Bahrain Is Set to Introduce Corporate Income Tax: What Businesses Need to Now

Bahrain is planning the introduction of Corporate Income Tax, marking a structural shift from a tax-free to a taxable business environment, expanding obligations beyond large multinationals to the wider corporate sector.

Bahrain is preparing to introduce a broad-based corporate income tax (CIT), expected to take effect from 2027, marking a significant shift from its long-standing position as a largely tax-free jurisdiction for businesses outside the oil and gas sector. Historically, Bahrain has imposed no general taxes on corporate income, capital gains, or business profits, with hydrocarbon activities subject to a separate 46 percent tax regime.

Recent developments, including the implementation of a Domestic Minimum Top-Up Tax (DMTT) in 2025 and the Cabinet’s approval of CIT in December 2025, signal a clear transition toward a more diversified and internationally aligned fiscal framework. While the DMTT applies only to large multinational enterprises, the proposed CIT will significantly broaden the tax base, bringing domestic companies, SMEs, and foreign investors within scope.

With implementation approaching and key legislative details still pending, businesses face a limited window to assess potential impacts, adjust corporate structures, and prepare for a more complex tax environment.

Policy evolution: From DMTT to Corporate Income Tax

Bahrain’s move toward corporate taxation has been gradual but deliberate.

The first step came with the introduction of the DMTT), effective for financial years beginning on or after January 1, 2025. This measure applies to multinational enterprise (MNE) groups with global revenues exceeding US$861 million and ensures a minimum effective tax rate of 15 percent on Bahraini operations.

The DMTT is limited in scope and does not apply to domestic businesses without international operations. It also incorporates various simplification mechanisms, including safe harbour provisions and exclusions for smaller or early-stage international groups.

The proposed CIT significantly expands the tax base beyond large multinationals, bringing a much wider range of businesses (including domestic companies and SMEs) within the scope of corporate taxation.

Key features of the proposed Bahrain CIT regime

According to the Cabinet announcement of December 29, 2025, Bahrain’s CIT framework is expected to introduce a moderate tax burden while maintaining competitiveness.

The headline corporate income tax rate is anticipated to be around 10 percent. However, the tax will not apply universally to all businesses. Instead, thresholds are expected to play a key role in determining liability.

Businesses may fall within the scope of CIT if they meet either of the following criteria:

• Annual revenues exceeding BHD 1 million (US$2.65 million); or
• Net annual profits exceeding BHD 200,000 (US$529.536).

Importantly, the tax is expected to apply only to profits above the BHD 200,000 threshold, effectively introducing a form of relief for smaller businesses and reducing the immediate impact on lower-margin entities.

While the detailed legislative text has not yet been released, the forthcoming law is expected to establish the core framework, with implementing regulations providing further clarity on compliance, administration, and technical rules.

Expected technical design of the CIT system

Although final provisions are pending, Bahrain’s CIT regime is likely to align with international standards and regional practices.

The tax is expected to apply broadly to companies, branches of foreign entities, and individuals engaged in business activities. This represents a significant expansion compared to the current system, where most non-oil activities fall outside the tax net.

Certain exclusions are likely to remain in place. Oil and gas activities will continue to be governed by their existing tax regime, while employment income and passive investment income earned by individuals are expected to remain outside the scope of CIT.

From a technical perspective, the regime is expected to incorporate:

• Taxation of capital gains, with transitional provisions to exclude gains accrued before implementation;
• Participation exemptions for qualifying dividends and shareholdings;
• Rules governing the deductibility of expenses, including limitations on non-business and related-party expenditures;
• Carryforward of tax losses, subject to conditions;
• Withholding tax on certain outbound payments, depending on final policy decisions; and
• Transfer pricing rules to ensure arm’s-length treatment of related-party transactions.

Bahrain may also introduce tax grouping provisions, allowing qualifying entities within the same corporate group to be treated as a single taxpayer, thereby simplifying compliance and enabling loss utilization across entities.

Interaction with the DMTT regime

The coexistence of CIT and DMTT will create a layered tax environment, particularly for multinational groups.

At present, many large MNEs operating in Bahrain have low effective tax rates due to the absence of a general corporate tax, triggering top-up tax liabilities under the DMTT. Once CIT is introduced, these groups will first calculate their tax liability under domestic CIT rules.

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The DMTT will then apply only if the resulting effective tax rate remains below the 15 percent global minimum threshold. This interaction effectively integrates Bahrain’s domestic tax system into the broader global minimum tax framework, while increasing the complexity of tax calculations and compliance.

Business impact: A shift in cost structures and strategy

The introduction of CIT will have immediate and far-reaching implications for businesses operating in Bahrain.

From a financial perspective, companies will need to incorporate corporate tax liabilities into their cost structures, potentially affecting profitability, pricing strategies, and investment decisions.

From a structural standpoint, businesses will need to reassess their corporate arrangements. Bahrain has historically served as a regional hub for holding, financing, and service activities. Under a taxable regime, these structures will need to be evaluated for efficiency, particularly in light of transfer pricing rules and restrictions on related-party transactions.

Compliance requirements will also increase significantly. Businesses will be required to register for tax, file annual returns, maintain supporting documentation, and prepare for audits. For many SMEs, this will represent a new and potentially resource-intensive obligation.

What businesses must do now

Given the expected implementation timeline, businesses should begin preparing well in advance of the law’s formal enactment.

A priority should be conducting a comprehensive tax impact assessment based on current operations. This will help quantify potential exposure and identify areas requiring restructuring or adjustment.

Companies should also review their legal and operational structures, particularly where intra-group transactions, financing arrangements, or intellectual property holdings are involved. Early restructuring may provide opportunities to optimize tax outcomes before the new rules take effect.

In parallel, businesses should assess their internal systems and processes to ensure readiness for tax reporting and compliance. This includes evaluating accounting frameworks, ERP systems, and documentation practices.

Administrative preparation will also be critical. Businesses should anticipate the need for tax registration, develop filing procedures, and establish transfer pricing documentation frameworks. Preparing for engagement with tax authorities, including audits and assessments, should also be part of this process.

Finally, companies should closely monitor legislative developments, particularly as the draft law progresses through the Council of Representatives and implementing regulations are developed.

Conclusion: A narrow window for strategic preparation

Bahrain’s planned introduction of corporate income tax represents a decisive shift in its economic model. While the Kingdom is likely to retain its attractiveness as a business destination, the basis of that competitiveness is evolving.

The transition from a tax-neutral environment to a structured tax regime places greater emphasis on tax efficiency, compliance, and operational substance.

For businesses, the period leading up to implementation in 2027 represents a critical window. Those that act early (by assessing impact, restructuring operations, and strengthening compliance systems) will be better positioned to navigate the new tax landscape and maintain their competitive edge in Bahrain’s evolving economy.

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