Bahrain: Implications of potential introduction of corporate tax

Key considerations relating to corporate tax for Bahrain businesses

Key considerations relating to corporate tax for Bahrain businesses

With the introduction of corporate tax in the United Arab Emirates (UAE) later this year, Bahrain will be the only Gulf Cooperation Council (GCC) country without a broad-based corporate tax. It appears that it may be a question of when, rather than if, Bahrain will introduce corporate tax.

Key considerations relating to corporate tax for Bahrain businesses include:

  • Payments to shareholders: This is especially important for privately held groups that may not have a clear demarcation between private expenses and business expenses.
  • Deductibility of expenses: Corporate tax rules will generally disallow expenses of a private nature or limit the deductibility of certain types of expenses. For example, thin capitalization rules may apply to limit the deductibility of interest.
  • Accounting versus tax: Income and expenses may be recognized in different periods for tax and accounting purposes. As depreciation rates may differ for tax and accounting purposes, the tax base and carrying amount of assets/ liabilities may differ.
  • Foreign tax credits: Will a foreign tax credit be available for foreign withholding taxes suffered by Bahrain companies?
  • Tax losses: Will tax losses in a particular year be available to offset future taxable income?
  • Return to shareholders: With the differences between accounting profit and taxable income (or the carry forward tax loss) what will be the impact of corporate tax on the bottom line of the company? For example: A business that is reporting an accounting profit of BD10 million may report a higher taxable income of say BD12 million. If the corporate tax rate was 10% then the accounting profit after tax will be BD8.8 million. 

Read a January 2023 report [PDF 103 KB] prepared by the KPMG member firm in Bahrain


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