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Looking for that guy in finance? I talk about tax and finance and the AI-finance juxtaposition in the MENA region
Hey, everyone. Welcome back. Today, we're gonna, take a deep dive into something pretty interesting.
Speaker 2:Okay.
Speaker 1:It's Bahrain's new tax. It's called the DMTT. Mhmm. And we wanna look at what it means for the global financial scene. We found this article.
Speaker 1:It's a LinkedIn newsletter article, actually
Speaker 2:Oh, interesting.
Speaker 1:By a guy named Waaj, who's a financial adviser in the GCC.
Speaker 2:Okay.
Speaker 1:And he seems really fired up about it.
Speaker 2:Oh, wow.
Speaker 1:So we thought, let's break this down together, you know, and see what's really going on. What do you think?
Speaker 2:Yeah. It is a fascinating development, especially, you know, considering Bahrain's history as a low tax place.
Speaker 1:Right.
Speaker 2:This DMTT or domestic minimum top up tax.
Speaker 1:Right.
Speaker 2:It's designed to make sure that big multinational corporations Yeah. Pay at least some minimum level of tax. It doesn't matter where they're headquartered or operating.
Speaker 1:Yeah. That's right. And what's really caught our eye is that Bahrain is rolling out the DMTT Uh-huh. Before they even have a traditional corporate income tax in place, which is kinda unusual. Right?
Speaker 1:I mean, if you look at their neighbors Yeah. Like the UAE and Saudi Arabia
Speaker 2:Right.
Speaker 1:Those guys already have corporate tax rates in place.
Speaker 2:They do. It's unusual. It seems like they're being strategic, aligning themselves with global tax standards, especially the ones set by the OECD. By doing the DMTT first, they're sending a signal, right, to investors that they're committed to transparency and a stable financial environment.
Speaker 1:Okay. That makes sense. I'm curious, though. Yeah. Could this actually make Bahrain more attractive to investors?
Speaker 1:You'd think a new tax, even if it's just for huge corporations, might make some people hesitate. Right?
Speaker 2:That's a great question. And, actually, Wahaaz seems to think so.
Speaker 1:Oh, really?
Speaker 2:He thinks that it'll actually increase confidence because it shows that Bahrain is playing by the international rules. Right?
Speaker 1:Oh, yeah.
Speaker 2:And here's the thing. The whole global investment landscape is shifting.
Speaker 1:Yeah. So what are investors looking at now? What are the key factors these days?
Speaker 2:So it's not just about finding the place with the lowest tax rate anymore.
Speaker 1:Right.
Speaker 2:Investors wanna see the bigger picture. They want a supportive ecosystem, things like streamlined regulations, strong infrastructure, a skilled workforce.
Speaker 1:So a stable transparent tax system could actually be a good thing.
Speaker 2:Exactly. It shows a commitment to sustainability, long term Uh-huh. Responsible governance, and that resonates with a lot of investors today.
Speaker 1:Especially the ones focused on ESG. Right?
Speaker 2:Especially those. Yes. And here's another interesting angle that Waajah brought up.
Speaker 1:Okay.
Speaker 2:Could Bahrain be using this DMTT strategically to target only those massive companies
Speaker 1:Oh, I see.
Speaker 2:While keeping things tax free for the smaller businesses?
Speaker 1:Now that would be a game changer. Can you imagine Right. Appealing to entrepreneurs and startups Yeah. That you get all the benefits of a well regulated environment
Speaker 2:Yes.
Speaker 1:But without that tax burden Exactly. That larger corporations have to deal with.
Speaker 2:Exactly. It would be a huge incentive for small businesses.
Speaker 1:To set up shop in Bahrain.
Speaker 2:Absolutely. Now this brings up another question.
Speaker 1:Okay.
Speaker 2:What about the other countries in the GCC? How will this impact them?
Speaker 1:What kind of impact are we talking about?
Speaker 2:Right. Could we see other countries doing similar things?
Speaker 1:A wave of tax reforms?
Speaker 2:Well, tax policies in the GCC often tend to influence each other.
Speaker 1:Yeah.
Speaker 2:So it's very possible that what Bahrain is doing could lead to other countries in the region Uh-huh. Considering their own versions of the DMTT. Right. I mean, they'll all wanna stay competitive and show they're committed to these international standards.
