The Kingdom of Bahrain (“Bahrain”) has announced that Bahrain will implement a Domestic Minimum 15% Top-Up Tax (“DMTT”) for financial periods starting on or from 1 January 2025.
While discussions on the implementation of Pillar Two of the Organization for Economic Cooperation and Development (“OECD”)’s Based Erosion and Profit Shifting (“BEPS”) project are at an advanced stage in the UAE, Bahrain could be the first Gulf Cooperation Council (“GCC”) country to implement Pillar Two.
The implementation of DMTT in Bahrain is in line with Bahrain’s commitment to meet international standards for tax transparency and preventing harmful tax practices.
The legal framework of Bahrain’s DMTT is set out in the Decree Law No. 11 of 2024 (“DMTT Law”). The DMTT regulations, which are expected to contain a detailed application of the DMTT Law, will be published shortly. The DMTT Law clarifies that the OECD Pillar Two model rules should be taken into consideration to interpret the provisions of the DMTT Law and its regulations.
Key Features
The key features of the DMTT Law will be as follows:
(a) Scope: The DMTT Law will apply exclusively to the Multinational Enterprises (MNEs) operating in Bahrain, with global revenues equal to or more than EUR 750 million in two of the last four financial years preceding the relevant financial year. The DMTT will be applicable on the taxable income and is payable by a designated filing constituent entity on behalf of the MNE group.
(b) Excluded Entities: Certain entities are not subject to the DMTT Law such as government bodies, international organizations, non-profit organizations, pension funds and certain investment fund & real estate investment entities. It is important to note that the revenues of excluded entities should be taken into consideration when calculating the EUR 750 million revenue threshold.
(c) Tax computation and Effective Tax Rate (ETR): The taxable income will be calculated based on the financial accounting net income or loss, adjusted per the rules specified under the DMTT Law. The ETR for constituent entities located in Bahrain will be calculated based on a prescribed formula. If the ETR is less than the minimum tax of 15%, an additional tax will be imposed. The DMTT Law also provides for substance-based carve out in respect of certain payroll costs and carrying value of certain tangible assets.
(d) Substance-based Income Exclusion: The DMTT Law provides for exclusion of certain payroll costs and carrying value of certain tangible assets from the tax base.
(e) De-Minimis Exclusion: Entities with revenue less than EUR 10 million and income less than EUR 1 million) in Bahrain may elect to be excluded under certain conditions.
(f) Tax Registration: The constituent entity that is subject to DMTT is required to register with the NBR. No deadline for registration has been prescribed yet.
(g) Tax Returns and Payment: The constituent entity that is subject to DMTT is required to file tax returns for the relevant financial year. The filing constituent must settle the tax by making advance payments during the relevant financial year and by one or more installment payments in the financial year following the relevant financial year.
(h) Transitional Provisions: The deferred tax assets and liabilities (unless specifically excluded) of the MNEs to be considered to determine the ETR of the filing constituent entity.
How does it affect me?
The implementation of DMTT in Bahrain will affect large MNEs operating in Bahrain. It is crucial for all large MNEs to understand the DMTT rules and to ensure compliance and assess the impact on their global tax position.
How can Al Tamimi help?
Al Tamimi & Company has multiple award-winning Tax teams to help. With their expertise and significant experience in corporate tax matters across the Middle East and all industry sectors, they are well-placed to assess the impact of DMTT on your organisation and assist with your DMTT requirements in Bahrain.
Key Contact
Shiraz Khan
Partner, Head of Taxation
s.khan@tamimi.com