Bahrain Tax Reforms 2026: What Foreign Investors Should Know Before Setting Up a Company in Bahrain 

Bahrain Tax Reforms 2026 are important for foreign investors planning to start or expand a business in the country. While Bahrain still remains relatively tax-friendly for most businesses, changes such as the 15% Domestic Minimum Top-up Tax and the proposed corporate income tax from 2027 mean investors should review their tax, VAT, ownership, and compliance position before setting up a company.

Bahrain continues to offer a relatively tax-friendly environment for international investors. As of September 2026, the country does not impose personal income tax or a general corporate income tax on most businesses. However, the tax landscape is evolving. 

For foreign investors considering company formation in Bahrain, five areas deserve particular attention: 

• 10% VAT on most taxable supplies 

• 15% Domestic Minimum Top-up Tax (DMTT) for qualifying large multinational groups 

• 46% corporate tax for companies engaged in oil and gas activities 

• A proposed 10% corporate income tax on taxable profits above BHD 200,000 under the draft legislation expected to apply from 2027 

• Other indirect taxes and business-related costs, including excise tax, customs duties and certain property-related charges 

This guide explains Bahrain’s current tax framework and the proposed reforms in straightforward terms for investors planning to establish or expand a business in Bahrain. 

Is Bahrain Still Tax-Free for Businesses? 

For most businesses, broadly yes — as of September 2026. 

Bahrain currently does not generally impose: 

• Personal income tax on salaries 

• Corporate income tax on ordinary business profits 

• Capital gains tax 

• Withholding tax on dividends, interest or royalties paid to non-residents 

• Inheritance or wealth tax 

The principal corporate tax exception is the oil and gas sector, where companies engaged in the exploration, production or refining of hydrocarbons in Bahrain are generally subject to a 46% tax on net profits. 

For most foreign-owned businesses, the taxes they are more likely to encounter today are VAT, excise tax, customs duties and applicable government or local fees. 

VAT in Bahrain: 10% Standard Rate 

Bahrain introduced VAT on 1 January 2019 at 5%. The standard rate was increased to 10% from 1 January 2022. 

Businesses should monitor the following thresholds: 

• Mandatory VAT registration: taxable supplies exceeding BHD 37,500 in a 12-month period, or expected to exceed that threshold 

• Voluntary VAT registration: taxable supplies or relevant expenses exceeding BHD 18,750, subject to the applicable conditions 

Certain supplies are zero-rated, including specified exports, basic food items and certain qualifying transportation, healthcare and education services. Other supplies, including certain financial services and transactions involving bare land, may be exempt. 

VAT returns are filed electronically with the National Bureau for Revenue (NBR). The filing frequency depends on the taxpayer’s turnover and applicable NBR requirements. 

A simple VAT example 

If a company makes BHD 50,000 of taxable supplies during the relevant period, it would generally be required to register for VAT. It would charge VAT at the applicable rate on taxable supplies and account to the NBR for the net VAT after claiming eligible input tax. 

Excise Tax in Bahrain 

Bahrain imposes excise tax on specified products, including tobacco and certain beverages. 

The current framework includes: 

• 100% excise tax on tobacco products 

• 100% on energy drinks 

• 50% on specified soft and sweetened drinks 

The precise treatment depends on the product classification and applicable legislation. 

For most service-sector investors and professional businesses, excise tax is not directly relevant. It becomes particularly important for businesses that manufacture, import or distribute excise goods. 

Domestic Minimum Top-up Tax: 15% for Large Multinational Groups 

Bahrain introduced a 15% Domestic Minimum Top-up Tax (DMTT) with effect from 1 January 2025, as part of the OECD’s international Pillar Two framework. 

This is not a general 15% corporate tax applicable to all companies. 

The DMTT generally applies to Bahrain entities that are members of multinational enterprise groups meeting the global revenue threshold of EUR 750 million or more in at least two of the preceding four fiscal years. 

For a foreign-owned start-up, SME or ordinary operating company that is not part of a qualifying multinational group, the DMTT will generally not apply. 

Bahrain Corporate Income Tax 2027: What Is Proposed? 

One of the most significant potential changes to Bahrain’s tax landscape is the proposed introduction of a general corporate income tax. 

In December 2025, the Bahrain Cabinet referred a draft Corporate Income Tax law to Parliament. As of September 2026, the proposed legislation has not been enacted and therefore should not be treated as current law. 