Speaker 1:Right. So Bahrain might be setting a precedent here Mhmm. Paving the way for a broader shift in how the GCC thinks about taxes.
Speaker 2:It's definitely a possibility. Yeah. But we can't forget about the companies that are already operating in Bahrain.
Speaker 1:Right.
Speaker 2:This DMTT will definitely present some challenges, you know, in terms of compliance.
Speaker 1:For sure.
Speaker 2:Waaj outlined some of these in his article, and they're not small problems.
Speaker 1:Yeah. He mentioned data consolidation across different entities
Speaker 2:Right.
Speaker 1:Figuring out potentially conflicting accounting standards. And this one seems especially important for a financial hub like Bahrain, dealing with those constant exchange rate fluctuations.
Speaker 2:Absolutely. Managing all of that
Speaker 1:Yeah.
Speaker 2:Adds a whole other layer of complexity.
Speaker 1:Definitely not for the faint of heart. Yeah. But Waha Hadj did mention a potential silver lining. Yeah. He talked about a safe harbor provision.
Speaker 1:What is that exactly?
Speaker 2:Okay. So this is where things get really interesting. The safe harbor provision, as Wahaaj explains it Yeah. Basically means that if a company complies with Bahrain's DMTT
Speaker 1:Uh-huh.
Speaker 2:They won't be hit with additional top up taxes in other countries that have similar rules.
Speaker 1:Okay. So it's kinda like a shield against double taxation. That sounds pretty good for companies operating in Bahrain.
Speaker 2:Exactly. It gives them some certainty, makes compliance simpler
Speaker 1:Yeah.
Speaker 2:Which is a huge advantage in today's complex global tax world.
Speaker 1:Absolutely.
Speaker 2:But even with that safe harbor, there are still challenges.
Speaker 1:So what's Wahaj's advice for companies navigating all of this?
Speaker 2:His advice is pretty simple but important. Act now. Don't wait until the DMTT is fully in place. Start reviewing your processes.
Speaker 1:Right.
Speaker 2:Assess how this new tax is gonna affect your effective tax rate and get your teams up to speed on the new rules.
Speaker 1:Makes sense. Being proactive is key
Speaker 2:Absolutely.
Speaker 1:Especially when it comes to something as complex as international tax regulations.
Speaker 2:For sure. He even suggests bringing in outside experts, tax specialists
Speaker 1:Mhmm.
Speaker 2:Who can guide companies through
Speaker 1:this. Sound like good advice. So to wrap up this part of our deep dive
Speaker 2:Yeah.
Speaker 1:We have Bahrain making a pretty bold move in the global tax landscape with his DMTT.
Speaker 2:Definitely.
Speaker 1:It's It's designed to align them with those OECD guidelines, ensure those multinational corporations pay their share
Speaker 2:Right.
Speaker 1:And maybe even give Bahrain an edge in attracting investors.
Speaker 2:And even though there are definitely some compliance challenges ahead for businesses
Speaker 1:Mhmm.
Speaker 2:There's also that safe harbor provision.
Speaker 1:Right. To kinda help smooth things over.
Speaker 2:Exactly.
Speaker 1:Okay, everyone. We're gonna take a quick pause here. But when we get back, we'll look more closely at the potential economic impact of this DMTT.
Speaker 2:Sounds good.
Speaker 1:What's it gonna mean for Bahrain's economy? How will it affect the companies operating there? Stick with us.
Speaker 2:Looking forward to it.
Speaker 1:Welcome back, everyone.
Speaker 2:Mhmm.
Speaker 1:Before the break, we were talking about, like, how Bahrain's new DMPT could actually impact the companies working there. Yeah. But now let's zoom out a little. Look at the bigger picture.
Speaker 2:Right.
Speaker 1:What does this mean for Bahrain's economy? Is this, like, a genius move? Yeah. Or there's some hidden risks?
Speaker 2:That's the big question. Right. And the answer well, in economics, it's rarely simple.
Speaker 1:Right.
Speaker 2:But there's definitely potential for borrowing to benefit from this. You know?
Speaker 1:Yeah. I mean, they've really built this reputation as a, like, super business friendly hub.
Speaker 2:Right.
Speaker 1:And getting foreign investment has always been a big part of their plan.
Speaker 2:Absolutely. Right?
