Bahrain has spent four decades selling the same proposition to international business: a licensed financial centre, an English language commercial environment, no general corporate income tax and no personal income tax. For a Gulf trading house, a family office or a regional treasury, that proposition still works. It stops working the moment the group needs a European limb, because the European limb is not assessed on what Bahrain charges. It is assessed on how the Netherlands, and the states behind the Netherlands, classify a payment that ends up in Manama.
That classification is not a matter of reputation or of diplomatic temperature. It is a published list, revised each year, and Bahrain is on it. Anyone building a Bahrain and Netherlands structure who has not read the list before drafting the intercompany agreements is designing around a fact that is already decided.
What Bahrain charges, and what it has started to charge
The old description of Bahrain as a jurisdiction without corporate tax was accurate for most businesses and is now incomplete. The National Bureau for Revenue publishes that the Domestic Minimum Top-up Tax was introduced by Decree Law (11) for the year (2024) on multinational enterprises with annual revenues equal to or exceeding EUR 750 million globally, that it is designed in alignment with the Pillar Two requirements of the Organization for Economic Co-operation and Development, and that it takes effect starting January 1st, 2025. The design objective, in the Bureau’s own words, is to ensure that such groups pay the minimum 15 per cent tax on the profits generated in the Kingdom.
Two things follow. For a large multinational, Bahrain is no longer a zero-rate jurisdiction on Bahraini profits, and the group’s own effective rate calculation now has a Bahraini number in it. For everyone below the threshold, and that is most privately held Gulf groups, nothing has changed at the entity level. Bahrain also operates value added tax, published by the Bureau at 10 per cent, which affects cash flow and compliance but not the profit tax analysis.
The distinction matters when advisers describe the structure to a European counterparty. A group inside the top-up tax can say, accurately, that its Bahraini profits bear a minimum charge. A group outside it cannot, and should not try to.
The Netherlands still lists Bahrain as a low-taxed state
The Dutch designation is separate from all of that. The Regeling laagbelastende staten en niet-coöperatieve rechtsgebieden voor belastingdoeleinden, in the version in force on 1 January 2026, names in article 2 the following low-taxed states: Anguilla, the Bahamas, Bahrain, Bermuda, the British Virgin Islands, Guernsey, the Isle of Man, Jersey, the Cayman Islands, Turkmenistan, the Turks and Caicos Islands and Vanuatu. Bahrain is there. The United Arab Emirates is not.
The criterion behind the list is set out in article 1.2 of the Wet bronbelasting 2021, which looks at whether a state subjects entities to a profit tax at a statutory rate of less than 9 per cent, or does not subject them at all. The test is statutory rate, not effective rate, and it is not softened by a top-up tax that applies only to the largest groups. That is why the introduction of a Bahraini minimum tax on multinationals above a EUR 750 million revenue threshold does not by itself remove Bahrain from the Dutch list, and why an adviser who assumed it would has assumed something the regulation does not say.
The practical consequence is that the two most consequential Dutch anti-abuse regimes, the conditional withholding tax and the controlled foreign company rules in the Wet op de vennootschapsbelasting 1969, engage automatically by reference to the destination of the payment. No inspector has to argue motive.
There is a second consequence that groups notice later. Being on the list is a fact that travels. Banks running onboarding checks, counterparties running their own tax due diligence and acquirers running vendor diligence all read the same regulation, and a structure that terminates in a listed state is a question they are obliged to ask. The answer can be perfectly good. It still has to be prepared, in writing, before someone else asks it in a transaction timetable.
What the conditional withholding tax reaches
Article 4.1 of the Wet bronbelasting 2021 sets the conditional withholding tax at the highest percentage referred to in article 22 of the Wet op de vennootschapsbelasting 1969. On the rates the Belastingdienst publishes for 2026, that highest percentage is 25.8 per cent, the rate applying above 200,000 euro of taxable profit, with 19 per cent below it. The charge covers interest, royalties and dividends flowing to associated entities in defined situations, of which payment to a listed low-taxed state is the plainest.