Based on the draft proposals currently available, the framework would include: 

• 0% tax on the first BHD 200,000 of taxable profit 

• 10% tax on taxable profit exceeding BHD 200,000 

• Proposed applicability to businesses meeting specified revenue or taxable-profit thresholds 

• Coverage of Bahrain-resident companies and foreign companies carrying on business through a permanent establishment in Bahrain 

• Proposed withholding tax provisions on certain payments to non-residents 

• Proposed application for financial years beginning on or after 1 January 2027 

The final legislation, thresholds, exemptions and effective date may differ from the current draft. 

What could this mean for a business? 

For example, if the final legislation were enacted in its currently proposed form and a company had taxable profit of BHD 260,000, the first BHD 200,000 would be subject to the proposed 0% rate and the remaining BHD 60,000 would be taxed at 10%. 

That would result in proposed corporate tax of BHD 6,000, equivalent to approximately 2.3% of the total BHD 260,000 taxable profit. 

The actual tax liability, however, would depend on the final legislation and the company’s taxable income, deductions, exemptions and other applicable provisions. 

Social Insurance and Employment Costs in Bahrain 

Although Bahrain does not impose personal income tax on employment income, employers still need to consider social insurance and employment-related statutory costs. 

Employers are required to register eligible employees with the Social Insurance Organization (SIO) and make applicable contributions. 

For expatriate employees, these may include contributions relating to work injury and unemployment insurance, together with statutory end-of-service benefit arrangements. 

The applicable rates and treatment differ between Bahraini and non-Bahraini employees and may change under amendments to the social insurance framework. 

Therefore, investors should factor employment-related statutory costs into their overall Bahrain business model rather than considering only income tax. 

Other Business Costs to Consider 

Setting up a company in Bahrain involves more than income tax. Depending on the nature of the business and its activities, investors may also need to consider: 

1. Custome Duty

The standard customs duty on many goods imported from outside the GCC is generally 5%, although specific goods may attract different rates or exemptions. 

2. Municipal Charges 

Certain property-related municipal charges may apply, including charges associated with rented commercial premises. 

3. Property Transfer Costs 

Real estate transactions can also involve registration and transfer-related fees. 

The precise cost depends on the nature of the transaction, property and applicable regulations. 

Double Tax Treaties and Cross-Border Investment 

Bahrain has entered into double taxation agreements (DTAs) with a number of countries. 

These agreements can be important for foreign investors because they may provide relief from double taxation and establish rules for taxing cross-border income such as business profits, dividends, interest and royalties. 

However, the benefit of a DTA depends on the specific treaty, the nature of the income and the investor’s tax residence. 

Investors should therefore review the relevant treaty rather than assuming that a DTA automatically eliminates tax in either jurisdiction. 

Tax Checklist for Setting Up a Company in Bahrain 

If you are planning to establish a business in Bahrain, consider the following before commencing operations: 

1. Choose the appropriate legal structure 
Consider whether a WLL, branch, single-person company or another structure is appropriate for your proposed activity. 

2. Check foreign ownership requirements 
Confirm whether your specific business activity permits 100% foreign ownership or requires additional approvals or participation. 

3. Assess VAT registration from day one 
Monitor taxable turnover against the mandatory and voluntary registration thresholds. 

4. Maintain proper accounting records 
Good accounting records will become increasingly important as Bahrain’s corporate tax framework evolves. 

5. Review related-party transactions 
If the Bahrain entity transacts with group companies, ensure that pricing and documentation are consistent with applicable transfer-pricing and arm’s-length requirements. 

6. Prepare for the proposed corporate tax regime 
Do not wait until 2027 to understand how the proposed rules could affect your business. Review your projected revenue, profitability, expenses, group structure and cross-border transactions in advance. 

Frequently Asked Questions About Tax in Bahrain 

How Mercurius Can Help 

Setting up a company in Bahrain is not simply a question of registering an entity. The choice of structure, ownership, business activity, VAT position, accounting framework and future corporate tax exposure can all affect the way the business operates. 

At Mercurius, we help international investors with company formation in Bahrain, including: 

• Business structure and setup 

• Foreign ownership considerations 

• VAT registration and compliance 

• Accounting and bookkeeping 

• Corporate tax readiness 

• Cross-border tax considerations 

• Ongoing regulatory and compliance support 

If you are considering establishing a business in Bahrain, we can help you understand the tax and compliance implications before you set up, rather than after the business is already operational. 

For a consultation, write to info@mercuriusteam.com or contact us on WhatsApp at +971 58 516 1322. 

Disclaimer: This article is for general information only and is not tax or legal advice. Bahrain’s tax laws can change, so please confirm the latest position before making decisions. 

Source: https://www.nbr.gov.bh/media/Decree_Law_No_11_of_2024_EN