Bahrain occupies a distinctive position in the GCC tax landscape. It was the third Gulf state to introduce VAT, doubled its rate just three years after launch, and is now preparing to add a broad-based corporate income tax — moves that put it on a trajectory more aligned with its larger neighbours than with the tax havens the region was once known for.

For businesses operating in or trading with Bahrain, for expats living and working in Manama, and for regional companies assessing their Gulf exposure, understanding Bahrain's tax system is increasingly important. This guide covers every tax currently in force, the rates, who pays, and what is changing.

Bahrain Tax Rates at a Glance

VAT in Bahrain: The Full Picture

What is the current Bahrain VAT rate?

The standard rate of Value Added Tax in the Kingdom of Bahrain is 10%, applied from 1 January 2022. The National Bureau for Revenue (NBR) is the government entity responsible for implementing and collecting VAT. VAT was first introduced in the Kingdom on 1 January 2019.

At launch in 2019, the rate was 5% — matching the UAE, Saudi Arabia (at the time), and Oman. Bahrain doubled its rate from 5% to 10% effective January 2022, placing it above the UAE and Oman (both still at 5%) but well below Saudi Arabia (15%). Among the four GCC states that have implemented VAT, Bahrain sits in the middle of the rate spectrum.

Is the rate going up again?

The Bahrain 2025–26 budget includes a potential VAT rise, though no specific increase has yet been specified. The budget also focuses on improving collections, indicating the introduction of a Bahraini e-invoicing mandate. While a further increase has not been confirmed, the direction of travel for Bahrain's fiscal policy is clearly towards broader and more rigorous tax collection — businesses should monitor NBR announcements closely.

What VAT Applies To: Standard, Zero-Rated, and Exempt

Bahrain's VAT framework divides all supplies into three categories.

Standard rate (10%)

The standard rate of 10% applies to most goods and services, including imports, unless they fall into the zero-rated or exempt categories. If you are buying goods or services in Bahrain and they are not on the zero-rated or exempt lists, you are paying 10% VAT on top of the price.

Zero-rated supplies (0%)

Zero-rated supplies are technically taxable but at a 0% rate. This means no VAT is charged to the customer, but the business can still recover the input VAT it paid on its costs related to those supplies — a meaningful distinction from exempt supplies.

Zero-rated goods and services include basic food items, education, healthcare including pharmaceuticals and all medical supplies, the construction of new buildings, local transportation, and oil and gas and their derivatives.

Additionally, exports of goods and services are subject to VAT at the zero rate.

Recent extensions of the zero-rate in 2025 include: renewable energy services such as solar panels and wind projects, digital transformation and IT consulting services, and software exports and cloud-based platforms — aligned with Bahrain's efforts to encourage green and technology investments.

The zero-rated categories in summary:

• Basic food items

• Healthcare and medical supplies, pharmaceuticals

• Education services

• Construction of new buildings

• Local transportation

• Oil, gas and their derivatives

• Exported goods and services

• International transportation

• Renewable energy services (2025 addition)

• Software exports and IT consulting services (2025 addition)

Exempt supplies

Exempt supplies are different from zero-rated. No VAT is charged on them, but businesses making exempt supplies cannot recover the input VAT they paid on related purchases. This makes exempt status less favourable for businesses than zero-rating.

Exempt goods and services include financial services and the sale or lease of real estate. Certain services related to financial services and real estate, supply of land and buildings, and related transactions are exempt from VAT.

VAT Registration in Bahrain

Who must register

All entities or individuals conducting an economic activity independently to generate income and making annual supplies exceeding the mandatory threshold of BHD 37,500 are required to register for VAT purposes with the National Bureau for Revenue.

Businesses with a taxable turnover or expenses exceeding BHD 18,750 may opt for voluntary registration, which can be beneficial for reclaiming input VAT.

Voluntary registration makes sense for businesses that regularly buy goods and services with VAT charged on them — registering allows them to recover that input VAT, reducing their effective cost base.

Non-resident businesses

There is no minimum registration threshold for non-resident persons. Making a standard-rated supply of even BHD 1 to a non-registered customer creates an obligation to register. Non-resident businesses must register before their first taxable supply in Bahrain, either directly or through a local fiscal representative.

Group VAT registration

Related businesses can apply for a single group VAT registration. In September 2025, the NBR released a new VAT Registration Guide with simpler, clearer online guidance, including improved guidance on group registrations for companies with more than one entity.

Filing, Invoicing, and Compliance

Filing frequency and deadlines

Registered taxpayers must submit their periodic VAT returns each month. Returns must be filed by the last working day of the month following the reporting period. Some smaller businesses may file quarterly — confirm your filing period when you register with the NBR.

Invoice requirements

VAT invoices in Bahrain must include specific mandatory information: invoices must contain the VAT number, invoice date, taxable amount, and VAT percentage, and must be issued within 15 days following the month of supply of the taxable goods or services.

