The Bahrain tax stack: VAT, DMTT and the draft corporate tax
No longer tax-free, still low-tax. Here is how VAT, the minimum tax and the draft 10% corporate tax fit together in 2026, and what businesses should prepare before 2027.
Low, but no longer zero
For decades Bahrain had no corporate income tax outside oil and gas, which is taxed at 46%, and no personal income tax. That picture has changed in three steps. VAT arrived in 2019 at 5% and doubled to 10% from 1 January 2022 under Decree-Law No. 48 of 2018. A Domestic Minimum Top-up Tax at 15% has applied since 1 January 2025 to multinational groups with consolidated revenue of EUR 750 million or more, under Decree-Law No. 11 of 2024. And a draft corporate income tax law at 10% was referred to the legislature on 29 December 2025, intended to apply from 1 January 2027.
All three are administered by the National Bureau for Revenue (NBR). For most small and mid-sized foreign-owned businesses, Bahrain remains among the lowest-taxed jurisdictions in the Gulf today, but the planning horizon now has to include the draft corporate tax, because businesses above its thresholds will be within scope from their first financial year starting in 2027 if the law is enacted on the expected timetable.
Ten percent, enforced
Registration is mandatory once taxable supplies exceed BHD 37,500 a year and voluntary above BHD 18,750. Most supplies are standard-rated at 10%; exports, international transport and a list of basic food items, healthcare, education, local oil and gas and new buildings are zero-rated; some financial services and real estate are exempt. Returns are generally filed quarterly, and larger businesses monthly.
Enforcement is active. The NBR runs inspection programmes and publishes the results: in the first quarter of 2026 it conducted 330 inspection visits and recorded 86 new VAT violations, mostly for invoices that did not meet the conditions, prices displayed without VAT and VAT certificates not displayed. In July 2026 it updated its VAT Registration Guide, VAT General Guide and Excise Registration Manual. The practical message is that simple formal requirements, correct invoices, VAT-inclusive pricing and the displayed certificate, are where most penalties arise.
Excise tax applies to tobacco, energy drinks and carbonated and sweetened drinks under the GCC framework, with registration for importers and producers regardless of turnover.
What is known, and what is not
| Feature | What the draft and official statements indicate |
|---|---|
| Rate | 10% |
| Who | Companies with annual revenue above BHD 1 million or net profit above BHD 200,000 |
| Base | Tax applying to taxable income above the BHD 200,000 threshold |
| Start | Fiscal years beginning on or after 1 January 2027, if enacted |
| GCC ownership | No exemption for profits attributable to GCC owners is expected, unlike in Saudi Arabia, Qatar and Kuwait |
| Withholding tax | Expected at 5% on interest, royalties and service fees to non-residents, and 0% on dividends, subject to treaties |
| Administration | National Bureau for Revenue; registration and procedures to be set in executive regulations |
| Status | Referred to the legislature on 29 December 2025; Arabic draft circulated to the business community in a closed consultation via the Bahrain Chamber in February 2026; not yet published as law in the information available to us |
Until the law and its regulations are published, details may change. But the direction is clear, and businesses above or near the thresholds should be modelling their 2027 position now: accounting systems, deferred tax, transfer pricing for related-party flows and the withholding tax that will apply to payments abroad.
Fifteen percent for the largest groups
The DMTT applies from 2025 to Bahrain entities of groups with consolidated revenue of at least EUR 750 million, topping up the Bahrain effective tax rate to 15% under the OECD GloBE rules. The OECD lists Bahrain's DMTT as a qualified domestic minimum top-up tax meeting the safe harbour standard from 1 January 2025, so other countries generally give way to it. In 2026 the NBR published a DMTT computation guide, a DMTT transfer pricing guide, the first transfer pricing publication it has issued, and a return filing manual.
The interaction with the draft corporate tax matters for these groups: once a 10% corporate tax exists, it counts toward the 15% minimum, reducing the top-up. Our DMTT guide covers scope, computation and filing in detail.
A growing network
Bahrain has an extensive network of double tax treaties, and it continues to grow: a treaty with Saudi Arabia was signed on 3 December 2025 and approved by the Saudi Council of Ministers in April 2026, and the treaty with Jersey was ratified by Law No. 18 of 2026 in May 2026. While Bahrain had no corporate tax or withholding tax, treaties mattered mainly to the other side. Once the draft corporate tax and withholding tax take effect, they will matter in Bahrain too: a non-resident receiving interest, royalties or service fees from Bahrain will look to the treaty to reduce the expected 5% withholding, and Bahraini companies paying abroad will need residence certificates on file.
