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A NEW draft legislation on corporate tax is set to be debated by MPs after His Royal Highness Prince Salman bin Hamad Al Khalifa, Crown Prince and Prime Minister, formally referred it to Parliament.
The 61-article draft outlines a comprehensive tax framework for corporate income and business activities, marking one of the most significant fiscal reforms in the kingdom’s modern history.
The proposed law will be reviewed by Parliament’s financial and economic affairs committee, alongside the legislative and legal affairs committee, following a referral vote today, before being debated in the chamber.
At the core of the draft is a two-tier corporate tax system designed to protect small businesses, while ensuring larger entities contribute to public revenues.
Under the proposal, a 10 per cent tax will be imposed on the profits of local companies whose annual revenues exceed BD1 million, or net annual profits exceed BD200,000, based on agreements with the legislative branch. The tax will be applied on any amount following the BD200,000 benchmark.
Officials said this approach balances competitiveness with fiscal sustainability, while aligning Bahrain with international tax standards.
The draft law applies to resident legal persons conducting business inside or outside Bahrain; individuals carrying out business activities within the kingdom, non-residents operating through a permanent establishment in the kingdom, and non-residents earning income generated in the country.
Certain income streams are explicitly excluded – including personal employment income and personal real estate investment income, offering reassurance that individuals’ salaries and private property holdings will remain outside the tax net.
The law also introduces withholding tax on certain cross-border payments, targeting income generated in Bahrain by non-residents.
Proposed rates include: 0pc on dividends and 5pc on interest, reduced to 0pc if paid by a government entity, 5pc on royalties and 5pc on services.
This move is intended to strengthen tax compliance while remaining consistent with Bahrain’s international tax treaties.
One of the striking elements of the draft law is its strict criminal framework for tax evasion, signalling a zero-tolerance approach to non-compliance.
Violators could face imprisonment from three months to five years, and fines equivalent to three times the value of the unpaid tax or both penalties combined.
Repeat offenders within six years will face double penalties, while companies can be held criminally liable for violations committed in their name, with fines reaching twice the maximum prescribed amount.
Tax evasion cases will be handled on an urgent basis by the High Criminal Court.
Administration and enforcement of the new tax regime will fall under the National Bureau for Revenue, which will have wide-ranging powers to request data, exchange information with foreign tax authorities, and enforce compliance.
Judicial officers will also be authorised to inspect premises and temporarily close businesses where necessary.
If approved, the law will apply from the first tax period commencing after its entry into force, with executive regulations to be issued by the Finance and National Economy Minister following Cabinet approval.
mohammed@gdnmedia.bh
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