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Bahrain-Portugal

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Tax Treaty between Bahrain and Portugal has Entered into Force

The income tax treaty between Bahrain and Portugal entered into force on 1 November 2016. The treaty, signed 26 May 2015, is the first of its kind between the two countries.

Taxes Covered

The treaty covers Bahrain income tax payable under Amiri Decree No. 22/1979, and Portuguese personal income tax, corporate income tax, and surtaxes on corporate income tax.

Hydrocarbon PE

The treaty includes the provision that a permanent establishment will be deemed constituted if, for a period of more than 90 days, an enterprise of one Contracting State is directly engaged in the exploration for or production of crude oil or other natural hydrocarbons arising from the ground in the other State, or when refining crude oil in its facilities in the other State.

Withholding Tax Rates

  • Dividends - 10% if the beneficial owner is a company directly holding at least 25% of the paying company's capital; otherwise 15%
  • Interest - 10%
  • Royalties - 5%

Capital Gains

The following capital 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 deriving more than 50% of their value directly or indirectly from immovable property situated in the other State

Gains from the alienation of other property by a resident of a Contracting State may only be taxed by that State.

Double Taxation Relief

Both countries apply the credit method for the elimination of double taxation.

Limitation on Benefits

Article 27 (Limitation on Benefits) includes the provision that the benefits of the treaty will not be granted to a resident of a Contracting State that is not the beneficial owner of the income derived from the other State. In addition, the benefits of the treaty will not apply if the main purpose or one of the main purposes of any person concerned with the creation or assignment of the property or right in respect of which the income is paid was to take advantage of the benefits by means of such creation or assignment.

Effective Date

The treaty applies from 1 January 2017.

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