Record keeping

Businesses are required to maintain detailed records of all transactions, including invoices, receipts, and credit notes, for at least five years.

E-invoicing: Coming Soon

At the time of writing in early 2025, the market expects that e-invoicing, similar to the framework introduced in Saudi Arabia, is coming soon to Bahrain. Bahrain is implementing e-invoicing in stages — not yet mandatory for everyone, but large businesses are already being nudged towards it. Businesses should begin preparing their systems now.

VAT Penalties and Enforcement

Bahrain's NBR has steadily increased its enforcement activity. The penalty regime for non-compliance includes financial penalties and potential prison terms. A fine of BHD 10,000 applies for failure to register for VAT within 60 days of the registration obligation arising, as well as for failing to issue a VAT invoice within 15 days of the month following the taxable supply, and for failing to submit a VAT return and/or pay VAT due by the end of the month following the reporting period.

Non-compliance after registration can result in penalties ranging from BHD 500 to BHD 20,000.

Excise Tax

Bahrain introduced excise tax on 30 December 2017 as part of the GCC common excise framework — predating its VAT regime by over a year.

Excise tax at present applies at 100% on tobacco and energy drinks and 50% on soft drinks.

In detail:

• Tobacco products: 100%

• Energy drinks: 100%

• Carbonated soft drinks (excluding plain water): 50%

Excise tax is imposed in Bahrain on the production of excise goods in Bahrain in the course of doing business, the import of excise goods, and the release of excise goods for consumption in Bahrain where excise tax has not been paid previously.

Unlike VAT, excise tax is a single-stage tax — it is levied once at the point of production or import, not at every stage of the supply chain. Businesses importing, producing, or storing excise goods must register with the NBR for excise purposes.

Customs Duties

Bahrain applies customs duties under the GCC Unified Customs Law, which sets a common framework across member states.

The general rate of customs duty on goods entering Bahrain is 5% of the CIF (cost, insurance, and freight) value, except for alcoholic beverages which carry a 225% rate, and cigarettes. Cigarettes are subject to a 200% customs duty rate. Certain categories of goods such as paper and aluminium products are subject to a 20% rate.

Goods imported from GCC member states are generally exempt from customs duties under the GCC Customs Union. Free zone imports are also exempt from customs duties, and re-exports from Bahrain are not subject to duties.

Bahrain has a Free Trade Agreement with the United States — the only GCC state to have one — which significantly reduces or eliminates tariffs on a wide range of US goods. Bahrain's membership in multiple trade agreements, including the GCC, GAFTA (Greater Arab Free Trade Area), and the US Free Trade Agreement, provides reduced or zero tariffs on many products.

Corporate Income Tax: No General CIT, But That's Changing

Current position

There are no general corporate income taxes in Bahrain on income, sales, capital gains, or estates, with the exception of businesses that operate in the oil and gas sector or derive profits from the extraction or refinement of fossil fuels in Bahrain. For such companies, a tax rate of 46% is levied on net profits for each tax accounting period, irrespective of the residence of the taxpayer.

For most businesses — including financial services, retail, technology, manufacturing, and professional services — there is currently no corporate income tax in Bahrain.

OECD Pillar Two: Domestic Minimum Top-up Tax (effective 2025)

On 1 September 2024, Bahrain announced the introduction of a Domestic Minimum Top-up Tax (DMTT), effective for fiscal years beginning on or after 1 January 2025, in line with the OECD's Pillar Two framework. The DMTT will be applicable at the rate of 15% on the taxable profits of large multinational enterprises with consolidated revenue over EUR 750 million.

This means: if a multinational group has global revenues exceeding EUR 750 million in at least two of the four preceding fiscal years, its Bahraini entities will be subject to a top-up tax designed to ensure a minimum 15% effective tax rate. Purely domestic Bahraini businesses with no operations outside the country are not affected.

Broad-based corporate income tax: imminent

Bahrain's 2025–2026 fiscal budget confirmed the government's intention to introduce a broad-based corporate income tax. In November 2025, the IMF publicly supported Bahrain's plan to adopt corporate taxation to increase non-oil revenues and strengthen fiscal balance. On 21 December 2025, the Bahrain executive and legislative authorities held a joint meeting to discuss proposed initiatives to develop public finances, with one of the key measures being the taxation of business profits exceeding a specified threshold.

Based on these signals, Bahrain is expected to introduce a standard CIT regime similar to other GCC countries, potentially taking effect for fiscal years beginning 1 January 2026 or 1 January 2027, with the law and executive regulations expected to be issued in the coming months.

This is a significant development. Businesses operating in Bahrain — particularly those that chose the Kingdom precisely because of its corporate tax-free status — should be actively reviewing their structures and preparing for the impact.

