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Cyprus and Bahrain – Activation of Double Tax Treaty

IN continuation of our previous Tax Update on the 1st of March 2016, the law firm of G. Vrikis & Associates LLC would like to inform you that following the completion of the relevant ratification procedures in both Cyprus and Bahrain, the double tax treaty between the two countries has entered into force on 26 April 2016 and shall be applicable as of the 1st January 2017.

The new Double Tax Treaty, which is based on the OECD Model, includes the following main provisions:

  • Permanent establishment: With regards to building site or construction or installation project or any supervisory activities in connection with such a site or project will constitute a permanent establishment only if it lasts more than 12 months.
  • Dividends: Zero (0) withholding tax (“WHT”) will apply.
  • Income from Debt Claims: Zero (0) WHT will apply.
  • Royalties: Zero (0) WHT will apply.
  • Capital gains: Gains derived by a resident of a contracting state from the disposal of immovable property situated in the other contracting state may be taxed in that other state. Gains arising from the disposal of shares will be taxable only in the contracting state in which the alienator is a resident.

It should be noted that Bahrain currently does not levy withholding taxes on dividends, interest or royalties and, as such, the double tax treaty between Cyprus and Bahrain provides added certainty, should Bahrain decide at some point in the future to introduce withholding taxes under its relevant laws, that there would be no withholding tax on payments made to Cypriot tax residents.

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