Corporate Compliance in Bahrain: VAT, Economic Substance and the Commercial Registry (2026)

A company in Bahrain deals with three regulators in daily practice: the Ministry of Industry and Commerce (commercial registration and economic substance), the National Bureau for Revenue (VAT), and the Central Bank of Bahrain for licensed financial activity. This guide explains the core duties, using the VAT rules published by the National Bureau for Revenue, Ministerial Order No. 106 of 2018 as published on the Sijilat platform, and the Commercial Companies Law. We assist clients with Bahrain from our office in Kuwait, in cooperation with our partners in Bahrain.

The legal framework

• Commercial Companies Law, Legislative Decree No. 21 of 2001, which replaced the 1975 Commercial Companies Law, as amended.
• Commercial Registration Law, Legislative Decree No. 27 of 2015, as amended. Ministerial Order No. 106 of 2018 on economic substance is issued under it.
• Value Added Tax Law (the title since Law No. 33 of 2021), Legislative Decree No. 48 of 2018, as amended by Law No. 33 of 2021, which changed the standard rate and the law's title.
• Anti-money laundering: Legislative Decree No. 4 of 2001 on preventing and prohibiting money laundering and terrorist financing, with its amendments, including Decree-Law No. 36 of 2017, which amended Article 3. Later amendments exist, including Decree-Law No. 36 of 2025, so do not treat the 2017 amendment as the last.

VAT

The standard rate of VAT in Bahrain changed from 5 percent to 10 percent from January 1, 2022, according to the National Bureau for Revenue. The change does not affect qualifying zero-rated supplies (for example certain basic food items, new building construction, oil and gas, and qualifying health care and education) or exempt supplies (for example real estate and some financial services). Not every transaction in those sectors qualifies.

Registration rules, as the Bureau states them:

• Mandatory registration applies to businesses and residents whose taxable supplies (standard-rated and zero-rated) exceeded BHD 37,500 in the previous 12 months, or are expected to exceed it in the next 12 months. A possible exception exists for businesses with zero-rated supplies only. The Bureau's registration page gives this number. We have not read the underlying regulation that sets it.
• Voluntary registration is open to those whose taxable supplies or expenses exceeded BHD 18,750 in the previous 12 months, or are expected to exceed it in the next 12 months (same source caveat).
• According to the National Bureau for Revenue, a non-resident making standard-rated supplies in Bahrain to unregistered customers or final consumers must register regardless of the value of those supplies. Where the supplies are to a VAT-registered Bahraini business, the Bureau says the non-resident is not required to register and the customer accounts for the VAT under the reverse-charge mechanism. Under the Bureau's guidance, that registration is due within 30 days of the first taxable supply. Confirm the facts of each supply against the current regulation.

Economic substance

Ministerial Order No. 106 of 2018 applies to traders carrying out relevant activities in or through Bahrain: distribution and service center activities, headquarters activities, holding company activities, leasing (other than by Central Bank of Bahrain licensees), shipping and intellectual property activities. Under Article 2, these traders must:

• be directed and managed in Bahrain, with board, manager or partner meetings held in Bahrain at an adequate frequency with a quorum physically present, strategic decisions minuted, records available in Bahrain, and the board, managers or partners, as a whole, having the knowledge and expertise the activity needs;
• carry out their core income-generating activities in Bahrain, by themselves or through third-party providers that are adequately supervised, without counting the same provider's substance more than once;
• have an adequate level of qualified full-time employees resident in Bahrain, proportionate to the activity. Outsourcing can count only if the provider's activity, staff, expenses and premises are in Bahrain and proportionate to the trader's activity, the outsourced activity is conducted in Bahrain, the trader adequately supervises the provider, and the same provider substance is not counted more than once;
• have adequate operating expenditure and physical premises in Bahrain, with outsourcing counting only on the same conditions;
• keep internal policies and controls for compliance, governance and risk management and review them regularly, and keep records and books of account in Bahrain that meet International Financial Reporting Standards, including records of the activity, the amount and type of gross income, expenses and assets;
• show their name and commercial registration number on letterheads, documents, websites and social media;
• get the Ministry's prior approval to set up an office outside Bahrain, to change shareholders and to appoint directors.

They must also notify the Ministry within 30 days of the resignation of directors and officers responsible for management, any change of place of business or office in Bahrain, and any change to constituent documents and business plans (Article 6). They must appoint an approved external auditor, name their immediate and ultimate parent company and ultimate beneficial owner with the jurisdiction of tax residence (Article 7), and file a compliance report when applying for or renewing commercial registration (Article 8).

For intellectual property activities, Article 4 sets a rebuttable presumption that the trader has no economic substance in Bahrain where the rights were acquired through a related party, or from funding of overseas research and development such as under a cost-sharing agreement, and are licensed to or monetized through foreign related parties. Article 5 lists the evidence to rebut it.

If a trader breaches the Order, the Ministry sends a written warning with 30 days to remedy. If the breach continues, it may suspend the commercial registration or impose a daily fine of up to BHD 1,000, or up to BHD 2,000 for a repeat breach within three years from the decision on the previous breach, with a ceiling of BHD 50,000 on the daily-fine option (Article 9). The Order also allows an aggregate administrative fine of up to BHD 100,000, striking the company from the commercial register in relevant cases, and referral for prosecution under the Commercial Registration Law. This list is illustrative, so read Article 9 for the full set.

Accounts and the Commercial Companies Law

The Commercial Companies Law governs the incorporation, governance, general assemblies and records of each company form. Its rules differ by company type, so a duty that applies to a partnership may not apply to a joint-stock company. Check the provision for the form you use before relying on a general statement. The Order above separately requires books that meet IFRS for traders carrying out relevant activities.

Anti-money laundering

Legislative Decree No. 4 of 2001, with its amendments, sets the framework. Licensed financial activity is supervised by the Central Bank of Bahrain. Whether a company is an obligated entity depends on its activity, so confirm this before the company opens accounts or takes on clients. We have not read the current Arabic base law, its schedules or the regulations, so this section describes the framework only.

A practical roadmap

1. Review the commercial registration and constitutive documents, including approvals needed for shareholder or director changes.
2. Work out whether the activity is a relevant activity under the Order and, if so, build the substance.
3. Check VAT registration against the BHD 37,500 and 18,750 thresholds, looking back 12 months and forward 12 months, and apply the 10 percent standard rate.
4. Keep books to the standard that applies to the company's form and activity.
5. Confirm whether the company is an obligated entity for anti-money laundering.

Read also: Entering Bahrain: Company Forms and Foreign Ownership Guide | Qatar Corporate Tax Compliance: A Company's Legal Duties

Frequently asked questions

What is the VAT rate in Bahrain?

Ten percent standard rate from January 1, 2022 (5 percent before), with qualifying zero-rated and exempt categories.

When must a business register for VAT?

When taxable supplies exceeded BHD 37,500 in the previous 12 months or are expected to exceed it in the next 12 months, according to the Bureau's guidance. A non-resident making standard-rated supplies to unregistered customers or final consumers in Bahrain must register regardless of value; for supplies to VAT-registered Bahraini businesses the customer generally accounts under reverse charge and the Bureau says the non-resident is not required to register.

What are the economic substance rules?

Ministerial Order No. 106 of 2018 requires traders carrying out relevant activities to be directed and managed in Bahrain, and to meet the Bahrain direction, income-generating activity and resource requirements, directly or through qualifying supervised outsourcing under the Order.

How do you help companies with Bahrain?

From our office in Kuwait, in cooperation with our partners in Bahrain, we review corporate and tax obligations and organize compliance files.