Rethink proposal to tax foreign investment: Bahrain

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A RETHINK is being urged by the government on a proposed legislation to tax foreign investments.

Under the proposed legislation, the tax would apply to: Profits from any contractual agreement; profits from any share sale of the establishment or company; profits from product agencies signed in Bahrain or abroad; property lease or rent; arbitration, brokering or mediation; contractual licensing of trademarks to others; and asset sale or liquidation.

Investments below BD10,000 would be exempt.

However, the levy would be applied annually as follows:

Five per cent on investments between BD10,001 and BD50,000; 10pc (BD50,0001-BD100,000); 15pc (BD100,001 and BD150,000); 20pc (BD150,001 and BD250,000); 25pc (BD250,001-BD500,000); and 30pc beyond that.

The Cabinet pointed out, in writing, that the 47-article draft bill contradicts the 2001 Companies Law that states: “All commercial companies established in Bahrain or have made it its headquarters are considered national.

“However, it doesn’t necessarily mean the government is obliged to give such companies all rights guaranteed to Bahraini companies.”

The Cabinet also pointed out that differentiating between national and foreign investments is against its open economy policy.

“Bahrain is keen on providing a free economic environment that enhances its competitive economic and developmental ability,” it said.

“So, to impose taxes on foreign investments, firstly, we have to conduct a thorough slow-pace impact study on the move taking into account regional factors.

“Secondly, Bahrain is obliged through regional, continental and internationals conventions and agreements to give tax exemptions and encourage investments, with Bahrain managing to provide free zones for such numerous foreign business activities.

“Thirdly, most countries have signed bilateral taxation exemption treaties, and the remaining are few, so the excepted revenues are extremely low.

“Finally, comparisons with neighbouring GCC show imposed taxation is general and applied to all national and foreign, so having it here would turn many investments away or somewhere else.

“Because of this we urge a rethink before this legislation is passed.”

Meanwhile, the government has also called for a rethink on a proposed legislation to tax remittances by expatriates.

MPs are seeking to impose a two per cent levy on the total amount of each remittance.

The Cabinet, however, has asserted that such a move would be ‘unconstitutional’.

In an explanatory letter attached with the bill, it said that the levy would contradict the basic principle of freedom of money transfer.

It also violates the concept of tax, as referenced by the Constitutional Court, as such levies should be inclusive without anyone being singled out, which is not the case with this legislation, the government pointed out.

The proposed law also stipulates that the tax shall be paid during the transfer process at authorised financial institutions. The National Bureau of Revenue shall collect this tax from those institutions, stated another article.

The government added that such taxes wouldn’t be paid by workers and would be forced on sponsors, which would add to the burden on businessmen.

The government has also asked for a rethink on another bill that would see a 5pc tax imposed on companies’ net profit. The tax, under the 2001 Companies Law, would only cover companies that make more than BD500,000 as profits.

“The bill in its current format is unconstitutional and doesn’t follow a proper taxation system,” said the government.

Also, it has asked for a rethink on plans to exclude foreign companies, ventures or enterprises from Tamkeen’s support.

The government believes that the amendment to the 2006 Labour Fund Law would drop the rate of nationals’ employment.

MPs also debated during yesterday’s session:

1) A legislation for a 50pc discount on all government fees for the elderly under amendments to the 2009 Elderly Rights’ Law;

2) Allowing civil servants to obtain commercial registrations (CR) under amendments to the 2010 Civil Service Law;

3) Amendments to 2002 Shura Council Bylaws Law to give legislators more powers;

4) Giving employers a grace period of 30 days to pay renewal fees for expatriate workers under amendments to the 2006 Labour Market Regulatory Law.

Parliament, in total, discussed nine royal decrees issued by His Majesty King Hamad, 12 new amendments and laws, and the financial closing statement 2022.

Parliament Speaker Ahmed Al Musallam referred all to the relevant committees for proper review under new authorities granted last year before any vote could be taken.

The Legislation and Legal Opinion Commission has voiced similar concerns to the government on the format of the presented legislation, which it believed is in need of extensive makeover, if MPs opt to give it the go ahead.