Overview of Bahrain Corporate Income Tax

Proposed Key Features

1. 10% Corporate Income Tax rate
2. Applicable to businesses exceeding:

     BHD 1 million in annual revenue, OR

     BHD 200,000 in taxable income

3. Applies to companies and individual establishments conducting business activities

4. Possible exemptions for qualifying government and non-profit entities

Even businesses below the revenue threshold must compute taxable income to confirm eligibility.

Understanding Taxable Income: Accounting Profit vs CIT Adjustments

Corporate tax is levied on taxable income, not accounting profit. Businesses must reconcile financial statements to tax rules.

Common Addbacks (Increase Taxable Income)

1. Fines and penalties
2. Non-qualifying donations
3. Entertainment expenses
4. Provisions not yet incurred
5. Related party payments not at arm’s length
6. Excess interest deductions

Common Deductions

1. Tax depreciation
2. Allowable bad debts
3. Participation-exempt dividend income
4. Foreign tax credits
5. Carried forward tax losses

Without proper reconciliation, companies may underestimate their true tax liability.

CIT & DMTT – Impact on Multinational Groups

Bahrain has implemented Domestic Minimum Top-up Tax (DMTT) aligned with OECD Pillar Two rules.

Under the expected framework:

1. Compute domestic CIT (10%)
2. Calculate Effective Tax Rate (ETR)
3. If ETR < 15%, apply top-up tax under DMTT

Multinational groups must carefully assess interaction between domestic tax and global minimum tax requirements.

GSPU provides integrated modeling to ensure optimized tax positioning.

Tax Accounting & IFRS Impact (IAS 12)

The introduction of CIT triggers accounting changes under IAS 12.

Key Accounting Impacts:

1. Recognition of current tax from 2027
2. Recognition of deferred tax once the law is substantively enacted
3. Expanded disclosure requirements
4. Impact on Effective Tax Rate (ETR)
5. Adjustments in interim and annual financial reporting

Deferred tax implications may arise from:

1. Depreciation differences
2. Provisions timing
3. Transfer pricing adjustments
4. Opening tax balance sheet differences

GSPU supports clients in tax accounting assessments, deferred tax modeling, and financial statement impact analysis.

Participation Exemption & Foreign Tax Credits

Businesses receiving dividends or foreign income may benefit from:

1. Participation exemption (subject to ownership and holding conditions)
2. Foreign tax credits (subject to limitations)
3. Loss carry-forward provisions

Strategic structuring can significantly reduce overall tax exposure.

Transfer Pricing & Related Party Transactions

The arm’s length principle will apply to related party transactions. Businesses with:

1. Intercompany loans
2. Shared services arrangements
3. Cross-border goods transactions

must ensure pricing is compliant and properly documented.

GSPU offers transfer pricing documentation and benchmarking support.

Practical Implementation Roadmap

Phase 1 – CIT Impact Assessment

1. Profitability and threshold review
2. Identification of taxable adjustments
3. CIT & DMTT modeling
4. Risk assessment of related party transactions

Phase 2 – Structural & System Readiness

1. Legal structure review
2. ERP & accounting system alignment
3. Chart of accounts tax mapping
4. Deferred tax readiness

Phase 3 – Compliance & Administration

1. Tax registration
2. Advance tax planning
3. Filing process setup
4. Audit preparedness
5. Documentation framework

Why Choose GSPU Chartered Accountants?

✔ Bahrain-based expertise
✔ Corporate tax advisory & compliance
✔ IFRS & IAS 12 specialists
✔ Transfer pricing support
✔ ERP tax-readiness advisory
✔ Strategic tax planning for SMEs &MNEs

We combine regulatory knowledge with practical implementation to ensure your business is compliant, efficient, and future-ready.

Start Preparing Now – Avoid Heavy Penalties

Corporate Income Tax is not just a compliance requirement — it is a financial transformation.

Early planning allows you to:

1. Optimize tax structure
2. Improve financial reporting accuracy
3. Avoid penalties and audit exposure
4. Maintain strong effective tax rates