Bahrain to vote on 2% tax on expat remittances

Dubai: Bahrain’s Parliament is set to discuss and vote on a proposal to impose a 2 per cent tax on expatriate remittances.

Initially rejected by the Shura Council in January 2024, the proposal faced criticism for potentially driving expatriates toward black markets or cryptocurrencies, threatening Bahrain’s reputation as a financial hub.

The draft law, first submitted in February 2023, has undergone several revisions. The original version proposed a tiered tax system: 1 per cent on transfers under 200 dinars, 2 per cent on transfers between 201 and 400 dinars, and 3 per cent on amounts above 400 dinars, with exemptions for investment agreements, capital transfers, and cases covered by Bahrain’s tax rules.

The bill, supported by MP Lulwa Al Rumaihi and supported by Dr. Muneer Seroor and three other MPs, aims to reduce Bahrain’s dependence on oil revenue and boost the local economy by keeping more money circulating domestically.

The Shura Council’s Financial and Economic Affairs Committee has warned that taxing remittances could lead to unintended consequences, such as an increase in illegal transfers and money laundering.

The committee also highlighted the risk of breaching Bahrain’s international obligations, including the “Unified Agreement for the Investment of Arab Capital in Arab Countries,” which guarantees the free movement of capital and profits without taxation.

Additionally, the draft law faces practical challenges, including tracking remittances through apps, digital wallets, or foreign-issued cards. The lack of penalties for violations further complicates enforcement.

The Ministry of Finance and National Economy and the Central Bank of Bahrain have expressed concerns that the tax could deter foreign investment and skilled workers, with low-wage expats potentially turning to unregulated channels to avoid the levy.

Despite these issues, the parliament is committed to advancing the proposal. Following the Shura Council’s rejection, the draft was revised to address ambiguities, such as replacing “foreigners” with “every natural foreign person” and removing unclear terms like “borders.”

Parliament’s Financial and Economic Affairs Committee has recommended proceeding with the plan, arguing that the revisions clarify the law’s intent and scope.

The vote, scheduled for Tuesday, will determine the future of the proposal.