Transfer Pricing in Bahrain

The legal framework

Transfer pricing in Bahrain has an unusual shape. There is no broad-based corporate income tax: the only income tax is the 46% charge on oil and gas activities under Amiri Decree No. 22 of 1979, which contains no related-party pricing rules (PwC Worldwide Tax Summaries, Bahrain, July 2026). Intra-group pricing had no Bahraini tax consequence until 1 January 2025.

Decree-Law No. 11 of 2024, published on 1 September 2024, introduced a 15% Domestic Minimum Top-up Tax on Bahrain constituent entities of MNE groups with consolidated revenue of EUR 750 million or more in at least two of the four preceding fiscal years (Article 3(C)). Article 2(B) directs that the GloBE Model Rules inform interpretation, and Article 43 binds the executive regulations to the OECD Commentary and Administrative Guidance. Bahrain's arm's length rules sit inside this regime and nowhere else.

The operative provisions are in Decision No. 172 of 2024, the Executive Regulations of 15 December 2024. Article 1(33) defines the arm's length principle by reference to the conditions independent enterprises would agree in comparable transactions; Article 13(A) obliges each Bahrain constituent entity to adjust its financial accounts, when computing Constituent Entity Income or Loss, so that cross-border dealings with group entities meet that standard; Article 12(A)(10) makes the adjustment a mandatory step in the income computation. Article 1(45) incorporates the 2022 OECD Transfer Pricing Guidelines (or a later edition approved by the NBR Chief Executive), and Article 13(B) requires consistency with them.

Only cross-border transactions with group constituent entities, joint ventures and JV subsidiaries are caught; Bahrain-to-Bahrain dealings fall outside except that a loss on an intra-Bahrain asset transfer must be restated to arm's length (Article 13(D)). No OECD transfer pricing country profile exists for Bahrain, so the legislation and the NBR's own guidance are the only authoritative sources.

Methods, comparables and benchmarking

Article 13(B) names the five OECD methods (comparable uncontrolled price, resale price, cost plus, transactional net margin and profit split) and requires the most appropriate for the facts. The NBR's DMTT Transfer Pricing Guide (v1.0, June 2026) supplies the selection logic: no strict hierarchy, but a traditional transaction method beats a profit method where equally reliable, CUP beats any other method on the same footing, and one method suffices (section 2.3.1).

The comparability chapter tracks the OECD five factors. The functional analysis determines the tested party; where one party makes unique and valuable contributions, the less complex party is tested (section 2.2). Actual conduct overrides contractual terms where they diverge. Profit split is reserved for highly integrated operations, two-sided unique contributions or shared economically significant risks; a shortage of comparables does not justify it (section 2.3.6).

What the Guide omits is equally important. There is no interquartile-range rule, no prescribed point within the range and no multi-year data requirement: the examples treat any result within the full range of comparables (a 6% TNMM margin within 5-7%, a 10% mark-up within an internal 9-11% band) as arm's length (sections 2.3.4-2.3.5). There is no stated preference for Bahraini, GCC or global comparables, and the commodity example uses Dubai Mercantile Exchange quotations and GCC gas indices as CUPs (section 2.3.2). Amount B is not mentioned; distributors are benchmarked conventionally under the resale price method.

Documentation: what the NBR expects

Article 13(E) of the Regulations requires every Bahrain constituent entity that transacts with another constituent entity of the same group to maintain a local file and a master file. There is no transaction-value threshold and no materiality carve-out: once the group clears EUR 750 million, a single cross-border intercompany transaction triggers the full obligation.

The content lists in Article 13(F) (13 local-file items) and 13(G) (11 master-file items) follow BEPS Action 13 Annexes I and II. Points worth noting in the local file list: restructurings and intangible transfers in the current or prior year, the comparable search strategy and sources, whether comparability adjustments were made to the tested party or the comparables, copies of APAs and rulings to which Bahrain is not party, and schedules reconciling the pricing data to the statutory accounts. The master file must be refreshed each fiscal year (TP Guide, section 3).

Neither file is filed with the return. Law Article 25(B) requires records within the period the NBR considers appropriate, and the deadline is set in the request or audit notification (Regulations Article 77(B)(3)). Records must be retained for five years after the fiscal year end, ten for real estate and capital assets, extendable by up to five more (Article 75). No language rule applies to the files, though Article 76(E) lets the NBR demand a legal translation of records not in Arabic or English.

Country-by-country reporting runs on a separate track. Ministry of Industry, Commerce and Tourism Decision No. 28 of 2021 applies to groups with consolidated revenue of BHD 342 million or more, requires every Bahrain-resident constituent entity to notify by the last day of the reporting fiscal year, and requires a Bahraini ultimate parent to file within 12 months on the NBR's ITIES portal (Articles 3-4). There is no secondary local filing; as a non-reciprocal jurisdiction, Bahrain sends reports but does not receive them.

Audits, penalties and the enforcement climate

Bahrain has no transfer pricing penalty as such; the exposure is indirect. An adjustment that increases DMTT engages the general return penalties in Law Article 28: up to 30% of the tax that should have been declared for incorrect data causing under-declaration, capped at 20% where a correct amended return is filed voluntarily (Article 28(A)(4)); up to 30% for late or non-filing; and 1% per month or part month on unpaid tax, capped at 70%. Documentation failures fall under Article 28(B), which allows a fine of up to BHD 50,000 for failing to provide, delaying or irregularly keeping records. Group entities are jointly liable (Article 29). Deliberate understatement is criminal under Article 35: three months to five years' imprisonment and a fine of one to three times the tax.

