The new double taxation agreement between Cyprus and Bahrain was signed in Manama on 9.3.2015.
The agreement shall enter into the force on 1/1/2016.
The significant provisions of the agreement mostly based on the OECD Model agreement are:
- The Cyprus taxes covered (article 2) are the income tax, the corporate income tax, the special contribution for the defence of the Republic and the capital gains tax.
- The term ‘’permanent establishment’’(article 5) includes also a building site, a construction or installation project or any supervisory activities in connection therewith, but only if such site, project or activity lasts for a period of more than 12 months.
- Income from Immovable property (article 6) gives a taxing right to the source country in respect of the income from the use of rental therein.
- Dividends (article 10) paid by a company which is resident of a contracting state, is taxable only in the state of residence.
- Income from debt claims (article 11) arising in a Contracting State and paid to a resident of the other contracting state, shall be taxable only in that other state, but when there exists a special relationship between the two parties, the interest is restricted to the amount arrived at on the basis of an arm’s length transaction. It is to be noted that interest income payable from Cyprus to a non-Cyprus tax resident person is also not subject to tax in Cyprus under the domestic law.
- Royalties (article 12) arising in a Contracting State and paid to a resident of the other Contracting State shall be taxed only on that other State. When a special relationship exists between the two parties, the non taxable amount in the State of Source is restricted to the amount arrived at on the basis of an arm’s length transaction.