- The Bahrain Cabinet has given its approval for the signing of an income tax treaty with the United Arab Emirates.
- Some experts have long anticipated this move, especially considering Bahrain’s plans to introduce Corporate Tax soon.
- This treaty holds great importance as it could significantly boost businesses operating in both countries.
Bahrain to eliminate double taxation with UAE
On 5th February 2024, the Bahrain Cabinet officially gave its approval for a tax treaty with the United Arab Emirates.
This treaty is the first of its kind between the two countries. Its purpose is to prevent double taxation and discourage fiscal evasion for businesses and individuals operating in both nations.
Taxes to be covered in the treaty
The double tax avoidance agreement includes,
- Income taxes
- Withholding taxes and other related taxes
However, the exact terms of the treaty have not been made public yet.
The treaty is yet to come into effect.
The UAE and Bahrain have to first sign the treaty and complete their own ratification processes.
What’s a Double Taxation Avoidance Agreement?
A double-taxation avoidance agreement (DTAA) is an agreement between two countries to avoid or reduce the taxation of the same income or asset by both countries.
This negatively impacts the flow of goods, services, capital, technology transfer, and trade between the two countries.
Bahrain has double tax treaties (DTTs) with these countries as of 2023.
The UAE has double tax treaties (DTTs) with these countries as of 2023.
How it will help the two countries
- Facilitate Trade and Investment: The Double Tax Treaty (DTT) can make cross-border transactions more attractive and encourage trade and investment between Bahrain and the UAE, two closely linked economies.
- Attract Companies: With the UAE having implemented Corporate Income Tax (“CIT”) in June 2023, companies might hesitate to do business there due to potential double taxation in both countries. Having a DTT in place can provide clarity and assurance, making Bahrain a more attractive alternative for these companies.
- Political and Economic Ties: Signing a DTT demonstrates this commitment and strengthens their bilateral relationship.
Bahrain’s Corporate Tax to be implemented
News of Bahrain’s DTT with UAE emerges just before the country is scheduled to introduce Corporate Income Tax (“CIT”).
The Bahrain government aims to present the CIT law drafts to the legislative authority in March 2024.
This step brings Bahrain in line with other GCC countries that have already adopted a comprehensive CIT.
This agreement is considered a significant development for regional economic cooperation and could potentially boost cross-border investments and trade between Bahrain and the UAE.