For most of its history, Bahrain has been a jurisdiction without a broad corporate income tax. That is set to change. In December 2025, the Cabinet referred a draft law to introduce a 10% corporate income tax, targeted to take effect for financial years beginning January 2027.

The draft is not yet law. It has been through consultation, and in May 2026 a parliamentary committee raised constitutional concerns that placed it under further scrutiny. But the direction of travel is clear, and the fiscal pressure behind it is real. For any business operating in Bahrain, the sensible position is to understand what is proposed and to prepare, without waiting for the final vote.

This guide sets out what is in the draft, where it currently stands, whether your business is likely to be in scope, and the practical steps worth taking in 2026. It moves from the essentials to the more technical detail, so finance leaders and business owners can each find the level they need.

What is currently in place

Bahrain has not had a general corporate income tax on most sectors. Two existing exceptions are worth noting, because the new regime sits alongside them.

Oil and gas. Companies engaged in the extraction or refining of hydrocarbons in Bahrain are taxed at 46% on net profits. That regime is long standing and continues unchanged.

The Domestic Minimum Top-up Tax (DMTT). Introduced through Decree-Law No. (11) of 2024 and effective from 1 January 2025, the DMTT applies a 15% minimum effective tax rate to large multinational enterprise groups with consolidated global revenue above 750 million euros. It does not touch local businesses without international operations.

The proposed corporate income tax is a different animal. It is broad based, aimed at the wider local market rather than only large multinationals.

What the draft law proposes

Based on the announcements from the National Bureau for Revenue (NBR) and the draft shared during consultation, the core features are:

  • A 10% rate on taxable profits.
  • A scope test based on size. A business is expected to fall within the regime if its annual revenue exceeds BHD 1 million, or its net annual profit exceeds BHD 200,000.
  • Relief below the profit threshold. The tax is expected to apply only to profit above BHD 200,000, which effectively shields smaller businesses and softens the impact at the lower end.
  • Administration by the NBR, the same authority that runs VAT and the DMTT.
  • A target start date of financial years beginning 1 January 2027.

The draft is reported to run to 61 articles across 11 chapters and is expected to follow the pattern of other GCC corporate tax regimes. The full legislative text and the executive regulations, which will carry much of the operational detail, are still to be published.

Where the law actually stands

This is the part that is easy to get wrong, because the situation has moved.

  • The draft was referred to the legislative authority on 29 December 2025.
  • It was discussed in the National Assembly in early 2026, and the Bahrain Chamber of Commerce and Industry ran a consultation with the business community in February 2026.
  • In May 2026, Parliament’s Legislative and Legal Affairs Committee raised constitutional concerns about the draft and placed it under further scrutiny.

So the law is not enacted, and the timeline is not a formality. Anyone presenting the 2027 date as certain is ahead of the facts. That said, the drivers behind the law are strong. Government debt stood at around 146% of GDP in late 2025, and the IMF has publicly advised Bahrain to introduce a general corporate tax to strengthen its fiscal position. Measures with that weight behind them tend to arrive in some form. The open questions are the final shape and the exact date, not whether Bahrain is heading toward corporate taxation.

Are you likely to be in scope?

The scope test turns on two figures, and meeting either one is expected to bring a business into the regime:

  • Annual revenue above BHD 1 million, or
  • Net annual profit above BHD 200,000.

Because the profit threshold also acts as a relief floor, a business above the revenue line but with modest profits may still see limited actual tax, since only profit above BHD 200,000 is expected to be taxed. The interaction of the two tests, and how they apply to branches and related entities, is the kind of detail the executive regulations will need to settle. For now, any business near either threshold should assume it may be in scope and plan accordingly.

Why this is a books problem before it is a tax problem

The most common mistake is to file corporate tax under “a 2027 problem”. It is not. Corporate tax is calculated on taxable income, and taxable income is your accounting profit adjusted for specific tax rules. The quality of that starting point, your books, determines how straightforward or how painful the first return will be.

Two areas deserve attention now.

Related party transactions. The regime is expected to apply arm’s length rules, meaning transactions between connected businesses have to be priced as if they were between independent parties. Intercompany loans, management fees, and any movement of money between entities you own will need to be priced and documented on that basis. Many Bahrain groups run these arrangements informally, on trust between entities under common ownership. Under a corporate tax regime, informal is a liability.

Records that can be explained. If your books were reviewed, could each material number be traced and justified? Clean, reconciled records are what make a tax return defensible rather than a source of exposure. This is unglamorous work, and it takes longer than a single quarter to put right, which is exactly why starting in 2026 matters.

The group and multi-entity angle

For businesses structured as groups, there are additional layers.

Tax grouping. The draft is expected to permit tax grouping for entities under common ownership, generally where one member holds at least 75% of another, or both are at least 75% owned by a common person. Grouping can simplify compliance and allow losses to be used across entities, but only where the ownership and residency conditions are met.

Interaction with the DMTT. Large multinational groups already within the DMTT will need to consider how the two regimes fit together. The expectation is that corporate tax is computed first, with the DMTT then operating as a top-up where the effective rate still falls below the 15% global minimum. The precise mechanics will be set by the law and executive regulations.

Withholding tax. Reports suggest the regime may introduce a withholding tax on certain payments to non-residents, such as interest, royalties, and service fees. This is anticipated rather than confirmed, and cross-border groups should watch for it in the final law.

A point most coverage misses: deferred tax

There is a financial reporting consequence that arrives before the first tax payment ever does. Under IAS 12, deferred tax is measured using tax rates and laws that are enacted or substantively enacted at the reporting date. Once Bahrain’s corporate tax law reaches that point, affected companies will need to recognise deferred tax assets and liabilities in their financial statements. That can move reported profit and equity in the period the law is substantively enacted, well before any cash tax is due. For any business that reports under IFRS, this is a reason to model the impact early rather than treat 2027 as the only date that matters.

What to do in 2026

Concrete, and in rough priority order:

  • Model the impact. Estimate the 10% charge across your Bahrain entities and branches on current numbers, and check whether the reduced after-tax profit affects any loan covenants or shareholder expectations.
  • Review the group structure. Identify dormant or redundant entities that could be rationalised, and consider whether the current structure is efficient under a taxable regime.
  • Map and price related party transactions. List every transaction between connected entities, and put arm’s length pricing and documentation behind each one.
  • Tidy the books. Reconcile, close cleanly, and make sure the records behind your numbers would stand up to review.
  • Check your contracts. Look for change-in-law clauses that may allow pricing to be revisited if the tax lands.
  • Plan the compliance model. Decide early whether registration, computation, and filing will be handled in-house, externally, or both.

None of this depends on the final vote. All of it makes you better off whether the law arrives on time, late, or in amended form.

SRR Consultants provides corporate tax readiness and advisory support for businesses in Bahrain and the wider GCC, from impact modelling and structure reviews to getting your books and related party documentation review ready ahead of the regime. If you want to understand how the proposed corporate tax applies to your situation, get in touch.

This article is general information based on the draft law and public announcements as at July 2026, not tax advice. The legislation is not yet enacted and its final form may change. Positions should be confirmed for your specific circumstances.