Bahrain: What you need to know about the country

The absence of corporate income tax for most business sectors and a well-developed digital infrastructure make it attractive for startups and international companies. However, competition with Dubai and a limited domestic market—Bahrain’s population is 1.5 million—should be taken into account.

Sources of Law

• Sharia (applies to family and inheritance matters)
• International Treaties (as long as they do not contradict Sharia)
• Constitution
• Royal Decrees and Orders (Nizams): the main legislative instruments regulating a wide range of issues, including economy, trade, and public relations

Business Reforms

• Commercial Companies Law (2021) - simplified business registration, allowed 100% foreign ownership
• Bankruptcy Law (2018) - introduced fast-track restructuring procedures
• Intellectual Property - integrated into the international IP protection system, strengthened anti-piracy measures in line with WIPO standards

Trends

Economic Diversification

• Reduced dependence on oil: by 2024, oil’s share in GDP has decreased significantly
• Growth in financial services (20% of GDP) and tourism

Financial Sector Development

• Bahrain is a MENA leader in fintech: the Central Bank of Bahrain’s regulatory sandbox attracted 150+ fintech startups
• Headquarters of Citi, BNP Paribas, JP Morgan are located in Bahrain Fintech Bay
• Crypto licenses granted to Binance and CoinMENA
• Launch of the first Islamic bank (Bahrain Islamic Bank) and digital banks (ilaa Bank)

Tourism

• Simplified visa procedures
• Development of cultural tourism (Formula 1, Bahrain International Circuit)

Taxes

VAT

Bahrain has a 10% VAT. A 0% rate applies to certain supplies and export transactions outside GCC countries.

Corporate Income Tax

• Most companies in Bahrain are exempt from corporate income tax.
• However, there is a trend toward introducing taxation for more sectors.

Withholding Tax (WHT)

No WHT on dividends, interest, or royalties paid to non-residents.

Personal Income Tax (PIT)

• No PIT in Bahrain.
• However, employers must pay social contributions for employees when hiring staff.