CONVENTION

between the Grand Duchy of Luxembourg and the Kingdom of Bahrain

for the avoidance of double taxation and the prevention of fiscal evasion

on Income and Capital Taxes and Exchange of Letters relating thereto

 

The Government of the Grand Duchy of Luxembourg and the Government of the Kingdom of Bahrain, desiring to conclude a Convention for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income and capital, have agreed as follows: 

 

Article 1

Persons Covered

This Convention shall apply to persons who are residents of one or both of the Contracting States.

 

Article 2

Taxes Covered

1. This Convention shall apply to taxes on income and on capital imposed on behalf of a Contracting State or its local authorities, irrespective of the system of taxation.State or its local authorities, irrespective of the system of collection.

2. There shall be regarded as taxes on income and on capital taxes imposed on total income, on total capital, or on elements of income or on elements of income or capital, including taxes on gains from the alienation of movable or immovable property, taxes on the total amount of salaries paid by enterprises, as well as taxes on capital gains.

3. The existing taxes to which the Convention shall apply include

 

(a) in the Kingdom of Bahrain, the income tax payable under the Amiri Decree No. 22 of 1979;(hereinafter referred to as “Bahrain tax”);

(b) in the Grand Duchy of Luxembourg:

(i) the personal income tax;

(ii) the corporate income tax;

(iii) the wealth tax; and

(iv) the municipal business tax;

(hereinafter referred to as “Luxembourg tax”)

 

4. The Convention shall apply also to any identical or substantially similar taxes which are imposed after the date of signature of the Convention shall also apply to any identical or substantially similar taxes imposed after the date of signature of the Convention in addition to or in place of  the existing taxes.The competent authorities of the Contracting States shall inform each other of any significant changes in their tax laws.

 

Article 3

General Definitions

1. For the purposes of this Convention, unless the context otherwise requires

(a) the term “Bahrain” means the territory of the Kingdom of Bahrain, as well as the maritime areas, the sea bed the term “Bahrain” means the territory of the Kingdom of Bahrain, as well as the maritime areas, the sea bed and the subsoil over which Bahrain exercises its sovereign rights and judicial authority in accordance with international law.

(b) the term “Luxembourg” means the Grand Duchy of Luxembourg and, when used in a geographical sense, means the territory of the Grand Duchy of Luxembourg;

(c) the term “person” includes natural persons, companies and any other bodies of persons;

(d) the term “company” means any body corporate or any entity which is treated as a body corporate for tax purposes or any other entity constituted or recognized as a body corporate under the laws of either Contracting State;

(e) the term “enterprise” means the carrying on of any business or activity

(f) the terms “enterprise of a Contracting State” and “enterprise of the other Contracting State” mean

(f) the terms “enterprise of a Contracting State” and “enterprise of the other Contracting State” mean respectively an enterprise carried on by a resident of a Contracting State and an enterprise carried on by a resident of the other Contracting State.

(g) the term “international traffic” means any transport by a ship or aircraft operated by an enterprise whose place of effective management is in a Contracting State, except where the ship or aircraft is not operated by a resident of the other Contracting State; and aircraft is operated only between points in the other Contracting State;

(h) the term “competent authority” means:

(i) in Bahrain, the Minister of Finance or his authorized representative; and

(ii) in Luxembourg, the Minister of Finance or his authorized representative;

(i) “national” means;

(i) any individual who is a national of a Contracting State

(ii) any legal person, partnership or association organized under the laws in force in a Contracting State

(j) the terms “activity”, in relation to an enterprise, and “business” include the practice of professions or other activities of an independent character.

 

2. For the purposes of the application of the Convention at any time by a Contracting State, any term not defined therein shall, unless the defined herein shall, unless the context otherwise requires, have the meaning which it has at that time under the law of that State concerning the taxes to which it relates of that State in relation to the taxes to which the Convention applies, the meaning of such term or expression under the meaning given to that term under the tax law of that State shall prevail over the meaning given to it under other laws of that State.