There is no statute of limitations for assessments. Article 27 permits reassessment where a return is erroneous or unsupported and bars a second reassessment of the same year absent new facts, but sets no outer limit; only the five-year refund window (Article 34), the ten-year criminal limitation (Article 35(I)) and the record-retention periods frame the practical audit horizon.

The NBR may examine records at its offices or the taxpayer's premises and must issue a reasoned audit-results decision before assessment (Law Article 26; Regulations Articles 77-79); the Administrative Guide lists master file, local file and intercompany agreements among records requested in risk assessment. But the enforcement climate is, for now, theoretical: the first DMTT returns fall due in 2027, no DMTT assessment has been reported, and there is no Bahraini transfer pricing case law. Reported NBR enforcement is confined to VAT.

Dispute resolution and advance certainty

Law Article 31 sets a three-tier route. A review request goes to the NBR within 60 days of notification and is decided within 90 days (extendable once; silence is deemed rejection). Objection then lies to the Tax Objections Committee within 60 days; it recommends to the Minister within 90 days for a decision within 30. Court appeal follows within 60 days. Appeal does not suspend collection unless the court orders otherwise, though disputed tax need not be paid to request a review. Ministry of Finance Decision No. 30 of 2025 sets fees of BHD 50 per review request and BHD 100 per objection.

Bahrain has no domestic APA programme. The Regulations instead defer to foreign agreements: where the competent authorities of the counterparties' jurisdictions have concluded a bilateral or multilateral APA, the Bahrain adjustment must follow the agreed price (Article 13(C)), and APAs must be copied into the files. The draft CIT law would let the NBR Chief Executive specify when APAs may be sought, but nothing exists today.

MAP is handled by the NBR's Foreign Tax Relations Directorate under its MAP Guidance (v1.1). Transfer pricing cases are expressly eligible, a three-year filing limit applies where the treaty is silent, and the NBR targets resolution within two years and implementation within 90 days of closing letters. Bahrain's 51 in-force treaties (per the NBR's treaty network page in September 2026; the MAP Guidance's list of 45 dates from 2021) all contain MAP articles and override domestic law other than the Constitution. No secondary adjustment mechanism exists and Bahrain levies no withholding tax, so a primary adjustment stays within the DMTT computation; a correction to an earlier year is a prior period error under Regulations Article 12(A)(8) and (I), dealt with by amended return or reassessment under Law Article 27(B).

Pillar Two and what changes in 2026

The OECD Central Record (as of 1 December 2025) lists Bahrain's DMTT as a Qualified DMTT eligible for the QDMTT Safe Harbour from 1 January 2025. Bahrain has adopted neither an IIR nor a UTPR. The regime carries the substance-based income exclusion, de minimis exclusion and transitional CbCR safe harbour (Regulations Article 90); quarterly advance payments fall due within 60 days of each quarter end.

2026 is the year the rules acquired guidance. The Transfer Pricing Guide v1.0 and the Computation Guide were released together in June 2026 (the Computation Guide updated on 23 August), followed by the Return Filing Manual v1.1 in August. The Guide, available in English only, is non-binding under Regulations Article 89 but is the only public statement of how the NBR reads Article 13. The return is due 15 months after year end (Regulations Article 66(A)); on the NBR's own day-count convention in the Administrative Guide (section 12) that is 1 April 2027 for calendar-year 2025. KPMG reports the NBR portal shows an 18-month transition-year deadline of 30 June 2027 that the Law and Regulations do not contain. Confirm on the portal.

The larger development is the draft corporate income tax law referred to the legislature on 29 December 2025: 10% on taxable income above BHD 200,000, 5% withholding on interest, royalties and services, a 30% EBITDA interest cap, a GAAR and an arm's length requirement for related-party transactions, targeted at fiscal years from 1 January 2027. Parliament's legal committee raised constitutional objections in May 2026 and the bill remained unenacted as at August 2026. If it passes, transfer pricing in Bahrain expands from a handful of EUR 750 million groups to every resident business with revenue above BHD 1 million.

How practitioners should respond

Confirm scope with precision. The EUR 750 million test in Law Article 3(C) is the only gate, so an in-scope group's smallest Bahraini entity carries the full master file and local file obligation from its first cross-border intercompany transaction.

Build FY2025 and FY2026 files now, not when the request arrives. The NBR sets the production deadline in its notice and no fixed period exists, so assume the file must be ready the day the notice lands.

Treat the June 2026 Guide as the benchmark for method selection and tested-party choice. Its examples show the NBR will accept a result anywhere within a defensible range, so invest in the comparability narrative rather than statistical refinement.

Where a counterparty jurisdiction has a bilateral APA, put it in the file: Article 13(C) makes it binding on the Bahrain adjustment and it is the only advance certainty available.

Finally, watch the CIT bill. Its documentation and ruling rules are left to future regulations, and the DMTT Article 13 architecture is the obvious template.