Bahrain ratifies pending tax treaty with Guernsey

Bahrain approved the law for the ratification of the pending income tax treaty with Guernsey on 23 April. The treaty, signed 29 September 2024, is the first of its kind between the two jurisdictions and will enter into force 30 days after the ratification instruments are exchanged and will apply from 1 January of the year following its entry into force.

The treaty covers Bahrain income tax and Guernsey income tax. Both jurisdictions will generally apply the credit method for the elimination of double taxation. Withholding tax rates in respect of dividends, interest and royalties are 0%.

The Mutual Agreement Procedure (MAP) in Article 23 includes the provision that if any issues of a case cannot be resolved under MAP within two years from being presented to the competent authority of the other party, the person that presented the case may request that the case be submitted to arbitration unless a decision has already been given by a court or administrative tribunal of either party.

The Entitlement to Benefits in Article 26 includes the provision that a benefit under the treaty will not be granted in respect of an item of income if it is reasonable to conclude that obtaining that benefit was one of the principal purposes of any arrangement or transaction that resulted directly or indirectly in that benefit, unless it is established that granting that benefit in these circumstances would be in accordance with the object and purpose of the relevant provisions of the treaty.