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