Speaker 1:They were always known for those low taxes and, pretty light regulations. Yeah. So this whole move towards a global minimum tax, it feels like a big change for them.
Speaker 2:It is a shift, but I think it's a calculated one.
Speaker 1:Okay.
Speaker 2:Instead of just competing on having the lowest taxes
Speaker 1:Right.
Speaker 2:Bahrain is putting emphasis on transparency
Speaker 1:Right.
Speaker 2:And aligning with global standards. You know? Yeah. This might actually attract a different kind of investor.
Speaker 1:Interesting.
Speaker 2:One that values stability Okay. And predictability
Speaker 1:Right.
Speaker 2:More than just, like, chasing the absolute lowest tax rate.
Speaker 1:Okay. So they're basically repositioning themselves.
Speaker 2:Exactly.
Speaker 1:Appealing to these investors who want, like, a more solid and well regulated setup.
Speaker 2:Exactly. Think about what it means long term.
Speaker 1:Okay.
Speaker 2:Adopting this DMTT
Speaker 1:Yeah.
Speaker 2:Sends a signal What
Speaker 1:kind of signal?
Speaker 2:That they're playing by the rules of the global economy.
Speaker 1:Okay.
Speaker 2:This could really boost foreign direct investment, especially from big multinational companies
Speaker 1:Uh-huh.
Speaker 2:Who want a solid and compliant base in the region.
Speaker 1:Right. Right. But there must be some downsides. Right? Yeah.
Speaker 1:What about the companies that came to Bahrain in the 1st place because of the low taxes?
Speaker 2:Right.
Speaker 1:Won't they feel kinda betrayed?
Speaker 2:It's a valid point. There's always that risk
Speaker 1:Yeah.
Speaker 2:Of pushing away existing businesses when you change a big policy like this. Yeah. But remember what Wahaaj said, though. He thinks Bahrain might actually implement the DMTT in a way that Okay. Only affects the biggest companies, you know, the multinationals
Speaker 1:Right.
Speaker 2:While leaving a tax free space for the smaller ones.
Speaker 1:That would be huge. Right?
Speaker 2:It would definitely cushion the impact Yeah. On those smaller businesses.
Speaker 1:And still keep Bahrain appealing to start ups and stuff.
Speaker 2:Absolutely.
Speaker 1:And Bahrain has a history of being pretty adaptable. Right?
Speaker 2:Yes. Very much so. They've been very forward thinking
Speaker 1:Okay.
Speaker 2:When it comes to their economic policies. I mean, they successfully moved their economy away from just oil Right. Built a strong financial sector
Speaker 1:Yeah.
Speaker 2:And they're seen as a leader in innovation
Speaker 1:In the region.
Speaker 2:In the whole region. This new tax policy, you could see it as just another example of their willingness to adapt Yeah. To the changing global situation.
Speaker 1:They've shown they can, like, pivot and adjust to stay ahead of the game.
Speaker 2:Exactly.
Speaker 1:But this DMTT, it's still pretty complex. Right?
Speaker 2:It is.
Speaker 1:What about the strain on Bahrain's tax authority? Yeah. Can they actually handle all the complexities of this thing? You know, monitoring these huge companies
Speaker 2:Right.
Speaker 1:And making sure everyone follows the rules.
Speaker 2:It's a good point. To do it right Yeah. They're gonna need a lot of resources and expertise. Uh-huh. Bahrain's tax authority will have to, you know, really ramp things up In terms of monitor the multinationals Yeah.
Speaker 2:Handle these complicated transactions.
Speaker 1:Right. They go across borders and everything.
Speaker 2:Exactly. And make sure everyone's following the new rules.
Speaker 1:Sounds like a steep learning curve.
Speaker 2:It is.
Speaker 1:What if they mess it up? Oh. Wouldn't that undermine the whole point?
Speaker 2:Yeah. Exactly. They're trying to build confidence, but if the implementation is bad Right. It could backfire.
Speaker 1:Make investors nervous.
Speaker 2:Yeah. It's a balancing act for sure. But I'm cautiously optimistic.
Speaker 1:Okay.
Speaker 2:Bahrain has been pragmatic in the past about how they manage their economy. If they approach this strategically
Speaker 1:Yeah.
Speaker 2:Invest the right resources
Speaker 1:Yeah.