The number is worth reading twice. A Dutch operating company paying a royalty to a Bahraini group licensor is not looking at a reduced treaty rate. It is looking at a gross charge at the top corporate rate, recurring for as long as the arrangement runs, and levied on the payment rather than on a margin. In a group where the Bahraini entity holds the trade marks for commercial reasons that predate any tax analysis, the licence is still caught.
The same logic applies to intragroup funding. A Bahraini treasury lending into a Dutch subsidiary is a familiar Gulf arrangement, and it is exactly the pattern the statute was drawn for. Where the interest is deductible in the Netherlands and lands in a listed state, the deduction and the withholding question arrive together.
The participation exemption is not on the list
What is often missed is that the flow in the other direction is governed by different rules and is frequently unaffected. The Dutch participation exemption in article 13 of the Wet op de vennootschapsbelasting 1969 exempts dividends and disposal gains on a holding of at least 5 per cent of the nominal paid-up capital of another company, subject to its own conditions. It says nothing about where the ultimate shareholder sits.
So a Dutch holding company owned from Bahrain can still receive European subsidiary dividends and realize European disposal gains under the participation exemption, provided the subsidiaries themselves qualify. The Bahraini connection bites on the way out of the Netherlands, not on the way in. That asymmetry is the single most useful structural fact in this file, and it points at where the design effort belongs.
It also explains why the Dutch dividend withholding tax, set at 15 per cent by article 5 of the Wet op de dividendbelasting 1965, is not the end of the analysis for a Bahraini parent. Whether that charge is reduced, and whether the conditional withholding tax applies to the same distribution instead, depends on the treaty position and on the anti-abuse conditions, and those are questions of fact about the holding company rather than questions about Bahrain.
Substance is asked for twice, in different languages
A Gulf group that establishes in the Netherlands is answering two substance questions at once, and they are not the same question. The Dutch question is whether the company is effectively managed in the Netherlands and whether its functional profile supports the returns allocated to it. The source state question, asked by whichever European state is paying the dividend or the interest, is whether the Dutch recipient is the beneficial owner or a conduit for a shareholder in a listed jurisdiction.
The second question is harder for this profile than for most. A structure whose ultimate owner sits in a state named in the Dutch regulation invites the conduit analysis rather than merely permitting it. The file has to answer it on facts: a board that decides, personnel whose seniority matches the decisions, premises, records and a balance sheet capable of carrying the risks the group attributes to the entity.
In one mandate we rebuilt a Gulf owned European holding whose entire board sat outside Europe and whose minutes were prepared abroad and signed in circulation. Nothing about the ownership changed. What changed was who decided, where, and on what information. The point is not that Gulf ownership is a problem. It is that Gulf ownership through a listed state removes the benefit of the doubt.
Designing around the payment, not around the entity
The workable structures share a discipline. They put the deductible cross-border payment somewhere other than the leg that ends in a listed state. Equity return, which is what the participation exemption and the treaty network are built to carry, moves reasonably well. Interest and royalties into Bahrain do not, and no amount of documentation makes the conditional withholding tax go away, because the charge does not depend on motive.
That usually means the intellectual property and the group funding function sit where they can be defended commercially and where the outbound payment is not into a listed jurisdiction. It sometimes means accepting a less elegant chart in exchange for a file that survives examination in three states rather than one.
It also means being honest about the cost of the alternative. Retaining a Bahraini licensor for a European operating group is a decision to pay 25.8 per cent on the gross royalty, every year, or to restructure later under worse conditions.
What to settle before anything is signed
The sequence that works starts with the list and ends with the agreements, not the other way round. Confirm the current version of the Dutch regulation, because it is revised annually and the removal of the United Arab Emirates from it shows that entries do move. Confirm whether the group is inside or outside the Bahraini top-up tax threshold, because the answer changes what can be said about the group’s effective rate. Then decide which payments cross which border, and only then draft.
The last step is the one groups skip. The Dutch entity has to be resourced to be what the documents say it is, and the Bahraini entity has to be described as what it actually does. A structure in which both descriptions are true is duller than the alternatives, and it is the only kind that reads the same way in Manama, in The Hague and in the state that is paying the dividend.