Bahrain introduces new tax

Bahrain, 2 September, 2024 : The Kingdom of Bahrain has announced the introduction of the Domestic Minimum Top-up Tax (DMTT) for Multinational Enterprises (MNEs), effective January 1, 2025. This new law, established under Decree Law (11) of 2024, aligns with OECD guidelines and reinforces Bahrain’s commitment to global economic fairness and transparency.

Bahrain's proactive approach to global tax reform follows its participation in the OECD Inclusive Framework, which it joined in 2018, and its endorsement of the two-pillar solution. The OECD’s global minimum tax reform, adopted by over 140 jurisdictions, ensures a 15% minimum tax on profits for large MNEs.

The DMTT will apply a 15% minimum tax on profits generated within Bahrain for MNEs with global revenues exceeding EUR 750 million in at least two of the past four fiscal years. These MNEs are required to register with the National Bureau for Revenue (NBR) by the designated deadline.

Nilesh Asher, Senior Managing Director at FTI Consulting, highlights that this development affirms Bahrain's alignment with international standards aimed at addressing base erosion and profit shifting. He also notes that Bahrain has adopted a limited scope for this reform, taxing only domestic entities of MNEs, while international subsidiaries remain excluded. This approach, combined with the absence of a comprehensive corporate tax, preserves Bahrain’s competitive fiscal policy for businesses.

Derrick D'Costa, Partner at Kreston Bahrain, underscores that the new corporate tax, applicable only to MNEs exceeding the revenue threshold, is designed to limit negative economic impacts while maintaining Bahrain’s investor appeal. He advises businesses to streamline their accounting systems, plan for future tax liabilities, and strengthen internal controls to ensure accurate tax accounting.

Key features of the DMTT legislation include:

• A minimum tax rate of 15%.
• Application to large MNEs with global revenues exceeding EUR 750 million.
• Provisions derived from the OECD Model Rules.
• Exclusions for certain entities, such as investment funds and real estate investment vehicles.
• Transitional safe harbors for Country-by-Country (CbC) reporting.
• Penalties for non-compliance, including fines up to BD 100k for late registration and potential imprisonment for tax evasion.

Hany Elnagger, Associate Tax Partner at WTS Dhruva Consultants, remarks that this policy will diversify Bahrain’s revenue sources while aligning its financial practices with global standards, fostering sustainable growth and reinforcing Bahrain’s global competitiveness.

Kalaiarasan Manoharan, Tax Director at Noon, sees the DMTT as a significant milestone in the Gulf Cooperation Council’s (GCC) tax landscape. He notes that while the tax may initially present challenges for MNEs, it is expected to drive long-term economic growth by ensuring a more equitable tax contribution. Bahrain’s favorable business environment and robust infrastructure will continue to attract foreign investment, even as the region diversifies its economy away from oil dependence.

Overall, the DMTT represents Bahrain’s ongoing commitment to fostering a fair and transparent international tax environment.

Clink on the link to access.

Source : www.nbr.gov.bh