Speaker 2:I think they can pull it off.
Speaker 1:Okay. That's good to hear. Yeah. Now what about the businesses themselves? Right.
Speaker 1:We've talked about the compliance challenges, but how will the DMTT affect them day to day? Yeah. What's it gonna mean for their bottom line?
Speaker 2:Well, for those multinationals already in Bahrain Uh-huh. They're gonna have to make some adjustments for sure.
Speaker 1:Like what?
Speaker 2:They'll need to rethink their tax strategies.
Speaker 1:Okay.
Speaker 2:Maybe restructure some operations. Definitely train their finance teams on all these new rules.
Speaker 1:Right. Right. We talked about all those compliance headaches. Yeah. But beyond just adapting, what are the long term effects?
Speaker 2:Right. How will this affect their profits
Speaker 1:And their decisions about investing?
Speaker 2:One big thing they'll need to look at is their ETR.
Speaker 1:Their ETR.
Speaker 2:Their effective tax rate, what percentage of their profits Uh-huh. They actually end up paying in
Speaker 1:taxes. That's a pretty big deal. Right?
Speaker 2:Oh, absolutely. It can make or break a company
Speaker 1:Yeah.
Speaker 2:Determine if they can invest, if they can grow.
Speaker 1:So the DMTT could actually increase that ETR for some companies.
Speaker 2:It could. Yeah. Especially for companies who've been using, let's say, aggressive strategies
Speaker 1:To avoid taxes.
Speaker 2:To minimize their tax burden. Yes.
Speaker 1:So it's not just about complying with the rules. No. It's a strategic thing
Speaker 2:Absolutely.
Speaker 1:That could change their whole business model.
Speaker 2:Exactly. Companies will have to figure out how this DMTT fits into their global tax picture.
Speaker 1:And then adjust, basically.
Speaker 2:Exactly. They might have to rethink investments.
Speaker 1:Okay.
Speaker 2:Move some operations to different countries, find new ways to optimize their taxes
Speaker 1:While still following the rule.
Speaker 2:While remaining compliant. Yes. It's a whole new ballgame.
Speaker 1:Wow. What about companies that are, like, thinking about setting up in Bahrain? Mhmm.
Speaker 2:Mhmm.
Speaker 1:Will this new tax scare them away?
Speaker 2:It's something they'll definitely consider. Right?
Speaker 1:Yeah.
Speaker 2:But remember, while the DMTT adds a tax hurdle
Speaker 1:Right.
Speaker 2:It also brings that certainty we were talking about.
Speaker 1:Yeah. The stability.
Speaker 2:Exactly. Bahrain is showing it's serious about a level playing field
Speaker 1:Okay.
Speaker 2:And a transparent system that could be appealing to companies that are looking for a long term place to invest. So it's
Speaker 1:like a trade off. Exactly. More complexity, but also more transparency, more predictability.
Speaker 2:And that could be attractive to some investors.
Speaker 1:Right. It all depends on the company, I guess.
Speaker 2:It does. Their specific situation, their goals.
Speaker 1:Right. Right.
Speaker 2:But one thing's clear. This DMTT is a game changer.
Speaker 1:In what way?
Speaker 2:Companies in Bahrain who are thinking about going there Yeah. They'll have to be smart about their taxes and their long term plans.
Speaker 1:Fascinating stuff.
Speaker 2:Yeah.
Speaker 1:And so much depends on how well Bahrain actually implements this thing Right. And manages the whole transition.
Speaker 2:It's a dynamic situation for sure.
Speaker 1:Lots of moving pieces.
Speaker 2:Lots of moving pieces. But one thing's for Serm, Bahrain is making a bold move.
Speaker 1:Yeah.
Speaker 2:It'll be really interesting to watch what happened.
Speaker 1:Both the country and the business is there. We're back. And now I think it's time to really zoom out, look at the bigger picture here.
Speaker 2:Okay.
Speaker 1:We spent a lot of time on Bahrain's DMTT.
Speaker 2:We have.
Speaker 1:What it means for the country itself, the businesses there.
Speaker 2:Right.
Speaker 1:But what about everyone else? You know, the whole GCC region.
Speaker 2:Yeah.
Speaker 1:Could this be the start of a much bigger change?
Speaker 2:That's the big question, isn't it? And I think it could be. Yeah. Really? Remember how connected tax policies are in the GCC?
