Overview
The DMTT Law introduces a jurisdictional-level Top-up Tax aimed at large MNE Group, ensuring that the minimum effective tax rate (“ETR”) of 15% is met. Under the DMTT Law, if the aggregated results of Bahraini Constituent Entities (“CE”) of an MNE Group do not result in a 15% ETR, Bahrain will impose an additional tax to meet the 15% minimum ETR. It should be noted that the DMTT Law does not include an Income Inclusion Rule (“IIR”) or an Undertaxed Payments Rule (“UTPR”), the other key charging mechanisms as prescribed by the GloBE Model Rules.
Scope
The DMTT Law is expected to apply to CEs located in Bahrain of MNE Groups that meet the following criteria:
The MNE Group holds entities (including subsidiaries, branches or permanent establishments) located in at least one other jurisdiction to that of the ultimate parent of the group; and
The MNE Group has annual consolidated global revenues of at least EUR 750 million in at least two of the preceding four fiscal years.
Exclusions
government bodies; international organizations; non-profit organizations; pension funds;
investment fund that is an ultimate parent entity (“UPE”); real estate investment vehicle that is a UPE;
an entity, other than a pension service entity, subject to meeting certain conditions, e.g:
if least 95% of its value is owned, directly or indirectly, by one of the aforementioned Excluded Entities, the entity operates exclusively or almost exclusively to own assets or invest funds for these Excluded Entities, and it only engages in activities ancillary to those performed by the Excluded Entities; or
if least 85% of its value is owned, directly or indirectly, by one of the aforementioned Excluded Entities, and the entity's income is primarily derived from gains and losses on shares or equity interests that are excluded from the calculation of the Constituent Entities’ (“CE's) income or loss.
Excluded Entities are not treated as CE of the MNE Group. However, the revenue of the above Excluded Entities will be considered in determining whether the revenue threshold of EUR 750 million or more is met by the MNE Group. Further, the NBR may still require the Excluded Entities to register for the DMTT. The DMTT Law contains an election not to treat an Excluded Entity for entities under this category.
Calculation
Constituent Entities: The ETR for CEs located in Bahrain will be determined on a
jurisdictional level, i.e. taking into account all Bahrain CEs within the MNE Group.
ETR = Adjusted Covered Taxes / Net CE Income
For this purpose, Adjusted Covered Taxes is equal to the sum of all the Bahrain CEs’ current tax expense as accrued in each of their financial statements for a fiscal year, and which are considered as Covered Taxes. The Regulations will outline the conditions that must be met for a tax to be treated as a Covered Tax, and this is expected to be in line with the GloBE Model Rules. Broadly, Covered Taxes include the income taxes recorded in the financial statements and taxes imposed in lieu of a generally applicable corporate income tax.
On the other hand, Net CE Income refers to the positive sum of the aggregated income and loss of all the CEs located in Bahrain. The CE income or loss is the financial accounting net income before making any consolidation adjustments to eliminate intra-group transactions in accordance with the local financial accounting standards of the CEs. The Regulations will outline the adjustments that are taken into account in the computation of Net CE Income, and these are expected to be in line with the GloBE Model Rules. For instance, some of the common adjustments include dividends and capital gains where certain conditions are met.
Initial phase
The DMTT will be reduced to nil, for a maximum period of 5 years, if the MNE Group meets the following conditions:
CEs are located in no more than 6 jurisdictions
The net book value of tangible assets across all jurisdictions does not exceed EUR 50 million, excluding the jurisdiction where the MNE Group has the highest value of tangible assets when the global minimum tax rules first apply to that MNE Group; and
No ownership interests in the CEs are held by a parent applying the Income Inclusion Rule.
The DMTT Law prescribes the applicable accounting standard for in scope entities to be the International Financial Reporting Standards (“IFRS”) and any other generally accepted accounting principles, to be specified in the Regulations
Penalties
Failure to register or applying for registration using incorrect information: up to BHD 100,000 Failure to comply with administrative and compliance requirements: up to BHD 50,000
Late payment of tax: 1% of the unpaid tax per month (with a maximum total penalty of 70% of the total tax due) Late filing of the tax return: up to 30% of the tax due
Tax evasion: criminal liability including imprisonment of between three months and five years, and/or monetary penalties between the monetary value of the tax due and up to three times the tax due; this is doubled where the offense is repeated within six years from the date of the issuance of the final conviction. “Tax evasion” includes among others, situations where an MNE Group intentionally does not register for the DMTT or fails to submit a DMTT return or provides incorrect information in its DMTT return.
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