Bahrain Introduces 15% Domestic Minimum Top-up Tax on Multinationals

In a pivotal alignment with global tax norms, Bahrain unveiled Decree-Law No. 11 of 2024 on September 1, 2024, introducing a 15% Domestic Minimum Top-up Tax (DMTT) on profits of large multinational enterprises (MNEs) operating in the kingdom, effective January 1, 2025. This landmark legislation, published by the National Bureau for Revenue (NBR), targets constituent entities—including subsidiaries, branches, and permanent establishments—of MNE groups with consolidated annual revenues exceeding €750 million in at least two of the prior four fiscal years, ensuring a jurisdictional effective tax rate (ETR) of no less than 15%. As a partial adoption of the OECD's Pillar Two Global Anti-Base Erosion (GloBE) rules—without the income inclusion or undertaxed payments mechanisms—the DMTT calculates top-up liabilities by aggregating Bahraini entities' adjusted profits, subtracting substance-based income exclusions (up to 5-9.8% for payroll and assets), and bridging any ETR shortfall to 15%. Bahrain's move, following executive regulations issued December 15, 2024, mandates a nominated filing entity for registration, returns, and payments, with safe harbors and anti-avoidance provisions to streamline compliance. Proponents, including OECD Inclusive Framework members, applaud the step as bolstering Bahrain's appeal as a low-tax hub—previously at 0% corporate income tax—while securing local revenue from oil giants and financial services firms amid fiscal diversification from hydrocarbons. It positions the Gulf state competitively against UAE (9% CIT) and Saudi Arabia (20%), potentially generating BD 100-200 million annually in new funds for infrastructure and green initiatives. Critics, however, warn of administrative burdens on SMEs intertwined with MNEs and risks of double taxation without robust treaty networks, urging clearer guidance on de minimis exclusions and transitional relief. As Bahrain's first foray into corporate taxation, this DMTT underscores a maturing economy's embrace of equitable globalization, fostering sustainable growth in a post-oil era.