(February 27, 2015)
On February 27, 2015 the Belgian Ministry of Finance issued a press release by which it announced that the Convention between the Kingdom of Belgium and the Kingdom of Bahrain for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income and on Capital (Hereafter: DTA) entered into force on December 11, 2014. At the same date also the Protocol (Hereafter: Protocol) amending the DTA, entered into force.
Based on Article 30 of the DTA the fact that the DTA entered into force on December 11, 2014 means that the provisions of the Convention shall have effect:
a) with respect to taxes due at source on income credited or payable on or after January 1, 2015;
b) with respect to other taxes charged on income of taxable periods beginning on or after January 1, 2015;
c) with respect to taxes on capital charged on elements of capital existing on or after January 1, 2015.
· Under the DTA dividend withholding taxes are limited to 0% in case of qualifying shareholdings and to 10% of the gross amount of the dividends in all other situations;
· Under the DTA withholding taxes to be withheld over Income from debt-claims by the Source State are limited to 5% of the gross amount of the income;
· Under the DTA the Source State is not allowed to withhold withholding taxes over royalty payments made.
Based on paragraph 3 of Article 2 (Taxes covered) of the DTA the existing taxes to which the Convention shall apply are in particular:
a) in the case of Bahrain: the income tax payable under Amiri Decree No. 22 of 1979.
b) in the case of Belgium:
(i) the individual income tax;
(ii) the corporate income tax;
(iii) the income tax on legal entities;
(iv) the income tax on non-residents on income sourced in Belgium;
(v) the supplementary crisis contribution;
including the prepayments and the surcharges on these taxes and prepayments.
Paragraph 3 of Article 5 (Permanent establishment) of the DTA determines that a building site or construction or installation project constitutes a permanent establishment only if it lasts more than 12 months.
With respect to dividend withholding taxes to be withheld by the Source State paragraph 2 of Article 10 (Dividends) of the DTA reads as follows:
“However, such dividends may also be taxed in the Contracting State of which the company paying the dividends is a resident and according to the laws of that State, but if the beneficial owner of the dividends is a resident of the other Contracting State, the tax so charged shall not exceed 10 per cent of the gross amount of the dividends.
Notwithstanding the preceding provisions of this paragraph, dividends shall not be taxed in the Contracting State of which the company paying the dividends is a resident if the beneficial owner of the dividends is a company which is a resident of the other Contracting State and which at the moment of the payment of the dividends holds, for an uninterrupted period of at least twelve months, shares representing directly at least 10 per cent of the capital of the company paying the dividends.
This paragraph shall not affect the taxation of the company in respect of the profits out of which the dividends are paid.”
With respect to withholding taxes to be withheld by the Source State over Income from debt-claims paragraph 2 of Article 11 (Income from debt-claims) of the DTA reads as follows:
“However, such income may also be taxed in the Contracting State in which it arises and according to the laws of that State, but if the beneficial owner of the income is a resident of the other Contracting State, the tax so charged shall not exceed 5 per cent of the gross amount of the income.”
Paragraph 3 of Article 11 (Income from debt-claims) subsequently reads as follows:
“Notwithstanding the provisions of paragraph 2, income from debt-claims shall be exempted from tax in the Contracting State in which it arises if it is:
a) income from commercial debt-claims (including debt-claims represented by commercial paper) resulting from deferred payments for goods, merchandise or services supplied by an enterprise;
b) income paid in respect of a loan granted, guaranteed or insured or a credit extended, guaranteed or insured under a scheme organised by a Contracting State or one of its political subdivisions or local authorities in order to promote the export;
c) income from debt-claims or loans of any nature (not represented by bearer instruments) paid by an enterprise to a banking enterprise;
d) income from deposits made with a banking enterprise;
e) income paid to the other Contracting State, a political subdivision or local authority thereof, a statutory body or agency thereof, the National Bank or any wholly owned company thereof.”
Article 28 (Limitation of benefits) of the DTA contains an anti-abuse clause regarding the articles 10 (Dividends), 11 (Income from debt-claims) and 12 (Royalties). Article 28 of the DTA reads as follows:
“The provisions of Articles 10, 11 and 12 shall not apply if it was the main purpose or one of the main purposes of any person concerned with the creation or assignment of a right or debt claim in respect of which dividends, income from debt-claims or royalties are paid to take advantage of those Articles by means of that creation or assignment.”
The agreement a.o. also provides for: a Mutual Agreement Procedure (Article 25), the Exchange of Information (Article 26, which was amended by the Protocol of November 23, 2009) and Aid in Recovery (Article 27).
Both the DTA as well as the Protocol are available in different languages on the website of the Belgian Ministry of Finance. Click on the document of your choice to be forwarded to the document as published on the website of the Belgian Ministry of Finance, which will open in a new window.
· Protocol of 11-23-2009 in English
· Protocol of 11-23-2009 in French
· Protocol of 11-23-2009 in German
· Protocol of 11-23-2009 In Dutch
If you are interested in efficiently locating texts of more DTAs then click here to be forwarded to our section DTAs where you can link to numerous governmental websites on which you can find links to the texts of DTAs as concluded by that State.
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