Personal Income Tax

Bahrain does not impose personal income tax on individuals. Salaries, wages, allowances, bonuses, and investment income earned by individuals in Bahrain are not subject to income tax. This applies to both Bahraini nationals and expatriates.

There is also no capital gains tax, no inheritance tax, and no gift tax in Bahrain.

Social Insurance Contributions

While there is no payroll tax, employers are required to make social insurance contributions:

The employer's social insurance contribution is 17% for Bahraini workers (effective 1 January 2025) and 3% for expatriate workers, calculated on their monthly salaries and capped at an income ceiling of BHD 4,000.

Employees also contribute to social insurance. For Bahraini nationals, the employee contribution is 7% of salary. Expatriate employees have a 1% social insurance deduction. These contributions fund Bahrain's Social Insurance Organisation (SIO).

Real Estate and Stamp Duty

Stamp duty applies to the transfer and/or registration of real estate only and is levied at a rate of 2%. In cases where stamp duty is paid within two months following the transaction date, the rate is reduced to 1.7%.

There is no annual property tax in Bahrain, no capital gains tax on property sales for individuals, and no inheritance tax on property transfers.

Bahrain vs the GCC: Tax Rate Comparison

Bahrain's 10% VAT rate is the second highest in the GCC — above the UAE, Oman, Qatar, and Kuwait, but below Saudi Arabia's 15%. Its general corporate tax-free status has historically been a competitive advantage, though the imminent introduction of CIT will narrow that gap with UAE (9%) and Oman (15%).

Bahrain's Free Zones and Tax Incentives

Bahrain's free zones — including the Bahrain International Investment Park and Bahrain Logistics Zone — offer 100% foreign ownership, corporate tax holidays of up to 15 years, and customs duty waivers on imports and exports. Companies operating within these zones must comply with regulatory requirements to maintain their exempt status.

Bahrain also holds over 45 double taxation treaties with key trading partners, including the UK, France, China, the Netherlands, Singapore, Switzerland, and Turkey, helping businesses and investors avoid double taxation on cross-border income.

What's Next: Bahrain's Tax Direction

Three big changes are either in progress or on the near horizon:

E-invoicing: A mandatory e-invoicing framework, similar to Saudi Arabia's Fatoorah system, is in preparation. The NBR has begun consultations, and large businesses should start readying their systems now.

Broad-based corporate income tax: Expected to take effect for fiscal years beginning either 1 January 2026 or 1 January 2027. Businesses should model the impact now and engage with advisers on structuring ahead of legislation.

Possible further VAT increase: The 2025–26 budget flagged the possibility, though no rate or timeline has been confirmed. The trajectory since VAT was introduced at 5% in 2019 and doubled to 10% in 2022 suggests Bahrain is willing to adjust the rate as fiscal needs require.

Frequently Asked Questions

What is the VAT rate in Bahrain? The standard rate of VAT in Bahrain is 10%, applied from 1 January 2022. This is the second highest in the GCC, above the UAE and Oman (both 5%) but below Saudi Arabia (15%).

When did Bahrain introduce VAT? VAT was first introduced in Bahrain on 1 January 2019 at a rate of 5%. The rate was doubled to 10% from 1 January 2022.

Are there VAT exemptions in Bahrain? Yes — the VAT framework has two categories of non-standard treatment. Zero-rated supplies (0% VAT, but input VAT recoverable) cover basic food, healthcare, education, construction, local transport, and exports. Exempt supplies (no VAT, and input VAT not recoverable) cover financial services and the sale or lease of real estate.

Do individuals pay income tax in Bahrain? No. There is no personal income tax in Bahrain on wages, salaries, or investment income.

Does Bahrain have corporate tax? Currently, there are no general corporate income taxes in Bahrain, except for oil and gas companies which pay 46% on net profits. However, a broad-based corporate income tax is expected to be introduced, with the law anticipated in 2026.

What is the NBR? The National Bureau for Revenue is the Bahraini government authority responsible for implementing and administering VAT, overseeing registrations, processing returns, conducting audits, and enforcing compliance. Its portal (nbr.gov.bh) is the official channel for all VAT-related filings and enquiries.

What happens if my business doesn't register for VAT when it should? A fine of BHD 10,000 applies for failure to register for VAT within 60 days of the registration obligation arising. Additional penalties apply for late filings and non-payment of VAT due.

Do Bahrain's free zones have different VAT rules? Businesses in Bahrain's free zones are generally exempt from customs duties on imports and exports. VAT still applies to supplies made inside Bahrain — the free zone status does not exempt businesses from VAT on domestic sales.

This guide reflects Bahrain's tax position as of March 2026. Tax legislation in Bahrain is evolving rapidly — particularly regarding corporate income tax and e-invoicing. Always verify current rates and requirements with the National Bureau for Revenue (nbr.gov.bh) or a qualified tax adviser before making business decisions.