For groups using Bahrain as a base for Saudi Arabia, the new Saudi treaty is worth reading alongside the GCC ownership rules that already shape the Saudi tax position of a Bahraini holding.
Modelling 2027 now
A Bahraini WLL owned by a European group has revenue of BHD 3 million and accounting profit of BHD 600,000, and pays its parent BHD 150,000 a year in management fees and BHD 50,000 in software royalties. Today it pays no corporate tax and charges VAT on its sales. If the draft law takes effect as described, from 2027 it is within scope on revenue, and on the expected base it would pay 10% on taxable income above BHD 200,000: about BHD 40,000 on BHD 600,000 of profit, before any adjustments.
Two other effects appear at the same time. The management fees and royalties paid abroad would be subject to the expected 5% withholding unless a treaty reduces it, about BHD 10,000 a year. And the management fee would need transfer pricing support, because it reduces Bahraini taxable profit. None of this requires action under a law that is not yet in force, but all of it requires preparation: intercompany agreements, a transfer pricing approach, treaty residence certificates and an accounting system that can produce a tax computation.
What else a business pays
Beyond VAT and the corporate taxes, a Bahraini business meets the ordinary GCC customs regime: the common external tariff, generally 5% on goods imported from outside the GCC, with exemptions for many basic goods and free movement of qualifying GCC-origin goods within the customs union. Goods brought into designated zones and bonded facilities can be held without duty until they enter the local market. Employers also pay work permit fees and monthly contributions for foreign staff to the LMRA and social insurance contributions to the SIO, which for many service businesses are larger recurring costs than any tax.
Property owners pay registration fees on transfers, and municipal charges apply to occupied premises. None of these is new, but they belong in the same budget as VAT and the coming corporate tax when comparing Bahrain with its neighbours.
The work that takes longest
The biggest practical change the draft corporate tax will bring is not the rate but the accounting. Many Bahraini companies with no corporate tax have kept accounts primarily for banks and shareholders. A tax regime requires accounts prepared consistently under the applicable standards, a reconciliation from accounting profit to taxable income, a fixed asset register that supports depreciation, documentation of related-party transactions, and deferred tax calculations in the financial statements once the law is enacted.
The first tax period will start on the first day of the financial year beginning on or after 1 January 2027, which means the opening balance sheet for that year matters: asset values, provisions and transitional rules on capital gains will all draw on it. Companies above or near the thresholds should close their 2026 accounts with that in mind, and choose bookkeeping and audit arrangements now that can carry a tax computation.
Most small businesses, for now
On the thresholds announced, a company with revenue up to BHD 1 million and net profit up to BHD 200,000 would fall outside the draft corporate tax, and even companies above the revenue threshold would pay tax only on income above BHD 200,000. That keeps most start-ups, consultancies and small trading companies out of the charge, at least initially. The question for growing companies is timing: a business crossing the thresholds in 2027 or 2028 should have its accounting and transfer pricing ready before it does.
Questions we get asked first
Does Bahrain have corporate income tax?
Not generally yet, except 46% on oil and gas and the 15% DMTT for groups with EUR 750m+ revenue. A draft law for a 10% corporate tax on companies with revenue above BHD 1 million or profit above BHD 200,000 was referred to the legislature in December 2025, intended to apply from 1 January 2027 if enacted.
What is the VAT rate in Bahrain?
10% since 1 January 2022, with mandatory registration above BHD 37,500 of taxable supplies.
Will Bahrain's corporate tax exempt GCC-owned profits?
No exemption for GCC-owned profits is expected, unlike in Saudi Arabia, Qatar and Kuwait.
Will Bahrain introduce withholding tax?
The draft corporate tax regime is expected to include withholding of 5% on interest, royalties and service fees paid to non-residents and 0% on dividends, subject to treaties.
Who administers tax in Bahrain?
The National Bureau for Revenue (NBR), which administers VAT, excise, the DMTT and the proposed corporate income tax.
What are the most common VAT violations in Bahrain?
Invoices not meeting the required conditions, prices displayed without VAT and VAT certificates not displayed, according to the NBR's 2026 inspection results.
Ten percent VAT today, ten percent corporate tax on the horizon
Bahrain is still one of the lowest-taxed places in the Gulf, but it now has VAT at 10%, a 15% minimum tax for the largest groups and a draft 10% corporate tax intended for 2027. Get VAT formalities right, and use the time before the corporate tax to model it, document related-party flows and prepare for withholding.
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This article is general information, current as of 2026, and is not advice for any specific situation. Confirm current rules with the MOIC, the NBR or the relevant authority before acting.