Bahrain payroll and tax overview.

Bahrain is an island nation in the Persian Gulf made up of around 40 islands and a central landmass known as Bahrain Island. Bahrain lies just off the eastern coast of Saudi Arabia, while its next closest neighbour is Qatar to the southeast. Ruled by the Al Khalifa royal line since the late 18th century, Bahrain was previously a protectorate of the United Kingdom until it declared independence in 1971 and became a constitutional monarchy. Bahrain is a wealthy country with an economy that is heavily dependent on the oil and gas industries: petroleum makes up 60% of Bahrain’s exports, followed by aluminium, financial services, and construction materials. Bahrain’s GDP is around $38 billion and the country had a growth rate of around 1.8% in 2019. Bahrain is a member of the UN, the Arab League, the Organisation of Islamic Cooperation, and the Gulf Cooperation Council. In 2019, Bahrain was ranked 43 on the World’ Bank’s Ease of Doing Business Survey.

Foreign Direct Investment in Bahrain

Along with competitive costs, easy access to the rest of the Middle East and a well-established business infrastructure, you will find that Bahrain has experience in understanding the needs of foreign businesses and responding to them.

The government regards foreign investment as key to its Economic Vision 2030 long-term plan for improving the competitiveness of the economy, creating skilled jobs for Bahrainis and enhancing living standards. For this reason, the Bahraini Government is committed to building on their existing advantages, aiming to build the Middle East’s most attractive centre for business.

Registering a Company and Establishing an Entity in Bahrain

The company is required to have a legal entity established in order to process a payroll.

Some industries are prohibited in Bahrain (for example, gambling or the import and industrial use of restricted chemicals), whilst some industries are protected for investment by Bahraini citizens; GCC citizens and companies (for example, a diverse range of industries ranging from printing presses, accounting services and the import/export and sale of racing car fuel).

There are several types of company entities in Bahrain, these include:

• Bahraini Shareholding Company (B.S.C) - Public
• Closed Shareholding Company (B.S.C) - Closed
• Limited Liability Company
• Partnership Company
• Simple Commandite
• Commandite by Shares
• Single Person Company
• Foreign Company Branch
• Holding Company

The Commercial Registration of companies can be done at the Bahrain Investors’ Centre. The processing time for registering a business is estimated to be between one to three working days and must be renewed on an annual basis. For some commercial activities, a licence or approval is required.

Business Banking in Bahrain

It is currently not mandatory to make employee salary payments from an in-country bank account. Third-party payments can be either made through a local bank account or credit card.

Bank opening days and hours vary from branch to branch. Generally, opening days are Saturday – Wednesday or Sunday to Thursday and general opening times are from 07:30 - 13:00 and then 16:00 - 18:00.

Working Week and Working Hours in Bahrain

In accordance with the Bahrain labour law, the maximum working hours are 8 hour per day and 48 hours per week. The customary working week in Bahrain tends to vary between 40 and 48 hours depending on company policy. Office hours are usually from 08:30 or 09:00 to 17:30 or 18:00. There are no differences in time keeping between summer and winter. In the month of Ramadan, the working day is reduced to six hours and legally this should apply to all staff but many companies only apply it to Muslims who fast during daylight hours.

Friday is the Muslim rest day and if your company has a five-day working week the other day off will probably be either Thursday or Saturday. Saturday is the more popular choice for international companies as taking Thursday off would mean a reduction in the number of operational days in common with much of the rest of the world. Conversely, other companies insist on Thursday as the school ‘weekend’ is Thursday and Friday.

Basic Facts about Bahrain

General Information:

Full Name: Kingdom of Bahrain

Population: 1.702 million (World Bank, 2020)

Capital: Manama

Major Language: Arabic

Major Religion: Islam

Monetary Unit: 1 Bahraini dinar = 1,000 fils

Main Exports: Petroleum and petroleum products, aluminium

GNI per Capita: US $44,330 (World Bank, 2019)

Internet Domain: .bh

International Dialling Code: +973

As there are no income tax obligations in Bahrain, there is subsequently no tax year.

There are no tax deductions in Bahrain, however employees do contribute towards social security. Bahraini Nationals and expatriates contribute towards SIO (Social Insurance Organisation – official authority responsible for providing social insurance services).

Also, there is a regulated minimum salary for Bahraini Nationals (based on job description).

The SIO contribution for expatriates are typically paid by their employer; however, the employer has the right to deduct the SIO contributions from the employees’ salaries.

The current rate of contributions to the SIO is 19% for local employees (12% employer; 7% employee) and 4% for expatriate employees (3% employer; 1% employee), subject to BD 4,000 per month contribution base maximum.

The employer's contribution is 12% of gross wages for insurance against old age, disability and death (applicable only to Bahraini employees) and 3% of gross wages for insurance against employment injuries (applicable to all employees).

The employee's contribution is 7% of gross wages for insurance against old age, disability and death (applicable to Bahraini employees only) and 1% of gross wages for insurance against un-employment.

SIO contributions are calculated by the authorities based on the contractual salaries reported by employers in January of the respective calendar year.

Monthly social security contributions must be paid by the 15th of every month.

Healthcare Fee

The Ministry of Health shall provide basic health care to all employees, employers are required to pay to the Ministry cost of such health care which is determined as follows:

• BD 72 per annum in respect of every non-Bahraini worker
• BD 22.5 per annum in respect of every Bahraini worker

The healthcare fee is payable to the Ministry of Health as previously advised through the Labour Market Regulatory Authority by collecting it at the time of issuance and renewal of work permits in respect of non-Bahraini workers, and through the SIO in respect of Bahraini workers.

Reporting in Bahrain

As there are no income tax obligations, there is no monthly, quarterly or annual reporting to be adhered to, with the exception of the monthly and annual SIO declaration and contributions described above.

New Employees in Bahrain

Employers must register their employees in the Kingdom of Bahrain with the Ministry of Labour and Social Affairs and receive a certificate of registration.

The employer must also register its employees with the Social Insurance Organization (SIO) and contributions must be paid monthly for compulsory insurances against old age, disability and death (for Bahraini employees only), and against work-related injuries including death (for all employees).

When an employee is hired, the employer has to enlist with the Pension Authority. This is generally managed by the legal firm and/or representative that are responsible for the legal registration of the company.

Each legal entity has guidelines stating the deadlines for registrations.

Leavers in Bahrain

On the termination of employment of a foreign national, two things must be considered:

• Leaving indemnity: An indemnity must be paid, which will depend on the length of employment and whether it was the employee or employer that terminated the employment
• Plane ticket: The employer pays for a plane ticket for the employee to leave the country, to a location specified in the employment contract or to the country of the employee’s nationality