Lawmakers propose new bill to implement corporate income tax

TDT | Manama     

The Daily Tribune – www.newsofbahrain.com

A group of lawmakers has proposed a new law introducing a corporate income tax (CIT) aimed at promoting sustainable economic growth and fostering collaboration between public and private sectors.

This initiative seeks to achieve balanced development, contributing to the prosperity and well-being of citizens.

The proposed legislation establishes a comprehensive framework for a tax system governing companies operating in the Kingdom of Bahrain.

The memoranda accompanying the new bill emphasise that it has been proposed to exempt lower-income individuals from taxation, ensuring that the minimum standard of living is not compromised.

The memoranda also highlight the alignment of this initiative with the nation’s broader strategy of diversifying its revenue sources beyond natural resources like oil and gas.

The memoranda further state that the new bill aims to revitalise the national economy by imposing taxes on financial institutions and commercial companies engaged in specific economic activities, as outlined in the proposed legislation.

Plans

During a parliamentary session held on May 23, 2023, the government discussed its plans to introduce a corporate income tax.

This initiative aligns with the Organisation for Economic Co-operation and Development (OECD)’s base erosion and profit shifting (BEPS) project, which aims to establish a global minimum tax and adhere to international standards.

The BEPS project targets the prevention of profit shifting by multinational enterprises (MNEs) to low-tax jurisdictions.

By implementing a CIT, Bahrain would ensure that MNEs pay a minimum tax rate of 15% on their global income within the country, promoting fairer tax practices globally.

Guidance

Experts suggest that Bahrain could look to neighboring nations and well-established systems for guidance in creating straightforward, business-friendly, and easily managed tax regimes.

They believe the Kingdom is capable of developing and implementing a strong CIT system that aligns with global best practices while remaining attractive to businesses.

Taxable income

For CIT purposes, taxable income will be determined by adjusting a company’s net profit with eligible deductions or allowances.

Allowable deductions may cover business expenditures such as rent, utilities, salaries, interest, entertainment (within specified limits), depreciation, and bad debts.

Expenses that cannot be deducted include donations (except to qualifying public entities), grants, gifts, corporate tax, indirect taxes, fines, penalties, dividends, and profit distributions to shareholders.

These deductions and allowances are intended to enable taxpayers to subtract legitimate expenses incurred in generating their net income, ensuring that taxes are levied only on actual profits and serving to prevent unfair tax practices.

This approach promotes a tax system that is equitable and transparent.

Dual-tiered framework

Experts indicate that Bahrain’s CIT system will adopt a dual-tiered framework.

Income up to BD37,500 will be subject to a zero rate, while a standard rate of 5% to 10% will apply to earnings exceeding this threshold.

This zero-rate provision is particularly advantageous for small businesses and startups in Bahrain, enabling them to expand without the immediate imposition of CIT until their income surpasses BD37,500.