Bahrain issues domestic minimum top-up-tax legislation

• Bahrain's National Bureau for Revenue has published Decree-Law No. (11) of 2024 regarding the Implementation of Tax on Multinational Enterprises.

• Decree Law No. (11) of 2024 introduces a Domestic Minimum Top-Up Tax that will apply to multinational enterprises operating in Bahrain with a consolidated annual revenue exceeding €750m in two of the last four fiscal years.

• Businesses should review the provisions of Decree Law No. (11) of 2024 and carry out appropriate impact assessments as applicable.

Executive summary

On 1 September 2024, Bahrain's National Bureau for Revenue (NBR) published Decree-Law No. (11) of 2024 regarding the Implementation of Tax on Multinational Enterprises (Law). The Law introduces a Domestic Minimum Top-Up Tax (DMTT) to ensure that constituent entities (including companies, branches and permanent establishments) of multinational enterprises (MNEs) situated in Bahrain pay a global minimum tax of 15% on their profits. The global minimum tax is part of Pillar Two of the Organisation for Economic Co-operation and Development (OECD)/G20 Inclusive Framework on the Base Erosion and Profit Shifting (BEPS) 2.0 project.

The DMTT will be effective for fiscal years starting on or after 1 January 2025. It will apply to MNEs operating in Bahrain with a consolidated annual revenue exceeding €750m in two of the last four fiscal years.

Detailed discussion

The Law represents Bahrain's commitment to the OECD/G20's Inclusive Framework on BEPS 2.0 project. The introduction of the Law marks a significant milestone, as Bahrain is the first Gulf Cooperation Council (GCC) country to legislate the implementation of a DMTT. This allows Bahrain to retain the right to tax Bahrain-sourced income and to prevent foreign governments' collection of tax on such income.

Key provisions of the Law

The Law provides the rules and procedures regulating the implementation of DMTT in Bahrain. It does not impose the income inclusion rule (IRR) or undertaxed payments rule (UTPR), which would allow taxation of non-Bahraini profits under certain circumstances.

The DMTT will be effective for fiscal years starting on or after 1 January 2025 and will apply to MNEs operating in Bahrain with a consolidated annual revenue exceeding €750m in two of the last four fiscal years.

The effective tax rate is 15% and will be applicable to the financial net accounting income, subject to certain adjustments. The accounting net income is the amount reported in the financial statements prepared in accordance with international accounting standards.

Permanent and transitional safe harbors will be available.

The DMTT of constituent entities located in Bahrain shall be reduced to zero if the MNE has constituent entities in no more than six jurisdictions and the sum of net book value of tangible assets of all constituent entities located in all jurisdictions, other than the jurisdiction in which the MNE has the highest value of tangible assets, does not exceed €50m for a period of five years after the first day of the first fiscal year when the MNE entered in scope of the OECD Model Rules. Further, none of the ownership interests in the constituent entities located in Bahrain are held by a parent entity that applies the IIR as set out in the OECD Model Rules.

Compliance and tax payments

Filing constituent entities will be required to register with the NBR and submit a tax return. The DMTT will be payable in installments, including advance payments in 2025. More detailed regulations will be published outlining the registration, filing/payment procedures and timing.

Implications

Businesses should consider whether they are in scope of the DMTT and perform appropriate impact assessments. Businesses will also want to assess the impact of the new rules on their financial statement tax provision requirements and monitor future developments. The anticipated release of detailed regulations may provide further clarity on compliance requirements. Companies should ensure that appropriate teams and procedures are in place to support compliance with the Law.

For additional information concerning this Alert, please contact:

Ernst & Young — Middle East, Bahrain

• Ali Almahroos, Bahrain Tax Market Segment Leader

• Joe Kledis, MENA International Tax and Transaction Services Leader

• Jay Smith, International Tax and Transactions Services

• Adrian Hammer, International Tax and Transaction Services

• Laverne Bacaser, International Tax and Transaction Services

• Tomin Jose, Global Compliance and Reporting

Ernst & Young Professional Services (Professional LLC), Al Khobar

• Patrick Oparah, International Tax and Transactions Services

• Abdulla Z Al-Shaikh, Business Tax Services

EY Consulting LLC, Dubai

• Andrei Ignatov, Tax Technology and Transformation

Ernst & Young LLP (United States), Middle East Tax Desk, New York

• Yuriy Melnyk

Published by NTD’s Tax Technical Knowledge Services group; Carolyn Wright, legal editor

For a full listing of contacts and email addresses, please click on the Tax News Update: Global Edition (GTNU) version of this Alert.