GTL Summary:

Rules for electing the Taxable Distribution Method for investment entities, covering undistributed income and deemed distributions.

Document Type: ERS - Executive Regulations
Law: DMTT Law (Decree Law No. 11 of 2024)
Decision Number: executive-regulations-172-article-61
Year: 2024
Country: 🇧🇭 Bahrain
Official Name: Article 61 - Taxable Distribution Method Election
Last updated at: 2026-02-23 12:13:40 UTC

Chapter 7 - Tax Neutrality

Article 61 - Taxable Distribution Method Election

  1. Subject to Paragraph B of this Article, at the election of the Filing Constituent Entity, a Constituent Entity-owner that is not itself an Investment Entity or Insurance Investment Entity shall apply the Taxable Distribution Method with respect to its Ownership Interest in an Investment Entity or an Insurance Investment Entity, subject to that Entity being a Constituent Entity located in the Kingdom.

  2. Paragraph A of this Article shall only apply where the Constituent Entity-owner is reasonably expected to be subject to tax on distributions from the Investment Entity or Insurance Investment Entity at a rate that is equal to or greater than the Minimum Rate.

  3. The Taxable Distribution Method comprises the application of all of the following where applicable:

    1. Distributions and deemed distributions of Constituent Entity Income of an Investment Entity or Insurance Investment Entity shall be included in determining the Constituent Entity Income of the Constituent Entity-owner that received the distribution.

    2. The amount of Covered Taxes incurred by the Investment Entity or Insurance Investment Entity that is creditable against the tax liability of the Constituent Entity-owner arising from a distribution by an Investment Entity or Insurance Investment Entity shall be included in determining the Constituent Entity Income and Adjusted Covered Taxes of the Constituent Entity-owner that received the distribution.

    3. The Constituent Entity-owner's proportionate share of the Investment Entity's or Insurance Investment Entity's Undistributed Reduced Constituent Entity Income arising in the Tested Year shall be treated as Constituent Entity Income of the Investment Entity or Insurance Investment Entity for the Reporting Fiscal Year and the amount equal to such Constituent Entity Income multiplied by the Minimum Tax Rate shall be treated as Tax Due of a Low-Taxed Constituent Entity for the Fiscal Year.

    4. The Constituent Entity Income or Loss of an Investment Entity or Insurance Investment Entity and the Adjusted Covered Taxes attributable to such income for the Fiscal Year shall be excluded from the calculation of the Effective Tax Rate for other Constituent Entities or one or more Investment Entities or Insurance Investment Entities referred to in Article 59 of these Regulations, except for the amount of Covered Taxes referred to in Clause 2 of this Paragraph.

  4. For the purposes of Paragraphs C and E of this Article, the Tested Year shall mean the third Fiscal Year preceding the Reporting Fiscal Year.

  5. Subject to Paragraph I of this Article, for the purposes of Clause 3 of Paragraph C of this Article, the Undistributed Reduced Constituent Entity Income of an Investment Entity or Insurance Investment Entity, if any, for the Tested Year is the amount of Constituent Entity Income of that Investment Entity or Insurance Investment Entity for the Tested Year reduced by all of the following amounts where applicable:

    1. The Covered Taxes of the Investment Entity or Insurance Investment Entity.

    2. Distributions and deemed distributions made by the Investment Entity or Insurance Investment Entity to shareholders other than Constituent Entities that are Investment Entities or Insurance Investment Entities during the Testing Period.

    3. Constituent Entity Losses of the Investment Entity or Insurance Investment Entity that arose during the Testing Period.

    4. Any Investment Loss Carry-forward.

  6. Any reduction made under Paragraph E of this Article shall not exceed the amount of Constituent Entity Income and the Undistributed Reduced Constituent Entity Income of that Investment Entity or Insurance Investment Entity.

  7. For the purposes of Paragraph E of this Article, the Testing Period shall start from the first day of the Tested Year and end on the last day of the Reporting Fiscal Year that the Ownership Interest was held by a Group Entity.

  8. For the purposes of applying the provisions of Clause 4 of Paragraph E of this Article, where a Constituent Entity Loss of an Investment Entity or Insurance Investment Entity for a Fiscal Year is not reduced to zero under Clause 3 of Paragraph E of this Article before the end of the last tested period that includes such Fiscal Year, the remainder shall be an Investment Loss Carry-forward.

  9. The Undistributed Reduced Constituent Entity Income of an Investment Entity or Insurance Investment Entity shall not be reduced by any of the following:

    1. Distributions or deemed distributions that already reduced the Undistributed Reduced Constituent Entity Income of that Investment Entity or Insurance Investment Entity under Clause 2 of Paragraph E of this Article for a previous Tested Year.

    2. The amount of Constituent Entity Losses of the Investment Entity or Insurance Investment Entity that already reduced the Undistributed Reduced Constituent Entity Income of that Investment Entity or Insurance Investment Entity under Clause 3 of Paragraph E of this Article for a previous Tested Year.

  10. For the purposes of this Article, a deemed distribution shall arise when a direct or indirect Ownership Interest in an Investment Entity or Insurance Investment Entity is transferred to an Entity that is not a member of the Multinational Enterprise Group.

  11. For the purposes of Paragraph J of this Article, the amount of the deemed distribution shall be equal to the proportionate share of Undistributed Reduced Constituent Entity Income attributable to the Constituent Entity- owner's Ownership Interest on the date of the transfer, determined without regard to the deemed distribution.

  12. Where the election under Paragraph A of this Article is revoked, the Constituent Entity-owner's proportionate share in the Undistributed Reduced Constituent Entity Income of the Investment Entity or Insurance Investment Entity for the Tested Year at the end of the Fiscal Year preceding the Fiscal Year in which the revocation is made shall be treated as Constituent Entity Income of the Investment Entity or Insurance Investment Entity for the Fiscal Year and an amount equal to such Constituent Entity Income multiplied by the Minimum Rate shall be treated as Tax Due of a Low-taxed Constituent Entity for the Fiscal Year.

  13. The election referred to in Paragraph A of this Article is a Five-Year Election which can be made in accordance with Article 20 of the Law.

Fast-loading version for search engines - Click here for the interactive version