Bahrain Ratifies Double Taxation Avoidance Agreement with Saudi Arabia
The agreement clarifies how income may be taxed for individuals, companies and investors operating between Bahrain and Saudi Arabia.
— 23/08/2026 04:00:00 AM — 61 views
Bahrain has issued Law No. 32 of 2026 ratifying the agreement with Saudi Arabia for the avoidance of double taxation on income and the prevention of tax evasion and tax avoidance.
The agreement is intended to regulate the tax position of individuals and companies with business or investment activity in both countries, helping ensure that the same income is not taxed twice without justification.
What this agreement covers?
The agreement clarifies when each country may impose tax, depending on the type and source of income and the tax residence of the individual or company.
It covers several important matters, including business profits, income from immovable property, dividends, interest, royalties, capital gains, tax residence, permanent establishment rules, and the exchange of information between the competent authorities in both countries.
Category - Legal News, Bahrain and Saudi Trade Relations
Region - Bahrain/ Saudi Arabia
Topic - Law Reform
When it Applies
The agreement was signed in Manama on 3 December 2025, and the ratification law was published in the Official Gazette on 18 June 2026.
Its practical application will begin after Bahrain and Saudi Arabia exchange official notifications confirming completion of the internal procedures required for the agreement to enter into force.
Legal View
In our view, this agreement represents an important step for companies and investors operating between Bahrain and Saudi Arabia. It helps reduce tax uncertainty and gives business owners clearer visibility when deciding whether to invest or expand into the other country.
However, the agreement does not automatically exempt a company or investor from tax. Benefiting from it requires that the transaction be genuine and properly documented, with evidence available to prove tax residence, the nature of the activity, and the source of income.
The issue of permanent establishment deserves particular attention. A Bahraini company with a continuing project, office, employees, or an agent acting on its behalf in Saudi Arabia may become taxable there on part of its profits, and the same may apply in reverse.
Accordingly, the agreement creates a useful opportunity to support investment and commercial activity between Bahrain and Saudi Arabia, but it should be reviewed carefully before establishing a branch, starting a project, or signing a long-term contract in the other country.
Frequently Asked Questions on the Bahrain-Saudi Double Taxation Avoidance Agreement
It means that the same income should not be taxed twice without proper relief — once in Bahrain and once in Saudi Arabia. The agreement identifies which country has the right to impose tax and how tax paid in the other country may be treated.
No. The agreement is not an automatic tax exemption. It regulates taxation and reduces double taxation. Tax may still be payable in one of the two countries depending on the type of income and where the activity takes place.
No. It applies to persons who are tax residents of either country, including individuals, companies, and entities that qualify as tax residents.
You may benefit if you have income or investments that are taxable in Saudi Arabia. However, the type of income, tax residence position, and available documents should be reviewed in each case.
It depends on the nature and duration of the project. If the company has an actual and continuing presence in Saudi Arabia, such as an office, project site, employees, or an agent who concludes contracts on its behalf, it may be considered to have a permanent establishment, and the profits connected to that activity may be taxable in Saudi Arabia.