Details of the Bahrain - United Kingdom Income Tax Treaty (2010) (the Treaty), signed on 10 March 2010, have become available. The Treaty was concluded in the Arabic and English languages, both texts being equally authentic. In the case of divergence of interpretation, however, the English text prevails. The Treaty generally follows the OECD Model (2008).
The maximum rates of withholding tax are as follows:
|-||15% on dividends beneficially owned by Real Estate Investment Trusts (REITs) and 0% in other cases;|
|-||domestic withholding tax rates apply to interest, except in certain cases where the 0% rate applies; and|
|-||0% on royalties.|
Major deviations from the OECD Model (2008) include the following:
|-||In article 4, the term "resident" means, in the case of Bahrain, any individual who has a permanent home, his centre of vital interest, or habitual abode in Bahrain, and a company incorporated or having its place of effective management in Bahrain.|
|-||In article 5, an enterprise furnishing services through its employees or other personnel engaged for this purpose is deemed to have a permanent establishment if its activities continue (for the same or a connected project) for a period or periods aggregating more than 183 days in any 12-month period commencing or ending in the tax year concerned.|
|-||Also in article 5, a permanent establishment is deemed to exist where an enterprise, through an individual resident in a contracting state, performs services in the other contracting state and the individual's stay in that other contracting state is for a period aggregating more than 183 days in any 12-month period commencing or ending in the tax year concerned.|
|-||The provisions of article 8 apply to the part of profits derived by a shipping or airline company which is attributable to the government of a contracting state. Profits from the operation of ships or aircraft by such a company will be treated as derived from international traffic except where attributable to the operation of ships or aircraft solely between places in the other contracting state.|
Both states generally provide for the credit method to avoid double taxation.
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