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In December 2024, Bahrain’s National Bureau for Revenue (NBR) published the Executive Regulation No. 172 of 2024, outlining provisions for the Domestic Minimum Top-Up Tax (DMTT). The regulations come under Decree-Law No. 11 of 2024, introduced earlier in September 2024.
These regulations align Bahrain with OECD’s Global Anti-Base Erosion (GloBE) framework under Pillar Two applicable to in-scope Multinational Enterprise (MNE) Groups operating in Bahrain.
Let’s proceed to understand the key aspects of the regulations.
Scope and Applicability
Bahrain’s DMTT is applicable to MNE groups that are active internationally, i.e., have entities or Permanent Establishments (PEs) in Bahrain and the consolidated revenue of the MNE group exceeds EUR 750 million for at least two of the four fiscal years preceding January 1, 2025.
Certain entities, also known as ‘excluded entities’, are not considered for the purpose of these rules.
Permanent Establishments
The definition of a PE under Bahrain’s regulations is in tandem with that under the bilateral tax treaties. As per the definition, non-resident entities are considered to have a PE in Bahrain in the following circumstances:
- If there is a fixed place of business in Bahrain – this includes offices, branches, factories, and sites for natural resource extraction, provided they exceed the prescribed threshold for presence in Bahrain.
- If there is an agent in Bahrain - an entity operating through agents who conclude contracts or negotiate agreements on its behalf may constitute a PE.
Storage, display, or auxiliary functions do not constitute a PE unless these activities are combined to form a cohesive business operation.
Excluded Entities
The regulations are not applicable to certain entities as listed below:
- Government Bodies
- International Organisations
- Non-Profit Organisations
- Pension Funds
- Investment Funds
- Real Estate Investment Vehicles
The regulations discuss the meaning of each of these entities and their activities in detail. Investment funds and real estate funds, who meet the specified criteria, can take benefit of these exclusions.
Consolidated Revenue
The regulations provide for detailed provisions for determining revenue threshold of EUR 750 million. For the sake of simplicity, ‘revenue’ is determined based on the consolidated financial statements of the MNE group. It includes economic benefits arising in the normal course of business on supply of goods, services or other relevant activities. The revenue is adjusted for gains from investments or extraordinary items reported in the consolidated financial statements.
Newly formed groups that do not have four years of consolidated financial statements are deemed to fall below the EUR 750 million threshold in the preceding year.
Implications and Next Steps for MNE Groups
Entities meeting the threshold limit of EUR 750 million must complete registration by January 30, 2025. Newly formed entities have separate timelines. The NBR has enabled registration for entities meeting the defined threshold requirements.
With DMTT set to take effect from January 1, 2025, in-scope MNE Groups must act promptly to comply with Bahrain’s new regulations in terms of assessing applicability and coverage, determining excluded entities or PEs, timely registration with the NBR and documentation.
Conclusion
Bahrain’s release of the Executive Regulations for DMTT marks a critical step in aligning with global tax transparency and compliance under OECD’s Pillar Two framework. Similar regulations are expected to be released soon in other GCC countries too.
Disclaimer: Content posted is for informational and knowledge sharing purposes only, and is not intended to be a substitute for professional advice related to tax, finance or accounting. The view/interpretation of the publisher is based on the available Law, guidelines and information. Each reader should take due professional care before you act after reading the contents of that article/post. No warranty whatsoever is made that any of the articles are accurate and is not intended to provide, and should not be relied on for tax or accounting advice
