Corporate Income Tax System in Bahrain
Bahrain's corporate income tax system is designed to generate revenue for the government while fostering economic growth and attracting foreign investment. The tax system is governed by the Income Tax Law (Decree No. 7 of 2009) and its subsequent amendments.
Methodology for Calculating Corporate Income Tax
The calculation of corporate income tax in Bahrain involves the following steps:
- Determination of Taxable Income: Taxable income is calculated by deducting allowable expenses from the company's total revenue. Allowable expenses include costs incurred in generating revenue, such as salaries, rent, and depreciation.
- Application of Tax Rate: The applicable corporate income tax rate is then applied to the taxable income. The standard tax rate in Bahrain is 15%.
Applicable Corporate Tax Rates
Bahrain has a single corporate income tax rate of 15%. There are no tiered or graduated tax structures.
Definition of Taxable Income
Taxable income for corporations in Bahrain includes all income derived from business activities within the country. This includes:
- Trading income
- Investment income
- Rental income
- Royalties
- Capital gains
Exemptions from Corporate Income Tax
Certain types of income are exempt from corporate income tax in Bahrain. These include:
- Dividends received from other Bahraini companies
- Capital gains from the sale of shares in Bahraini companies
- Income earned by companies operating in the oil and gas sector
Legal Framework
The Income Tax Law (Decree No. 7 of 2009) provides the legal framework for the corporate income tax system in Bahrain. Key articles include:
- Article 1: Defines the scope of the law and the entities subject to corporate income tax.
- Article 5: Specifies the taxable income of corporations.
- Article 6: Lists the allowable deductions from taxable income.
- Article 7: Outlines the tax rates applicable to corporations.
- Article 10: Provides for exemptions from corporate income tax.
Objectives of the Corporate Income Tax System
The corporate income tax system in Bahrain aims to:
- Generate revenue for the government to fund public services and infrastructure.
- Promote economic growth by encouraging investment and business activity.
- Attract foreign investment by providing a competitive tax environment.
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