12-05-2025
Law to tax multinational companies is approved in Bahrain
Bahrain - A royal decree law imposing a 15 per cent Domestic Minimum Top-Up Tax on eligible multinational enterprises (MNEs) operating in Bahrain was unanimously approved by the Shura Council yesterday.
The decree, originally issued by His Majesty King Hamad in August 2024, had already been approved unanimously by MPs.
The landmark legislation brings Bahrain in line with international tax reforms led by the Organisation for Economic Co-operation and Development (OECD), specifically the global minimum tax initiative under the Inclusive Framework on Base Erosion and Profit Shifting (BEPS), to which Bahrain has been a signatory since 2018.
Under the new law, a 15pc minimum top-up tax will be levied on MNEs or projects with consolidated annual global revenues exceeding €750 million. The objective is to prevent tax base erosion by ensuring that multinational corporations contribute fairly to the domestic economy, rather than shifting profits to low- or no-tax jurisdictions.
According to Shura's financial and economic affairs committee, the measure is part of a suite of urgent reforms to:
l Enhance the sustainability of public revenues;
l Identify new financial resources to fund rising public expenditure;
l Address the national budget deficit;
l Support infrastructure and development initiatives; and
l Promote economic resilience and social justice.
Committee chairman Khalid Al Maskati emphasised the strategic value of the tax.
'This law ensures Bahrain remains an active player in the evolving international tax framework. If we don't impose these taxes, multinationals will pay them elsewhere and Bahrain will lose a crucial revenue stream.
'This tax not only fulfils our international obligations under the OECD framework, but it also allows us to retain revenues from activities conducted within our borders. It is a strategic tool to finance vital infrastructure and services.'
The law was issued by royal decree during the parliamentary recess under Article 38 of the Constitution, which permits urgent legislative action in exceptional circumstances.
The legislation includes comprehensive provisions detailing the scope of application, mechanisms of tax calculation, administrative and criminal liabilities and dispute resolution procedures.
Unlike traditional corporate taxation, the law targets both 'companies' and 'projects', ensuring broader coverage of all legal entities engaged in qualifying activities. This approach guarantees that legal structures cannot be used to avoid the tax.
Mr Al Maskati stressed that Bahrain had signed on to Pillar Two of the OECD framework – focused on a global minimum tax on high-revenue MNEs – but not Pillar One, which targets digital services taxation.
He also underlined that the law strengthens Bahrain's global investment appeal.
'By adopting this tax, Bahrain is not only meeting its international obligations, but also reinforcing its transparency and legal infrastructure. This positions us as a credible and attractive investment destination.'
The government estimates that the new tax will generate BD130 million annually from 348 companies operating in Bahrain, pointed out Mr Al Maskati in a presentation that included statistics.
Shura financial and economic affairs committee rapporteur Dr Anwar Al Sadah described the law as a 'cornerstone of fiscal sovereignty and economic modernisation'.
'The introduction of this top-up tax is a critical leap toward securing Bahrain's share of the global tax pie. It ensures that international corporations operating here do not exploit legal gaps to shift profits abroad,' he said.
'We are equipping our economy with the tools to grow independently while meeting global standards. This decree law serves not just as a revenue stream, but also as a declaration of Bahrain's commitment to equitable, rules-based growth.
'With full legislative backing and royal assent, Bahrain's implementation of the Domestic Minimum Top-Up Tax marks a pivotal shift in its fiscal policy landscape. The new framework not only fulfils Bahrain's international obligations but strategically positions the kingdom to capture its rightful share of multinational tax revenue – funds that will now fuel development projects and economic sustainability at home.'
Shura legislative and legal affairs committee chairwoman Dalal Al Zayed praised the clarity of the legislative text, noting its legal rigour.
'The government has expertly leveraged international agreements as financial guarantees. The decree contains clear and specific provisions covering all forms of tax evasion, with mechanisms for complaints, appeals and criminal prosecution.'
However, she raised a few concerns.
'The decree grants the tax authority a 10-year window starting from the commission of the crime, not from the discovery of it. This wording could weaken the prosecution of tax evasion. Also, some articles refer to financial benchmarks from 2023 despite the law coming into force in 2025 – does this imply retroactive application?'
Ms Al Zayed also asked whether tax disputes would fall under the jurisdiction of administrative courts or if a special court circuit would be established.
Shura human rights committee chairman Dr Mohammed Al Khozaie framed the law as a vital emergency measure.
'This law comes in the context of urgent steps to ensure revenue sustainability, especially as public spending expands across various sectors. It is key to financing infrastructure while tackling the budget deficit.'
Shura Council member Fouad Al Hajji echoed that sentiment.
'This decree law is aligned with government policy agreed upon with Parliament during budget deliberations. It boosts state revenues without burdening citizens with new taxes or fees. It has both a financial and social dimension, as it channels corporate tax revenues into development projects that benefit the people.'
Shura first vice-chairman Jamal Fakhro called for greater clarity on the figures.
'We need to know how many Bahraini and foreign companies will fall under this law. Will there be exemptions? There's a discrepancy in the projected revenues – BD100m cited by Parliament and BD130m by the Shura. These differences matter for future oversight.'
National Bureau for Revenue chief executive Rana Faqih was present during the debate on the issue at the chamber's weekly session.
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