Taxes on Multinational Enterprises Enhance Bahrain's Revenue and Competitiveness, the Legislative and Legal Opinion Commission

TDT | Manama

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The Legislative and Legal Opinion Commission has confirmed the issuance of Law Decree No. 11 of 2024, which regulates taxation for multinational enterprises is part of urgent measures aimed at enhancing the Kingdom's ongoing efforts to sustain its public revenue system and explore new sources of financial funding.

"The goal is to address the rising public expenditure driven by the expansion of various public projects and to mitigate the budget deficit," the Commission stated.

Structure of the Law

The proposed law consists of 44 articles divided into seven chapters. The first chapter outlines the preliminary provisions and objectives of the law. The second chapter addresses the scope of the tax and its imposition, while the third chapter details the calculation and payment methods. The fourth chapter covers tax procedures and obligations, and the fifth chapter deals with administrative accountability and dispute resolution. The sixth chapter addresses criminal liability, and the final chapter provides concluding provisions.

Economic Stability and Growth

The Commission stated that this law would contribute to the financial and economic stability of the Kingdom, which is fundamental for the nation's resilience. It aims to build upon previous financial, economic, and structural reforms to achieve fiscal stability and balance. "This framework is expected to bolster confidence in the Bahraini economy, stimulate economic activity, and support the government's goal of achieving high and sustainable economic growth. Furthermore, it seeks to ensure equitable distribution of the benefits of this growth, addressing social and tax justice requirements, and providing the necessary financial space to fund developmental projects and social programs," the Commission pointed out.

International Compliance

"The law also aligns with international standards requiring all economic activities to be subject to taxation. It emphasizes the necessity of implementing a minimum global tax and local taxes on multinational enterprises operating in Bahrain. These measures will be applied in accordance with the guidelines set forth by the Organisation for Economic Co-operation and Development (OECD), particularly regarding the Base Erosion and Profit Shifting (BEPS) framework," the Commission stressed.

The Commission pointed out that without imposing and collecting taxes in Bahrain, multinational enterprises would continue to fulfill their tax obligations in other countries for activities conducted in the Kingdom. This situation could lead to a significant loss of a crucial revenue source for developmental projects and deprive the Kingdom of tax revenues from economic activities taking place on its soil.

Importance of a Tax System

"It is essential for Bahrain to be part of the international tax system to enhance transparency and improve its reputation as a reliable investment destination. The absence of an effective tax system and legal mechanisms to avoid double taxation negatively impacts Bahrain's competitive advantages as an investment hub and limits the government's capacity to generate essential revenue for infrastructure and public services," the Commission concluded.