✅ Current Position
Bahrain currently has no thin capitalization rules and no general interest limitation provisions. Companies can be financed entirely by debt without restriction. However, transfer pricing rules require intercompany interest to be at arm's length.
Future Considerations
🌐 Pillar Two Impact
Under GloBE rules, excessive interest may be disallowed in computing jurisdictional top-up tax. The Substance-based Income Exclusion (SBIE) reduces the benefit of highly leveraged structures.
📏 Arm's Length Pricing
Related-party loans must carry market-rate interest. Transfer pricing documentation should include benchmarking studies for intercompany financing. Credit ratings, loan terms, and collateral affect pricing.
🕌 Islamic Finance
Murabaha and commodity Murabaha treated as debt equivalent. Profit rates must be arm's length. Ijara (lease financing) structuring provides alternative to conventional debt.
🏦 CBB Requirements
Licensed banks and financial institutions have capital adequacy ratios set by CBB. These regulatory requirements may implicitly limit debt capacity for financial services firms.