No personal income tax, but no DTAA either -- an important distinction
Bahrain does not impose personal income tax on individuals, whether resident or non-resident.
However, unlike most of India's Gulf treaty partners, there is no comprehensive Double Taxation
Avoidance Agreement between India and Bahrain. What exists instead is a Tax Information Exchange
Agreement (TIEA), signed 31 May 2012 and in force from 11 April 2013, listed as such on the Indian
Income Tax Department's own treaty page. A TIEA is strictly an information-sharing instrument for tax
administration -- it contains no tax-credit, exemption, or reduced-withholding provisions, and does not
offer the residency tie-breaker rules or capital-gains carve-outs found in a full DTAA. In practical
terms, this means an NRI in Bahrain earning India-source income such as rent, interest, or capital
gains cannot claim treaty-based relief under Section 90 of the Income-tax Act and instead is generally
taxed at full domestic rates on that income, with tax deducted at source (TDS) by the payer at the
applicable domestic rate rather than any treaty-reduced rate. NRIs relying on India's DTAA network for
relief on India-source income should not assume Bahrain offers the same treaty-based protection as, for
example, the UAE or Saudi Arabia; any relief from double taxation would need to come from India's
domestic unilateral-relief provisions under Section 91 instead, which operates differently and can be
less generous than a negotiated treaty.
Corporate tax -- mostly zero, with two exceptions
Bahrain has no general corporate income tax on most businesses, a position it has held for decades
and which has long made it an attractive base relative to some neighbouring jurisdictions, and Bahrain
also does not impose withholding tax on dividends, interest, or royalties paid to non-residents. The
main exception is oil and gas exploration and refining companies, taxed at 46% of net profits under
Bahrain's long-standing hydrocarbon tax regime. Separately, Bahrain introduced a 15% Domestic Minimum
Top-up Tax for large multinational enterprise groups meeting a high consolidated-revenue threshold
(broadly, groups with consolidated annual revenue of EUR 750 million or more in at least two of the
preceding four years), effective for financial years starting on or after 1 January 2025, as part of
Bahrain's implementation of the OECD's Pillar Two rules. This mainly affects large corporate groups
rather than individual NRI-owned businesses, which will typically fall well below the qualifying
revenue threshold and continue to be taxed at the standard zero corporate-tax rate unless they are in
the oil and gas sector.
VAT at 10% -- the highest in the GCC after Saudi Arabia
Bahrain implemented VAT on 1 January 2019 at a standard 5% rate, then raised it to 10% effective 1
January 2022, making Bahrain's VAT the second-highest in the GCC after Saudi Arabia's 15%. Certain
categories remain zero-rated or exempt, including specified basic food items, healthcare, education,
and exports of goods and services outside the GCC, so the effective burden varies considerably by
sector. Businesses exceeding Bahrain's mandatory VAT registration threshold must register with the
National Bureau for Revenue (NBR), which administers VAT, and file periodic returns -- generally
quarterly for most businesses, though the exact registration threshold and filing frequency should be
confirmed directly with the NBR since these can be adjusted. NRIs running consumer-facing businesses in
Bahrain should factor this rate into pricing and compliance planning, including keeping VAT-compliant
invoicing and record-keeping systems in place from the point of registration, since penalties can apply
for late registration or filing errors.
