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Bahrain-Hungary

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Bahrain Ratifies Tax Treaty with Hungary

On 12 April 2015, Bahraini King Hamad bin Isa Al Khalifa signed the law ratifying the pending income tax treaty with Hungary. The treaty, signed 24 February 2014, is the first of its kind between the two countries.

Taxes Covered

The treaty covers Bahraini income tax, and Hungarian income tax and corporate tax.

Withholding Tax Rates

  • Dividends - 0% if the beneficial owner is a company, otherwise 5%
  • Interest - 0%
  • Royalties - 0%
  • Capital gains - generally exempt, although the following gains derived by a resident of one Contracting State may be taxed by the other State:
    • Gains from the alienation of immovable property situated in the other State,
    • Gains from the alienation of movable property forming part of the business property of a permanent establishment in the other State, and
    • Gains from the alienation of shares or comparable interests directly or indirectly deriving more than 50% of their value from immovable property situated in the other State

Double Taxation Relief

Bahrain applies the credit method for the elimination of double taxation, while Hungary generally applies the exemption method. However, in the case of income covered by Article 10 (Dividends), Hungary applies the credit method.

Limitation on Benefits

The treaty includes a limitation of benefits article (27), which includes the provision that a resident of a Contracting State shall not receive the benefit of any reduction in or exemption from tax provided for by the treaty if the competent authority determines that the main purpose or one of the main purposes of such resident or a person connected with such resident was to obtain the benefits of the treaty.

The limitation may only apply after the competent authorities of both Contracting State have consulted with each other.

Entry into Force and Effect

The treaty will enter into force 30 days after the ratification instruments are exchanged, and will apply from 1 January of the year following its entry into force.

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