Tax Residency in Bahrain
1. Criteria for Determining Tax Residency in Bahrain
According to Article 2 of the Income Tax Law of Bahrain, an individual is considered a tax resident if they meet any of the following criteria:
- Physical presence in Bahrain for more than 183 days in a calendar year.
- Having a permanent home in Bahrain.
- Being employed in Bahrain for more than 183 days in a calendar year.
- Carrying out business or professional activities in Bahrain.
For companies, tax residency is determined based on the place of incorporation or management and control. A company is considered a tax resident if it is incorporated in Bahrain or if its management and control is exercised in Bahrain.
2. Impact of International Tax Treaties on Tax Residency
Bahrain has entered into several double taxation agreements (DTAs) with other countries. These DTAs may modify or provide exceptions to the standard criteria for tax residency as defined in domestic law.
For example, the DTA between Bahrain and the United Kingdom provides that an individual is considered a resident of Bahrain if they have a permanent home in Bahrain or if they are present in Bahrain for more than 183 days in a calendar year. However, if an individual is also considered a resident of the United Kingdom under the UK's domestic law, the DTA provides a tie-breaker rule that determines their residency based on their center of vital interests.
Conclusion
The criteria for determining tax residency in Bahrain are designed to ensure that individuals and entities with significant ties to Bahrain are subject to taxation on their worldwide income. International tax treaties may modify or provide exceptions to these criteria, but the ultimate goal is to prevent double taxation and promote cross-border economic activities.
If delving into the depths of tax rules and regulations isn't your style, and you'd rather have experts take the reins, then Heavnn is here to help.
Let us simplify your tax planning journey.
Access Heavnn's blend of professional expertise and cutting-edge technology by clicking the button below.
