Understanding Bahrain’s De Minimis Exclusion Under the DMTT Law

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The introduction of the Domestic Minimum Tax Top-up (DMTT) Law in Bahrain aligns with the global minimum tax framework under the OECD’s Pillar Two rules. 

In December 2024, the National Bureau for Revenue (NBR) published the Executive Regulations for DMTT which we covered in Bahrain’s Executive Regulations for Domestic Minimum Top-Up Tax (DMTT) – Scope and Applicability. In January 2025, the NBR issued the Entities in Scope of DMTT Guide setting out details on definitions of certain Entity types, the application of a revenue test which applies in order to bring Entities within scope and certain “safe harbours” and an exclusion which may reduce the tax liability of in-scope entities to zero.  

In this write-up, we provide an overview of the De Minimis Exclusion, which ensures that low-revenue or low-income Bahrain-located entities of an MNE Group are not subject to additional tax burdens. 

What Is the De Minimis Exclusion?

The De Minimis Exclusion is a provision under which Bahrain-located Constituent Entities of an MNE Group are deemed to have zero tax liability for a fiscal year if they meet the required conditions. It applies across all qualifying Bahrain-based entities within the MNE Group, subject to annual re-evaluation and an election by the Group.  It also applies to Bahrain located Joint Ventures and their Joint Venture Subsidiaries provided the conditions are met. 

This exclusion relieves businesses from computing their Effective Tax Rate (ETR) and DMTT liability, although they must comply with the registration and filing obligations.

Certain entities do not qualify for the De Minimis exclusion, viz. Stateless Constituent Entities, Investment Entities and Insurance Investment Entities. These entities’ revenue and income/loss are excluded from the De Minimis Exclusion computation. 

Conditions for the De Minimis Exclusion

To qualify for this exclusion, an MNE Group’s Bahrain-located Constituent Entities must meet both the following tests:

1. Average Revenue Test - The average revenue of all Bahrain-located Constituent Entities must be less than EUR 10 million over the current and preceding two fiscal years.
   
   
2. Average Income or Loss Test - The average income of all Bahrain-located Constituent Entities must be less than EUR 1 million or there must be a net loss.

For this purpose, revenue, income or loss is calculated as per the rules under the DMTT Law.

Any change in the ETR in a subsequent year may require recalculation of the Average Constituent Entity Revenue and the Average Constituent Entity Income or Loss. As a result, the Constituent Entity may be required to file an amended tax return. 

Simplified Computation Safe Harbour 

The Simplified Computation Safe Harbour allows MNE Groups to demonstrate no DMTT liability without detailed calculations if specific conditions are met. These include: 

1. Routine Profits Test where the Bahrain income ≤ Substance-based Income Exclusion; 
2. De Minimis Test where the average revenue < EUR 10M and income < EUR 1M, or where there is net loss; and 
3. Effective Tax Rate Test of all Bahrain located Constituent Entities is ≥ 15%). 

If these conditions are met, DMTT is deemed zero. 

However, the NBR awaits detailed guidelines on simplified computation from the OECD, which will then be introduced into its domestic legislation.   

Conclusion

Bahrain’s De Minimis Exclusion offers tax relief for small-scale entities within MNE Groups, reducing administrative burdens and compliance costs. However, businesses must carefully monitor their revenue and income trends, as changes can impact their eligibility for claiming this benefit. 

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