Bahrain Introduces Domestic Minimum Top-up Tax – Introduction
On 1 September 2024, the Kingdom of Bahrain made a significant move by publishing Decree-Law No. (11) of 2024, which introduces the Domestic Minimum Top-up Tax (DMTT) for large multinational enterprises (MNEs).
This new law applies to multinationals with a global annual revenue exceeding €750 million and marks a major shift in Bahrain’s tax landscape, particularly as the country has not previously imposed a corporate income tax on businesses.
The DMTT will come into effect on 1 January 2025, and companies affected by this law must register with the National Bureau for Revenue of Bahrain.
While the specific regulations and procedures are still pending publication, it’s clear that non-compliance will have serious consequences.
Why Is This Tax Being Introduced?
The introduction of the DMTT aligns with Bahrain’s commitment to the Organization for Economic Co-operation and Development (OECD) and its global two-pillar tax reform initiative (Pillar 2).
This initiative has been endorsed by the Gulf Cooperation Council (GCC) and over 140 countries worldwide.
Pillar 2 of the OECD’s reform is designed to ensure that large multinational companies pay a minimum level of tax on the profits they earn across the globe, regardless of the jurisdiction in which they operate.
This initiative is part of a broader effort to combat base erosion and profit shifting (BEPS), where companies shift profits to low-tax jurisdictions to avoid paying taxes.
What Are the Penalties for Non-Compliance?
The penalties for failing to comply with the DMTT are severe. According to Article 35 of Decree-Law No. (11) of 2024, any failure to register for tax purposes will be classified as tax evasion, which is a criminal offence in Bahrain.
The punishments include:
- Imprisonment for a period of no less than three months and up to five years.
- A fine that is no less than the amount of tax due and can be up to three times the value of the unpaid tax.
Companies must take this seriously to avoid these harsh penalties. The law’s strict penalties are intended to ensure that multinationals comply fully with the new tax rules.
Bahrain’s Unique Position in the GCC
What makes this move particularly interesting is that Bahrain has not yet introduced a corporate tax on the profits of companies based in the country.
This makes Bahrain the only GCC state without a regular corporate income tax.
However, by introducing the DMTT, Bahrain becomes the first GCC country to implement a tax regime in line with Pillar 2 of the OECD’s global tax framework.
This sets Bahrain apart from its neighbours and could be a signal that change is coming for other countries in the region.
For now, it appears that companies that fall below the €750 million revenue threshold will continue to benefit from Bahrain’s zero-corporate-tax policy.
However, it remains to be seen how long this situation will continue, especially given the global push towards greater tax fairness and transparency.
Bahrain Introduces Domestic Minimum Top-up Tax – Conclusion
The introduction of the Domestic Minimum Top-up Tax is a landmark shift for Bahrain and a clear indication that the country is committed to playing its part in the global tax reform movement.
While Bahrain has traditionally been a tax haven for multinational companies, this new law shows that it is adapting to the changing global tax environment.
Large multinational enterprises should prepare to comply with the new rules and ensure that they register with the National Bureau for Revenue to avoid hefty penalties.
As Bahrain takes this step, it will be interesting to watch how the country’s tax policies evolve in the future and whether other GCC countries follow suit.
Final thoughts
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