Other BriefingsBahrain Introduces New Top-Up Tax for Multinational Firms
Bahrain announced a domestic minimum top-up tax for large multinational enterprises, effective January 1, 2025, aligning with OECD guidelines to promote fairness in international taxation.
By Qian Zhou
On September 1, 2024, the Kingdom of Bahrain announced the introduction of a domestic minimum top-up tax (DMTT) for large multinational enterprises (MNEs), as outlined in Bahrain’s Decree Law (11) of 2024.
The new DMTT aligns with Organization for Economic Co-operation and Development (OECD) guidelines, aiming at fostering a fair and level playing field in international taxation.
The new DMTT will take effect on January 1, 2025.
What is the new domestic minimum top-up tax?
On December 20, 2021, the OECD released the Pillar Two model rules (also known as the “GloBE Rules”) for the domestic implementation of the 15 percent global minimum tax.
The MNEs that fall within the scope of the GloBE Rules are required to calculate their effective tax rate for each jurisdiction in which they have operations and, in the event that the tax rate falls below 15 percent in any jurisdiction, pay top-up tax to make up the difference.
This top-up tax is generally paid by the “ultimate parent company” of the MNE in the jurisdiction in which the parent company is based. This is known as the Income Inclusion Rule (IIR). Under this rule, the parent company is required to pay the top-up taxes in proportion to its ownership interests in those entities that have low tax income.
Under Bahrain’s new DMTT scheme, eligible MNEs are required to pay the minimum 15 percent tax on the profits generated in the Kingdom.
Applicable MNEs scope
According to Bahrain’s Decree Law (11) of 2024, only large MNEs operating in the country, with global revenues surpassing the Pillar Two threshold €750 million will be subject to this the DMTT.
That is to say, similar to the OECD guidelines, the DMTT does not apply to companies that have no foreign presence, government entities, international and non-profit organizations, or entities that meet the definition of a pension, investment, or real estate fund.
Eligible MNEs are required to register with Bahrain’s National Bureau for Revenue (NBR) before the deadline specified in relevant legislation, i.e., January 1, 2025.
Implications
Bahrain’s decision to implement the DMTT demonstrates its commitment to global cooperation. Bahrain has been proactively engaged with the OECD since 2018, when it joined this inclusive framework and endorsed the two-pillar reform.
The introduction of the DMTT will ensure that MNEs pay a minimum 15 percent tax on profits generated in the country, which is expected to boost revenues for the kingdom.
However, the DMTT may affect Bahrain’s attractiveness as a business hub. Historically, Bahrain, like other GCC countries, has benefited from its tax-friendly environment with competitive tax rates. The potential increased tax burden may drive certain investors to other GCC countries with more favorable tax regimes.
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