On 9 March 2016, Cyprus signed its first tax treaty with the Kingdom of Bahrain. Following the completion of the relevant ratification procedures, the tax treaty entered into force on 26 April 2016 and it will apply as from 1 January 2017.
The main provisions of the treaty, which is based on the OECD model treaty, are as follows:
Permanent establishment: A building site or construction or installation project or any supervisory activities in connection with such a site or project will constitute a permanent establishment only if it lasts more than 12 months.
Dividends: Nil withholding tax.
Income from debt claims: Nil withholding tax
Royalties: Nil withholding tax
It is worth noting that Bahrain currently does not levy withholding taxes on dividends, interest or royalties. Therefore, the treaty provides certainty, should Bahrain decide at some point in the future to introduce withholding taxes under its domestic law, that there would be no withholding tax on payments made to Cypriot tax residents.
Capital gains: Gains derived by a resident of a contracting state from the disposal of immovable property situated in the other contracting state may be taxed in that other state. Gains arising from the disposal of shares will be taxable only in the contracting state in which the alienator is a resident.
Deloitte view: The tax treaty between Cyprus and Bahrain is a useful tool in the two countries' effort to embrace economic diversity and attract foreign direct investments.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
