Bahrain

Banking and Tax Regulatory Developments

Natalia Kumar
Senior Counsel

Anuj Bhasin
Senior Associate

Gargi Agarwal
Associate

Bahrain has emerged as a regional leader in advancing regulatory frameworks to foster economic growth and innovation. Recent developments reflect Bahrain's commitment to creating a business-friendly environment that aligns with international best practices while supporting its Economic Vision 2030. From financial services to technology and sustainable development, Bahrain has introduced reforms aimed at enhancing transparency, ensuring regulatory efficiency, and encouraging private sector participation. These measures not only strengthen investor confidence but also position Bahrain as a competitive hub for businesses seeking stability and growth in a dynamic regional setting. As Bahrain continues to evolve its regulatory landscape, these efforts play a crucial role in driving economic diversification and sustainable development. In this article, we will focus on the banking and tax reforms that are expected to be implemented in 2025.

Secured Transactions Law

The initial draft of the Secured Transactions Law was circulated for consultation on 18 July 2017 and was based upon the UNCITRAL model Secured Transaction Model Law of 2016. On 23 March 2020 the Central Bank of Bahrain (“CBB”) sent out a new draft of the proposed Secured Transactions Law for consultation (the Draft Law). The Draft Law will materially change the way in which security is created, perfected and enforced in Bahrain. The Draft Law introduces a registry of security rights as well as the concept of self-help (which is currently not available under the current regulatory regime). The CBB has yet to announce the outcome of the consultation but a version of the law is expected to be issued in due course in line with a regional push to introduce laws enabling the creation of security over assets.

Netting Law As part of the CBB’s objective to enhance its regulatory framework, the CBB circulated the draft Netting Law for consultation on 12 December 2024. The draft Netting Law is based on the International Swaps and Derivatives Association (“ISDA”) Model Netting Act which shall supersede Resolution No. 44 of 2014 with respect to promulgating a Resolution for Close-Out Netting under a Market Contract (“Netting Regulations”). The implementation of the draft Netting Law will provide greater legal certainty for financial institutions and market participants in Bahrain. By clearly defining the enforceability of netting agreements and the treatment of collateral, the law should reduce legal risks and enhance confidence in the financial market. The draft Netting Law aligns Bahrain's legal framework with international standards and best practices for netting and collateral management. This will enhance Bahrain's reputation as a well-regulated financial center and facilitate its integration into the global financial system. By addressing Shari'a compliance, the law will also support the growth of Islamic finance. Financial institutions offering Shari'a-compliant products will benefit from the legal clarity provided by the law, promoting innovation and development in the Islamic finance sector. The legal certainty and robust framework provided by the draft Netting Law will make Bahrain a more attractive destination for foreign investment. International investors and financial institutions will have greater confidence in entering into financial contracts and transactions in Bahrain.

Bahrain’s ongoing regulatory reforms are paving the way for a more dynamic and competitive business environment. As Bahrain moves forward, these developments will support long-term economic diversification and solidify Bahrain’s position as a leading business hub in the region.

Domestic Minimum Top-Up Tax Law On 1 September 2024, Bahrain has announced the introduction of a Domestic Minimum Top-Up Tax (“DMTT”) for multinational enterprises (“MNEs”) effective from 1 January 2025. In line with the Organisation for Economic Co-operation and Development (“OECD”) Pillar 2, the DMTT will be applicable at the rate of 15% on the taxable profits of large MNEs with consolidated revenue over EUR 750 million. The DMTT will be payable by the Bahraini constituent entity of the MNE that meets the revenue threshold test. The entities on which DMTT Law applies are required to register themselves with the National Bureau for Revenue in Bahrain. Such entities are required to file their tax returns for the relevant fiscal year, and the tax is to be settled by way of advance payments during the fiscal year (or through one or more instalments payments). Specific entities are excluded from the applicability of the DMTT Law, which includes Government bodies, international organisations, non-profit organisations, pension funds and certain investment fund & real estate investment entities. The implementation of DMTT in Bahrain will affect large MNEs operating in Bahrain. It is crucial for all large MNEs to understand the DMTT rules and to ensure compliance and assess the impact on their global tax position.

Bahrain’s banking and tax agenda of legal and regulatory reforms will enhance its fiscal sustainability, attract private investment in key sectors, and foster human capital development. The overall vision will transform Bahrain into a diversified and competitive economy that provides opportunities for all. By implementing these reforms, Bahrain will be better prepared to face the challenges and opportunities and lay a solid foundation for its ambitious goals for 2025 and beyond.