Legal Overview on Bahrain’s Domestic Minimum Top-Up Tax on Multinational Enterprises

Bahrain’s Domestic Minimum Top-Up Tax on Multinational Enterprises

The Kingdom of Bahrain has now enacted Decree Law 11 of 2024, a landmark fiscal policy measure which introduces a 15% Domestic Minimum Top-Up Tax (DMTT) on certain Bahraini entities within large multinational enterprise (MNE) groups. Bahrain thus joins the **OECD's Global Minimum Tax (GMT)** framework, under Pillar Two of the Base Erosion and Profit Shifting (BEPS) initiative, thus significantly changing the regional approach to international tax standards.

The law, effective from 1 January 2025, highlights Bahrain's efforts at creating tax transparency and reducing profit-shifting by MNEs while remaining competitive in the world market. This article provides more information on the new law and its effects on business and the GCC region at large.

The DMTT is a result of Bahrain's adoption of the OECD's BEPS framework, and it aims to ensure that Bahraini entities within large MNE groups pay at least a minimum effective tax rate of 15% on their taxable income. In this regard, the DMTT targets base erosion and profit-shifting practices in order to enhance tax equity and fairness.

Scope of Application

The DMTT applies to:

• Bahraini entities (including permanent establishments, joint ventures, and their subsidiaries) that are part of an MNE group meeting the Revenue Test: annual consolidated revenue exceeding €750 million in at least two of the four preceding fiscal years.
• Taxable income, determined as financial accounting net income or loss before consolidation adjustments, and calculated in accordance with Bahraini accounting standards.

Notably, the law does not include foreign subsidiaries of Bahraini-headquartered groups and other foreign group entities, which may be included in GMT regimes adopted by their jurisdictions.

Excluded Entities

The following entities are excluded from the DMTT:

 i.  Governments and governmental organizations.

 ii.  International organizations.

iii.   Non-profit organizations.

iv.   Pension funds.

v.    Investment funds qualifying as ultimate parent entities and their subsidiaries under certain conditions.

While excluded entities are not subject to the DMTT, their revenues are considered for the Revenue Test, ensuring comprehensive applicability of the law.

Key Provisions of Decree Law 11 of 2024

The law incorporates several provisions modeled on the OECD’s GMT framework, focusing on compliance, enforcement, and anti-avoidance.

Compliance Requirements

Entities subject to the DMTT must adhere to strict compliance obligations, including:

 i.  Registration:

MNE groups with a presence in Bahrain are required to register with the National Bureau of Revenue (NBR) for DMTT purposes.

 ii.  Annual Filing:

Submission of annual tax returns disclosing taxable income and tax computations.

iii.  Advance Payments:

Payment of tax liabilities during the relevant fiscal year.

iv.  Global Reporting

Compliance with OECD Model GMT Rules on group-wide reporting and notifications.

These requirements are meant to enhance transparency and accountability, hence bringing Bahrain's tax practices at par with international standards. For more details click here