✅ Current Position: With no corporate income tax (yet), depreciation has no direct tax impact. However, the Capital Goods Scheme under VAT is critical for input VAT recovery on capital assets.
Capital Goods Scheme
IFRS Depreciation Methods
📉 Straight-Line
Equal annual depreciation over useful life. Most common method in Bahrain. Buildings: 20-40 years. Equipment: 3-10 years. Vehicles: 4-5 years.
📊 Reducing Balance
Higher depreciation in early years. Common for technology assets with rapid obsolescence. Rate typically 20-40% per annum.
🏭 Units of Production
Based on actual usage. Common in manufacturing and mining. Links depreciation to output rather than time.
⚠️ Pillar Two Impact: Under DMTT, depreciation will directly affect GloBE income calculations and your effective tax rate. Choosing the right depreciation policy now could save significant tax when the 15% minimum tax becomes effective.