Bahrain Announces Tax for MNCs
Starting January 1, 2025, Bahrain will introduce a new tax measure targeting large multinational corporations (MNCs) operating within its borders. This initiative, known as the Domestic Minimum Top-Up Tax (DMTT), is part of Bahrain’s commitment to align with international taxation standards and is aimed at ensuring that global businesses contribute fairly to the kingdom’s economy.
The DMTT – a Brief Overview:
Under the new tax regulation, multinational companies with global revenues exceeding €750 million (approximately $830 million) for at least two of the past four fiscal years will be required to pay a minimum of 15% tax on profits generated in Bahrain. The National Bureau for Revenue (NBR), which currently oversees VAT and excise tax, will be responsible for administering the DMTT.
The introduction of this tax aligns Bahrain with the global taxation reforms proposed by the Organisation for Economic Co-operation and Development (OECD). The OECD’s two-pillar framework, introduced in October 2021, aims to establish a global minimum corporate tax rate to address challenges posed by the digitalization and globalization of the economy. By implementing this reform, Bahrain joins over 140 jurisdictions worldwide that have committed to ensuring a fairer and more equitable tax landscape for multinational enterprises. The OECD estimates that the global minimum tax could generate additional global revenues of around $220 billion annually, contributing to a more balanced distribution of tax revenues across nations.
Bahrain’s decision to adopt the DMTT reflects its broader goal of diversifying its economy away from a reliance on oil revenues. As the smallest economy within the Gulf Cooperation Council (GCC), Bahrain has been proactively working to strengthen its non-hydrocarbon sectors and attract foreign direct investment. In 2021, the kingdom unveiled an ambitious economic reform plan that included a $30 billion investment in strategic projects, aimed at stimulating post-pandemic growth and creating employment opportunities for its citizens. The International Monetary Fund (IMF) projects Bahrain’s real GDP to grow by 3.6% in 2024, signaling a positive trajectory for the nation’s economic future.
This move by Bahrain follows a broader trend within the GCC region, where countries are increasingly introducing new taxes as part of their economic reform strategies. For example, Oman has proposed a draft law on personal income tax, which, if passed, would mark the first such tax in the GCC and could apply to high-earning citizens and foreign residents. Other Gulf countries, including the UAE and Saudi Arabia, have also implemented corporate tax measures to diversify their revenue sources in the face of fluctuating oil prices.
The TME Legal Takeaway
For Bahrain, the introduction of the DMTT is not just about aligning with global standards but also a strategic step in modernizing its tax framework and ensuring that multinational companies contribute their fair share to the kingdom’s development. As the tax takes effect in January 2025, large multinational corporations operating in Bahrain will need to prepare for the new compliance requirements and register with the National Bureau for Revenue, marking a significant shift in the country’s approach to corporate taxation.
