P2 In The GCC

With the lone exception of the KSA, all member countries of the GCC adopted the P2 regime from 1 January, 2025

Festive months of December and January were quite frantic for the GCC tax fraternity due to advent of the P2 rules, with all member countries adopting the regime effective 1 January 2025 with the lone exception of KSA.

Bahrain was the torchbearer with the law enacted on 1 September 2024 followed by the Executive Regulations (ER) introduced on 11 December 2024 providing the procedural aspects of the law.

BEPS 2.0 implementation status in GCC:

Oman:

The Supplementary Tax Law introduced on 1 January 2025 covers both Domestic Minimum Top-up Tax (DMTT) and Income Inclusion Rule (IIR) on in-scope inbound and outbound MNEs respectively. The tax has been made applicable on entities and Permanent Establishments (PEs) of foreign MNEs in Oman which have not been taxed at the minimum effective rate through the IIR mechanism at the Ultimate Parent Entity (UPE) / Intermediate Parent Entity (IPE) level and on entities of Oman headquartered MNEs located outside, through IIR imposed on the UPE/ IPE/ Partially Owned Parent Entity (POPE). The ER is still not in place. Oman has an existing Corporate Income Tax (CIT) regime with a headline rate of 15%.

UAE:

UAE, with an existing 9% tax, introduced a DMTT on 24 November 2023 amending provisions of the extant law, issued a guidance paper on the rules in March 2024 and finally launched the regime on 9 December 2024. UAE has settled for the DMTT only and negated the FTZ and Participation exemptions.

Qatar:

On December 29, 2024, Qatar issued Law No. (22) of 2024, amending key provisions of the existing Income Tax Law No. (24) of 2018. These amendments mark a pivotal step in aligning Qatar’s tax regime with global standards under the OECD/G20 Inclusive Framework on BEPS, P2 GloBE Rules.

The law is aimed at taxing entities owned/controlled by foreign MNEs located in Qatar and entities of Qatari’s MNEs, located outside of Qatar.

Thus, the P2 regime covers both investments into Qatar by foreign MNEs and by Qatar-based MNEs outside of Qatar and specifies a rate of tax (‘Local Supplementary Minimum Tax’) which is sufficient to ensure that the original taxes imposed on such entities reaches a minimum of 15%.

Qatar has, through the law, therefore introduced the (‘IIR’) to safeguard taxing rights on its outbound investments in furtherance to the application of the Supplemental Tax on foreign-owned entities in Qatar in form of “DMTT”. Qatar has an existing CIT regime with a headline rate of 10%.

ER and detail provision of law are still awaited.

Kuwait

DMTT introduced on 31 December 2024 on MNEs headquartered in and outside of Kuwait. ER expected by 30 June 2025. In-scope MNEs are needed to register by 30 September 2025. For in-scope MNEs, DMTT replaces 1% Zakat levied on Kuwaiti Shareholding companies (KSCs) with additional 2.5% National Labour Support Tax on listed KSCs and 15% tax levied on Kuwait originated non-resident incomes.

Bahrain

Coverage:

Bahrain, which still holds centrestage, has introduced only DMTT without any discussions on IIR/UTPR with coverage of MNEs headquartered in Bahrain and overseas MNEs (including PEs) operating in the Kingdom. ER guidance is based on the GloBE rules.

JVs and their subsidiaries (JV Subcos), accounted for under the Equity Method in the UPE’s books, will be treated as a separate MNE Group for DMTT purposes if the UPE holds at least 50% of ownership interests, either directly or indirectly. In such cases, the JV will be designated as the UPE for DMTT computation. However, if a JV is subject to line-by-line consolidation at the UPE level due to control being exercised, it will be treated as part of the MNE and blended with other Constitute Entities (CEs) in the region.

The ER announced on 11 Dec 2024 is within the perimeters of the GloBE rules. A quick snapshot of the ER follows: -

Revenue Test:

ER clarifies that Revenue will include that from ordinary activities, realised and unrealised net gains from investments and extraordinary/ non-recurring incomes or gains. Further, if the MNE does not have Consolidated Financial Statements (CFS) for any of the four preceding Fiscals due to the CEs being newly created, annual revenue for any such Fiscal shall be deemed not equal to or not exceeding the threshold.

Adjustments from Covered Taxes and Final Adjusted Net income/Loss (FANIL):

Substantive adjustments along with guidelines prescribed for purposes of computation of FANIL have been legislated. Further, guidance for insurance companies and conditions for exclusion of international shipping income has been prescribed. International Airline incomes have not been excluded (generally both are excluded in Double Taxation Avoidance Agreements (DTAAs) and Domestic Tax Laws) in accordance with GloBE rules. The cover taxes are expected to be nil since Bahrain is currently a non-income taxed jurisdiction.

Exclusions from and allocations of covered taxes, additions/reductions in covered taxes and deferred tax adjustment amounts have also been provided for which are in line with the OECD guidelines.

Registration, Exclusions and Administrative requirements:

ER required CEs to register by Jan 30, 2025, for in-scope MNEs and within April 30 of the Fiscal concerned for MNEs becoming in-scope at later years.

