Bahrain Introduces Domestic Minimum Top-up Tax for Multinational Enterprises

| "Manama Bahrain World Trade Centre & Bahrain Financial Harbour 2" by Zairon is licensed under CC BY-SA 4.0.

Bahrain has announced the implementation of a Domestic Minimum Top-up Tax (DMTT) aimed at Multinational Enterprises (MNEs), outlined in Decree Law (11) of 2024. 

This new tax framework, effective from January 1, 2025, is aligned with the Organisation for Economic Co-operation and Development (OECD) guidelines and supports global efforts to ensure fair and transparent taxation.

KEY POINTS OF THE NEW TAX FRAMEWORK

• Alignment with OECD Standards: The DMTT aligns with the OECD's Pillar Two guidelines, part of a global effort to enforce a minimum corporate tax rate of 15% for large MNEs on profits earned in each country where they operate. Over 140 jurisdictions have endorsed this reform to promote economic fairness.

• Eligibility Criteria: The DMTT will apply to large MNEs with global revenues exceeding EUR 750 million for at least two of the four preceding tax years. These MNEs must register with Bahrain’s National Bureau for Revenue (NBR) before the specified deadline.

• Scope and Application:

• The DMTT specifically targets multinational groups that fall under the Pillar Two/GloBE (Global Anti-Base Erosion) Rules. 

• The rules for calculating the Effective Tax Rate (ETR) and Top-up Tax are consistent with the GloBE Model Rules.

• The DMTT incorporates safe harbour provisions, such as the Transitional Country-by-Country Reporting (CbCr) Safe Harbour and the Simplified Calculation Safe Harbour, to ease compliance.

• The Substance-Based Income Exclusion is also included, allowing certain income to be excluded from the tax base based on substantive economic activity.

• Considerations for Tax Residency: the law specifies that tax residency is determined by an entity's place of incorporation or its place of effective management.

• Future Details and Regulations: The Executive Regulations will provide further details on various components, including definitions of permanent establishments, registration and de-registration requirements, and the preliminary tax payment system.

• Commitment to International Standards: By introducing the DMTT, Bahrain demonstrates its commitment to international cooperation and transparency in tax matters. It reflects Bahrain's ongoing efforts to align its tax policies with global standards, ensuring a fair and level playing field for businesses.

• Regional Leadership: Bahrain is the first member of the Gulf Cooperation Council (GCC) to implement a detailed Domestic Minimum Top-up Tax, highlighting its proactive approach to economic reform and global tax compliance.

SOURCE/RECOMMENDED READ: 

• National Bureau For Revenue - Decree-Law No. (11) of 2024 (nbr.gov.bh)