According to an update from the Bahrain Ministry of Finance, the new income tax treaty with Egypt entered into force on 1 August 2018. The treaty, signed 26 April 2016, replaces the 1997 tax treaty between the two countries.
The treaty covers Bahrain income tax payable under Amiri Decree No. 22/1979, and covers Egyptian individual income tax, corporate income tax, withholding tax, and any supplementary taxes.
The treaty includes the provision that a permanent establishment will be deemed constituted when an enterprise carries on activities for the exploration or extraction of crude oil or other natural hydrocarbons in a Contracting State, or carries on any other connected activities, including the use of substantial equipment (includes assembly).
The treaty also includes the provision that a permanent establishment will be deemed constituted when an enterprise furnishes services within a Contracting State through employees or other engaged personnel for the same or connected project for a period or periods aggregating more than 183 days within any 12-month period.
The following capital gains derived by a resident of one Contracting State may be taxed by the other State:
Unlike most other tax treaties, which provide that gains from the alienation of other property by a resident of a Contracting State may only be taxed by that State, the Bahrain-Egypt treaty provides that gains from the alienation of other property may be taxed according to the domestic laws of both Contracting States.
Both countries apply the credit method for the elimination of double taxation.
Article 28 (Limitations on Benefits) provides that the provision of the treaty will not apply if the main purpose or one of the main purposes of a resident or connected person is to obtain benefits under the treaty.
The new tax treaty applies from 1 January 2019. The 1997 tax treaty between the two countries ceases to apply from that date.
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