Bahrain’s Corporate Income Tax Plan Addresses Fiscal Challenges

Bahrain’s National Bureau for Revenue announced Dec. 30, 2025, that a draft corporate income tax law is now being referred to the legislative authority: Once the draft corporate income tax law is implemented, it should result in a large proportion of Bahrain’s businesses being subject to the tax.

Bahrain doesn’t have a broad-based corporate income tax. Only a small number of businesses are currently subject to corporate income tax in Bahrain—oil and gas companies are subject to a special corporate income tax at 46%, and companies within the scope of the OECD’s Pillar Two framework are subject to the 15% domestic minimum top-up tax from Jan. 1, 2025.

The Draft Law

National Bureau for Revenue CEO Rana Faqihi said the draft law proposes a 10% corporate income tax on the profits of all companies with annual revenues exceeding one million Bahraini Dinars ($2.66 million) or net annual profits exceeding 200,000 Bahraini Dinars, except for those large multinational enterprises already subject to Bahrain’s domestic minimum top-up tax.

The tax would only apply to profits above the 200,000 Bahraini Dinar threshold, Faqihi said, and is expected to come into effect in 2027 once approved by the legislative authority. It also contains an incentive to encourage the private sector to hire Bahraini talent.

The draft law was formally referred to the Bahraini National Assembly by the Crown Prince and Prime Minister and was scheduled to be discussed by its members, the Gulf Daily News online reported on Jan. 6.

Why Now?

This broad-based corporate income tax has been under discussion for the last few years due to the Bahraini Government’s deteriorating fiscal position, evidenced by the rising fiscal deficit to gross domestic product ratio and the very high level of government debt to GDP. Government debt has increased significantly and stood at 146.4% of GDP in October 2025.

An International Monetary Fund mission visited Bahrain in November 2025 and reviewed Bahrain’s economic performance during 2024. Its preliminary findings are contained in the IMF’s end-of-mission press release of Nov. 24, 2025. The mission leader found that Bahrain’s fiscal position continued to deteriorate in 2024, with the overall fiscal deficit to GDP rising to 11% and gross government debt to GDP increasing to over 133%.

The IMF advised several measures to improve the country’s fiscal balance, including that “Among the key measures to improve the fiscal balance are the introduction of a general corporate income tax to raise nonhydrocarbon revenues.”

That policy advice is likely to have contributed significantly to the Bahraini Cabinet’s subsequent approval in December of several initiatives, including the proposed corporate income tax law.

Immediate Actions

While the details of the proposed corporate income tax law aren’t yet in the public domain, businesses can take several steps now to prepare for its implementation.

First, they should model the impact of the proposed 10% tax on all their companies and branches in Bahrain. They should carefully consider whether the reduced after-tax profit would put them at risk of breaching any covenants.

Businesses also should evaluate the possibility of increasing prices and revenues and/or reducing costs, to minimize the effect of the proposed tax. Any potential opportunities would then need to be examined further.

Companies that have contracts with customers should review those contracts to identify any change-in-law clauses that would protect them from the proposed changes. Where they have such contracts, companies should start discussions with their customers at the earliest opportunity and agree on how the change-in-law clauses and consequent adjustments would operate.

Businesses should further examine their existing legal entities and structures in Bahrain to identify opportunities for rationalization, including mergers and the liquidation of dormant entities. They should plan for the required tax compliance, including whether it would be undertaken in-house, handled by external advisers, or both.

Bahrain has an extensive network of tax treaties, and companies should examine what relief from potential double taxation would be available to them under these treaties once the proposed corporate income tax law is implemented.

The proposed corporate income tax law is expected to be a broad-based law, without the exemptions for the profits attributable to the citizens or entities of other Gulf Cooperation Council countries provided by the tax systems of Kuwait, Qatar and Saudi Arabia (subject to varying conditions in each jurisdiction).

GCC-owned businesses with operations in several GCC countries should therefore begin to consider any potential restructurings and reorganizations that may be necessary to ensure that the profits exempted by other GCC countries don’t become taxable in Bahrain once the proposed law becomes effective.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law, Bloomberg Tax, and Bloomberg Government, or its owners.

Author Information

Tuhin Chaturvedi is a tax partner at RSM in Kuwait.

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