Speaker 1:Right. What one country does can influence the others.
Speaker 2:Exactly. So when Bahrain goes ahead and implements a DMTT Uh-huh. Before they even have a regular corporate income tax
Speaker 1:Right.
Speaker 2:It sends a pretty strong message.
Speaker 1:Just like they're setting a new standard. Right?
Speaker 2:Yeah. Kinda shaking things up a bit.
Speaker 1:Challenging how things have always been done.
Speaker 2:Exactly. And this could be the start of something much bigger for the region.
Speaker 1:So, our financial adviser friend, he thinks other GCC countries are gonna follow suit.
Speaker 2:He does. He thinks they'll announce their own DMTTs pretty soon.
Speaker 1:And I think so too.
Speaker 2:Honestly, yeah. It wouldn't surprise me.
Speaker 1:Is it just about keeping up with the Joneses?
Speaker 2:Maybe a little. Sure. No country wants to fall behind.
Speaker 1:Especially when it comes to attracting those investors.
Speaker 2:Right. But it's more than that.
Speaker 1:Okay. What else is going on?
Speaker 2:The global landscape is changing, and the GCC needs to change with it.
Speaker 1:You're talking about that shift toward a global minimum tax, right, the OECD and all that?
Speaker 2:Exactly. In today's world, countries are competing for capital.
Speaker 1:Yeah.
Speaker 2:And following the international tax rules is becoming more and more important.
Speaker 1:So how does the DMTT fit into that?
Speaker 2:It shows that GCC countries are serious about playing fair.
Speaker 1:Right.
Speaker 2:And that could bring in a new wave of investors, the kind who want stability, transparency.
Speaker 1:So it's a whole new approach, basically.
Speaker 2:Yeah. Instead of just being a tax haven, they're showing they're part of a transparent global system.
Speaker 1:Right. Right. That could really change things. Right? I mean, their low taxes have always been a big draw.
Speaker 1:They have. But as the world changes, that advantage might not be enough anymore.
Speaker 2:Exactly. They need to adapt to keep those investors coming in.
Speaker 1:But what about the businesses that are already there? The ones who came for the low taxes.
Speaker 2:It's a risk anytime you have a big policy change.
Speaker 1:Yeah.
Speaker 2:But I think the potential gains are worth it in this case.
Speaker 1:In what way?
Speaker 2:The GCC could attract a whole different type of investor now.
Speaker 1:Okay.
Speaker 2:The kind who want more than just low taxes, who want stability.
Speaker 1:A well regulated environment, all of that.
Speaker 2:Exactly. They're looking for the long term, and that could mean a more sustainable economy for the whole region.
Speaker 1:So it's about quality over quantity now?
Speaker 2:You could say that. Yeah. But it's not gonna happen overnight. There will be bumps in the road.
Speaker 1:What kind of bumps?
Speaker 2:Well, we've talked about this compliance challenges.
Speaker 1:Every week this is yeah.
Speaker 2:And the GCC tax authorities will need to really step up their game.
Speaker 1:Oh, so
Speaker 2:They'll have to monitor those multinational corporations, make sure everyone's following the rules.
Speaker 1:Right. And all those complex transactions.
Speaker 2:Yeah. It's a big job. But if they can pull it off Yeah. The GCC could really secure its place in the global economy.
Speaker 1:It's global economy. It's a big moment
Speaker 2:for them. It is a real turning point. By embracing this DMTT, they're showing they're ready to change with the times.
Speaker 1:Attract those new investors who want stability, transparency, the whole package.
Speaker 2:Exactly. It all started with Bahrain, and now we could see a whole new era for the GCC.
Speaker 1:So fascinating. We'll have to see how it all plays out, won't we?
Speaker 2:We will. It's gonna be very interesting.
Speaker 1:Thanks for joining us for this deep dive.
Speaker 2:It was my pleasure.
Speaker 1:We hope you got some valuable insights into all this.
Speaker 2:Yeah. It's a complex world out there.
Speaker 1:The world of international finance is always changing.
Speaker 2:It is.
Speaker 1:So keep asking questions. Keep exploring.
Speaker 2:Absolutely.
Speaker 1:And we'll see you next time for another deep dive into the global economy.
Speaker 2:See you then.