A new five per cent withholding tax (WHT) on payments to non-resident entities is set to be introduced alongside Bahrain’s upcoming 10pc Corporate Income Tax (CIT) in 2027, it has emerged.
A revised draft law submitted to Parliament reveals that the WHT will target cross-border payments, including interest to foreign lenders, royalties for intellectual property, and service fees paid to overseas providers.
Mohamed Abdulaal, director of Assurance and Corporate Tax at Grant Thornton Abdulaal, noted that the introduction of WHT is a sophisticated step in aligning Bahrain with international tax standards. “The inclusion of a Withholding Tax mechanism ensures that value generated within the kingdom is appropriately captured, preventing base erosion while maintaining a fair playing field for both domestic and international service providers,” he stated.
Experts suggest the framework marks a significant shift in the kingdom’s fiscal policy, requiring firms to review existing commercial arrangements and pricing models to account for these new costs.
Despite the new provisions, Bahrain’s 10pc headline CIT rate remains highly competitive within the region. The kingdom sits in the mid-range of the GCC compared to the UAE, which applies 9pc for profits above approximately BD38,000, and Qatar, which applies a flat 10pc on foreign-owned entities. Kuwait and Oman currently stand at 15pc, while Saudi Arabia remains at the higher end with a 20pc rate for foreign investors.
A key feature of Bahrain’s proposal is the generous BD200,000 (approx. $531,000) profit threshold. Grant Thornton Abdulaal senior partner Jatin Karia noted that this creates a “buffer zone” that effectively protects local startups and Small and Medium Enterprises (SMEs), exempting most family businesses and mid-sized firms from the tax.
The new law complements the 15pc Domestic Minimum Top-up Tax (DMTT) for large multinational enterprises with global revenues exceeding €750 million.
Shashank Arya, associate partner at Grant Thornton Abdulaal, explained that the framework ensures Bahrain-based entities within large international groups will not be double-taxed by other jurisdictions implementing global minimum tax rules. The 2027 start date provides a longer lead-in time than many neighbouring countries, allowing businesses to restructure accounting and tax planning without the sudden shocks experienced during the 2019 VAT implementation.
The government has reaffirmed its commitment to economic stability by balancing these measures with reduced administrative expenses and continued subsidies for citizens’ primary residences.
Mr Karia emphasised that these steps reinforce confidence in Bahrain’s long-term economic vision.
To prepare for the transition, Mr Arya suggested that businesses should audit cross-border transactions to identify payments subject to the new tax as soon as possible. Companies are also encouraged to review existing contracts with foreign parties for tax-sharing liabilities and update legal agreements with robust tax clauses.
Furthermore, firms should analyse the application of double tax treaties to determine if relief or lower rates are available. Engaging with tax advisers immediately will help businesses understand compliance requirements and expected operational implications before the law is enacted.
avinash@gdnmedia.bh
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