The changing Tax landscape in Bahrain and the region
The changing Tax landscape in Bahrain and the region
The changing Tax landscape in Bahrain and the region

KPMG in Bahrain hosted a seminar focusing on ‘The changing Tax landscape in the Kingdom of Bahrain and the region’. With over 200 business leaders and finance professionals attending the session, the seminar provided for professional networking and an in-depth discussion on key aspects of the upcoming developments in tax in Bahrain and the region.

The event hosted by Mubeen Khadir, KPMG Tax Partner based in Bahrain, featured a lineup of speakers and subject matter experts (SMEs) including – Antonio Tapia, Director, Transfer Pricing; Anand Krishnan, Director and BEPS SME and Shashank Chandak, Associate Director and e-invoicing SME.

As Bahrain continues to position itself as a regional hub for business and innovation, the Kingdom is anticipating a significant transformation in its tax regulations. The region is witnessing a significant change including the introduction of E-Invoicing, implementation of BEPS Pillar 2 rules, Corporate Income Tax in the UAE, and an increased focused on Transfer Pricing. Mubeen Khadir, Partner and Head of Tax and Corporate Services, at KPMG in Bahrain provided an overview of CIT and other developments across the GCC region and stated “It is important for business leaders to stay updated on key tax developments and ensure that their businesses are ready to adapt to such changes in time and remain compliant. While there is speculation on the introduction of Corporate Tax in Bahrain, this is no longer a question of ‘if’ it will happen but more of a ‘when’ it will happen especially given the statement earlier this year from the Minister of Finance and National Economy in the Kingdom of Bahrain. Companies that will be impacted need to fully understand the scope and reach of the law and make the necessary changes, to their systems and processes to ensure compliance. ”.

Invoicing: Revolutionizing Tax Compliance

Oman and the UAE have recently announced their plans to implement e-invoicing, while Saudi Arabia implemented e-invoicing about 18 months ago. UAE are expected to introduce e-invoicing around mid-2025 and recent reports suggest that Oman's e-invoicing system will become mandatory from October 2024 (with a voluntary system being made available from April to September 2024). The question now is when Bahrain will announce the introduction of e-invoicing.  E-Invoicing, which will be a game changer for businesses in Bahrain, aims to simplify and automate the invoicing process, reducing paperwork and enhancing efficiency for businesses. By adopting E-Invoicing, companies can generate, transmit, and store invoices electronically, ensuring accuracy, security, and ‘real-time’ reporting. While this will improve compliance within the marketplace, it will also foster a business-friendly environment, and provide an attractive market proposition for both local and international investors.

Shashank Chandak, Associate Director, Tax & Corporate Services, KPMG in Bahrain, shared details on the Saudi Arabian E-invoicing model, the challenges they faced and how businesses in Bahrain can better prepare themselves and highlighted some of the next steps by stating, “While businesses in Bahrain await the formal NBR announcement, Bahrain leaders could consider the following preparatory measures to plan for a smooth transition:

  • Conduct an internal impact assessment;
  • Map transactional flows;
  • Assess existing system capabilities;
  • Conduct a gap assessment, and;
  • Update their existing records.

This will allow business leaders to understand the critical gaps within their processes, while also preparing them for seamless implementation.”

BEPS Pillar 2 Update: Addressing Tax Challenges

In line with the global efforts to combat Base Erosion and Profit Shifting (BEPS), the Kingdom of Bahrain will be looking to actively update its tax regulations to implement BEPS Pillar 2 recommendations. This update focuses on tackling tax challenges arising from the digital economy and ensuring a fair distribution of profits among jurisdictions. By adopting measures such as the Global Anti-Base Erosion (GloBE) proposal, Bahrain aims to prevent the erosion of its tax base and maintain a level playing field for businesses operating within its borders.

In line with the BEPs Pillar 2 guidelines, there are a few Bahrain headquartered entities that may exceed the stipulated threshold. However, there will be several Bahrain subsidiaries and branches of multinationals that will be impacted by the impending changes.

Corporate Income Tax and Transfer Pricing: Ensuring Fair Transactions

On 23 May 2023, the Minister of Finance and National Economy confirmed the introduction of Corporate Income Tax (CIT) in Bahrain during the weekly parliamentary session. It is anticipated that CIT will be applicable to all commercial activities except exploration, production or refining of hydrocarbons. Individuals earning employment income or passive investment income could potentially also be included. However, the announcement does not indicate a potential implementation date.

Any CIT regime is likely to also include Transfer Pricing rules in line with the OECD guidelines. While this will allow the Kingdom to align with international leading practices and prevent profit shifting, it also requires that all transactions between related parties (RTPs) are conducted at arm's length, promoting fairness and transparency.

As Bahrain continues to adapt to the changing global tax landscape, it positions itself as an attractive destination for businesses seeking growth opportunities in the region. By embracing these changes, Bahrain is poised to strengthen its position as a leading business hub and contribute to the sustainable development of its economy.