Bahrain to introduce new tax on multinational corporations

The domestic minimum top-up tax will take effect from January 1

Manama skyline. Under DMTT, multinational companies will pay a minimum 15 per cent tax on the profits generated in Bahrain.

Bahrain will introduce a new tax on multinational corporations operating in the country starting from January, as part of plans to align with global taxation reforms.

Under the domestic minimum top-up tax (DMTT), multinational companies will pay a minimum 15 per cent tax on the profits generated in the country, the Bahrain News Agency reported Sunday.

The tax will apply exclusively to large multinationals operating in the kingdom, with global revenue exceeding €750 million ($830 million) for at least two of the previous four fiscal years, starting from January 1.

Eligible businesses will need to register with the National Bureau for Revenue, which also handles VAT and excise tax.

 The new framework is "fully aligned with the Organisation for Economic Co-operation and Development (OECD) guidelines", the BNA said.

The OECD's two-pillar reform programme set up a global minimum corporate tax to ensure large multinational enterprises pay a minimum 15 per cent tax on profits in each country where they operate.

The initiative is aimed at addressing tax challenges arising from the digitalisation and globalisation of the economy and putting a floor on tax competition, according to the OECD.

So far, more than 140 jurisdictions have signed up for the reform programme, which was announced in October 2021.

The proposed global minimum tax is expected to result in annual global revenue gains of around $220 billion, or 9 per cent of global corporate income tax revenue, the OECD said last year.

With the introduction of the DMTT, "Bahrain demonstrates its international commitment to global co-operation and its dedication to fostering a fair and level playing field in international taxation", the BNA said.

Bahrain, the smallest economy in the six-member GCC economic bloc, has been focusing on diversifying away from oil and boosting its non-hydrocarbon sector.

To strengthen its economy, the country unveiled a major economic reform plan in 2021 that seeks to invest about $30 billion in strategic projects to drive post-coronavirus growth, boost employment for citizens and attract foreign direct investment.

The country's real gross domestic product is expected to grow by 3.6 per cent this year, according to the International Monetary Fund.

Countries in the Gulf have each individually introduced various taxes such as VAT and corporate tax as part of their economic reform strategies.

In July, Oman's Shura Council also revealed plans to forward a draft law on personal income tax to the State Council. Although the exact details are still being finalised, if passed, the sultanate’s personal income tax would be a GCC first and could affect high-earners, with citizens taxed on net global income above $1 million and foreign residents on Oman-sourced income above $100,000.

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Bahrain: General VAT Guide

Bahrain: General VAT Guide

VAT scheme is now live in Bahrain.

Supplies of goods and services by a taxable person in Bahrain are generally subject to VAT in Bahrain at the standard-rate of 5%, unless they are specifically subject to VAT at the zero rate or exempt from VAT.

Scope of VAT

1. Local supplies of goods and services
2. Imports of goods
3. Imports of services by a VAT registrant

Special VAT refund schemes are available.

VAT legislation allows certain persons to obtain a refund of Bahrain VAT incurred on their expenses and import of goods irrespective of whether they qualify as taxable persons or meet the general conditions for input tax recovery. These are called “Special refund schemes”. The persons listed below can benefit from a special refund scheme:

1. Tourists
2. Foreign governments, international organizations, institutions, consular and military bodies and missions
3. Business visitors from non-Implementing States
4. Taxable persons from other Implementing States

Each special refund scheme follows specific conditions and a specific refund application process. Further information on these schemes will be published in due course.

Penalties for non-compliance.

1. Delay in VAT return filing/payment of due tax: Between 5 and 25 percent of VAT payable,
2. Failure to register within 60 days of the deadline provided for registration: Less than BHD10,000,
3. Understating the value of imports or supplies of goods and services: Between 2.5 and 5 percent of the unpaid tax for every month in which it is outstanding,
4. An administrative penalty not exceeding BHD5,000 is imposed for persons involved in the following:
1. 
   
• Failure to cooperate with the tax authority’s employees in their duties to enforce the provisions of the VAT Law.
• Failure to disclose to the tax authority changes in the applicant’s registration status or VAT return-related information.
• Failure to display VAT-inclusive prices on products and services in the local market (retail sales).
• Failure to submit information requested by the tax authority.
• Failure to abide by the rules and conditions surrounding the issuance of tax invoices.
• Violation of any other provision of the VAT Law and VAT Regulations.

Saudi Arabia and The United Arab Emirates became the first countries in the Gulf Region to implement a VAT regime last year. Other Gulf Region countries have been working on following in their footsteps with this new VAT regime.

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