The National Bureau Of Revenue (NBR), both for tax policy and administration published a helpful guide on basic premises of the law and conducted a seminar to disseminate knowledge on the law and on the process of registration. A dedicated e-mail id was also provided to resolve issues.

Registrations were smooth with minor glitches which NBR was quick to address. Penalties for non-registration are up to BHD 100,000.

Entities registered as Excluded Entities under Article 17 of the Law would need to submit a declaration with registration, filing, payment of taxes, and tax returns are responsibilities of the filing constitute entity (filing CE) supporting documents substantiating their status.

Further, Safe Harbors (De Minimis/transitional CbCR/ Initial phases of International Activities), if any applicable, would need to be elected during the registration process. Documents that need to be attached are MNE details including inter-alia the ownership structure, entities of the MNE Group (including JVs and JV Subcos), financial data, consent from other CEs etc. to the filing CE. ER does not define the Simplified computation safe harbor though substance-based income exclusions have been covered in detail with percentage of eligible payroll costs and tangible assets announced till 2033 in line with OECD guidelines.

NBR will now review the applications and issue a Registration Certificate once they accept. Changes, if any, to the registered information would need to be communicated within 30 days of such changes.

In terms of the other administrative requirements, conditions for de-registration have been laid down and such de-registration would need to be applied for within 30 days of the conditions being met.

Tax payment

DMTT is payable on a quarterly basis effective 1 January 2025, within 60 days from the end of the quarter concerned. However, the first and second instalments have to be clubbed for the Transition Year taking the last date for payment to August 29, 2025, for MNEs following the calendar year. Any remaining balance of tax due for the Reporting Fiscal Year must be paid within 15 months from the end of the Fiscal.

DMTT Returns would need to be filed within 15 months from the end of the fiscal i.e., March 31, 2027, for MNEs following the calendar year. Returns would need to be filed even if nil taxes have been paid. Format of the Return is awaited.

The advance payment of taxes can be paid following the “Prior Year”/ “Current Year” basis. Election to be made prior to the payment of first instalment and continued for the fiscal.

Prior Year Method:

Reasonable estimate of the tax to be computed for the prior year for in-scope jurisdictions CEs and then divided by number of days in the prior year. The result is multiplied by the number of days in the advance payment period to arrive at the tax payable. For the transition year, tax is estimated as if the law had been applicable in the prior year.

Current Year Method:

A reasonable estimate of tax from the start of the Fiscal till end of the Advance Payment Period to be made as if it was a complete Fiscal Year. From those advance payments already made for the fiscal to be subtracted to arrive at tax payable for the quarter.

Permanent Establishment (PE)

ER has introduced the concepts of PE and includes a Fixed Place PE, Assembly PE and Agency PE constitution for an in-scope MNEs. It also mentions that a PE may be constituted if the non-resident (NR) has “any other form of nexus” in Bahrain, hinting inclusion of an expanded Business Connection clause.

Constitution of an Agency PE has been made more rigorous with the Agent considered Dependent if it cannot be considered “legally or economically independent” from the NR. Generally, across commentaries, Dependent Agents are ones who depend on the NR for > 50% of its business.

A Service PE clause has not been included, though, present in most DTAAs signed by Bahrain. It needs to be seen if the same clauses are retained in the Domestic Corporate Tax laws of Bahrain as and when introduced.

Rules have been prescribed for allocation of incomes/losses, covered taxes and substance-based income exclusions for PE.

Transfer Pricing (TP)

TP has also been introduced, for an in-scope MNEs and ER requires that the FANIL needs to be TP adjusted. Methods prescribed are in sync with the OECD requirements and include CUP, RPM, CPM, TNMM and PSM. Preparation and maintenance of Local File and Master File has also been legislated. ER provides guidance on the inclusions of the Local and Master Files, however, does not prescribe any submission deadlines.

It remains to be seen whether an Arm Length Price (ALP) consideration from the perspectives of a Flip side TP arrangement works In Bahrain. MNEs would need to assess their Global TP policies to include RP transactions with Bahrain.

Other matters:

• DMTT to apply on 100% of Bahrain top-up tax irrespective of the MNE’s holding in CEs/ JVs/ Minority Owned CEs (MOCEs). ETR and top-up tax for Minority Owned CEs (UPE ownership <= 30%) to be separately computed
• Tax computation to be in Bahraini Dinars (BHD) if all CEs use such as presentation currency. If not so, Filing CE to elect computation either in BHD or in the currency used in the MNE Group CFS. Tax reporting and payment to be in BHD – to be converted into BHD using average exchange rate for the Fiscal, to be published by the Central Bank of Bahrain (CBB) / reliable sources to be confirmed by NBR. An Election of the currency for tax computation would be for 5 years
• General Anti Avoidance Rules (GAAR) have been announced where NBR may adjust to eliminate any tax benefits gained. This is not part of the general GloBE rules but has been incorporated by other jurisdictions as well.
• Record retention at 5 years and at 10 for real estate and capital assets
• Accounting Disclosures under IAS 12 to be carried out.

Disclaimer – The views expressed in this article are the personal views of the author and are purely informative in nature.