On March 9th 2015, the Republic of Cyprus and the Kingdom of Bahrain have signed a Double Tax Treaty (DTT) that came into effect on January 1st 2016. The treaty, like all of Cyprus’ DTAs, is based on the OECD’s (Organization for Economic Cooperation and Development) model of convention for the avoidence of double taxation on income and capital, in order to help boost foreign direct investments to Cyprus.
The treaty’s main provisions are as listed below:
- Taxes covered: The agreement applies to taxes on income imposed by either country. In Bahrain these are currently the income tax payable under Legislative Decree No. 22/1979 (the Oil Tax); in Cyprus they are income tax, corporate income tax, SDC tax (Special Contribution for Defence) and capital gains tax.
- Income from immovable property: Income derived by a resident of a contracting state from immovable property situated in the other may be taxed in the state in which the property is located.
- Shipping and aviation: Profits from the operation of ships or aircraft in international traffic are taxable only in the contracting state in which the enterprise concerned is resident.
- Dividends, Interest and Royalty: Dividends, interest and royalties paid by a company which is a resident of one contracting state to a resident of the other contracting state are taxable only in the contracting state in which the recipient is resident, unless they relate to the activities of a permanent establishment in the contracting state in which they arise, operated by the recipient.
- Capital gains: Gains derived by a resident of one contracting state from the alienation of immovable property (or of moveable property associated with a permanent establishment) situated in the other may be taxed in the contracting state in which the property is situated. Gains derived from the alienation of all other property (including ships or aircraft operated in international traffic) are taxable only in the contracting state in which the alienator is resident.