity to Qatar via the Qatar-Bahrain Causeway once that span is completed. Products manufactured in the free zone are subject to a Customs duty of 5% when sold in the GCC and other Arab markets. However, as BIIP is not a free zone but rather a part of the GCC, products manufactured in BIIP and sold in the GCC bloc and other Arab markets are free of import duties, providing a 5% margin against free zone locations in other GCC countries. BIIP also offers unique incentives including:

• 0% corporate tax with a 10-year guarantee

• Duty-free access to the markets of the GCC

• 100% foreign ownership

• Availability of serviced industrial land at competitive rates

• Renewable 50-year leases

• No recruitment requirements (Bahrainisation) for the first five years

• Exemption from import duties on raw materials and equipment

• Free trade access to the US

• 100% repatriation of capital

• No minimum capital requirements TAX TREATIES: Bahrain has entered into double taxation treaties with several countries, most of which are now in force or pending. Treaties that are now in effect include Algeria, China, Egypt, France, Georgia, Iran, Lebanon, Luxembourg, Malaysia, Malta, Morocco, Pakistan, the Philippines, Singapore, Syria, Thailand, Turkey, Uzbekistan and Yemen. Other tax agreements have been signed but the treaties are not yet in effect. These include deals with Austria, Belarus, Belgium, Bermuda, Bulgaria, Czech Republic, the Isle of Man, Ireland, Mexico, the Netherlands, Seychelles, Sri Lanka and the UK. Bahrain also recently signed tax information exchange agreements with Denmark, the Faroe Islands, Finland, Greenland, Iceland, Norway and Sweden.

US FREE TRADE AGREEMENT: The US-Bahrain Free Trade Agreement (FTA) gives Customs duty exemption to all US industrial and agricultural products. The particulars of the tariff elimination explained in the FTA are as follows. The agreement provides for the elimination of all Customs duties on originating goods no later than 10 years following the entry of the FTA into force. The agreement is comprehensive and covers all tariff lines. When the FTA became effective, 96% of Bahraini industrial and agricultural products gained duty-free access to the US market. Tariffs on the remaining products, which are not currently produced in Bahrain, have been phased out according to the following staging categories: Category A: Immediate duty-free access (96% of industrial and agricultural products).

Category B: Duties will be eliminated in 10 equal annual stages (1% of industrial and agricultural goods).

Category C: Goods that are already duty free and will continue to receive duty-free treatment.

Category D: Duties will be eliminated in five equal annual stages (3% of industrial and agricultural goods).

Bahrain is to provide immediate duty-free access on all industrial and agricultural products coming from the US, with the exception of 80 products on which the duties will be phased out over a period of 10 years.