 

Article 4

Resident

1. For the purposes of this Convention, the term “resident of a Contracting State” means

(a) in the case of Bahrain, an individual who is a national of Bahrain and who is present in Bahrain for a period or periods aggregating to 183 days or more in the relevant tax year, and a company or other legal entity that is incorporated or has its place of management in Bahrain;

(b) in the case of Luxembourg, any person who, under the laws of Luxembourg, is subject to tax therein by reason of his domicile, residence, place of management or any other criterion of a similar nature, and The term “taxpayer” means any person who, under the laws of Luxembourg, is subject to tax therein by reason of his domicile, residence, place of management or any other criterion of a similar nature and shall also apply to that State and to all its local authorities.However, this expression does not include persons who are subject to tax in Luxembourg only on income from sources situated in that State or in the capital situated there.

 

2. Where, under the provisions of paragraph 1, an individual is a resident of both Contracting States its status shall be determined as follows

 

(a) he shall be deemed to be a resident only of the State in which he has a permanent home available to him; if he has a permanent home available to him in both States, he shall be deemed to be a resident only of the State with which he has a permanent home available to him resident only of the State with which his personal and economic relations are closer (center of vital interests);

(b) if the State in which such person has his centre of vital interests cannot be determined, or if he has no permanent home in any of the States, he shall be deemed to be a resident only of the State in which he has an habitual abode;

(c) if such person has an habitual abode in both States or in neither of them, he shall be deemed to be a resident only of the State of which he is a national;

(d) if such person is a national of both States or of neither, the competent authorities of the Contracting States shall settle the question by mutual agreement.

 

3. Where by reason of the provisions of paragraph 1 a person other than an individual is a resident of both States, he shall be deemed to be a resident only of the State in which his place of effective management is situated.

 

Article 5

Permanent Establishment

1. For the purposes of this Convention, the term “permanent establishment” means a fixed place of business through which the business of an enterprise is wholly or partly carried on.

 

2. The term “permanent establishment” includes in particular:

(a) a place of management,

(b) a branch office

(c) an office,

(d) a factory,

(e) a workshop,

(f) a mine, oil or gas well, quarry or other place of extraction of natural resources

(g) a refinery,

(h) an outlet, and

(i) a warehouse in the case of a person who makes storage facilities available to other persons.

 

3. A construction or assembly site constitutes a permanent establishment only if its duration exceeds 12 months.

 

4. Notwithstanding the foregoing provisions of this Article, a “permanent establishment” shall be deemed not to exist if:

(a) use is made of facilities solely for the purpose of storing, displaying or delivering goods or merchandise belonging to the enterprise;

(b) goods belonging to the business are stored solely for the purpose of storage, display or delivery;

(c) goods owned by the business are stored solely for the purpose of processing by another business;

(d) a fixed place of business is used solely for the purpose of purchasing goods or gathering information for the enterprise;

(e) a fixed place of business is used solely for the purpose of carrying on any other activity of a preparatory or auxiliary character for the enterprise

(f) a fixed place of business shall be used solely for the purpose of carrying on the combined activities referred to in subparagraphs (a) to (e), provided that the overall activity of the fixed place of business resulting from such combination remains of a preparatory or auxiliary character.

 

5. Notwithstanding the provisions of paragraphs 1 and 2(b) where a person – other than an agent of an independent status to whom paragraph 6 applies – is acting on behalf of an enterprise and has in a Contracting State an authority habitually exercised by that person to conclude contracts in the name of the enterprise,that enterprise shall be deemed to have a permanent establishment in that State in respect of any activities which that enterprise, unless the activities of such person are limited to those referred to in paragraph 4 which, if referred to in paragraph 4 and which, if exercised through a fixed place of business, would not permit that place of business to be regarded as a permanent establishment under the provisions of that paragraph.

 

6. An enterprise shall not be deemed to have a permanent establishment in a Contracting State merely because it carries on business in that State through a broker, general commission agent or any other agent provided that such persons are acting in the ordinary course of their business.

 

7. The fact that a company which is a resident of a Contracting State controls or is controlled by a company which is resident of the other Contracting State or carrying on business in that other State (whether through a permanent establishment or otherwise) is not The fact that a company is a resident of a Contracting State and controls or is controlled by a company which is a resident of the other Contracting State or which carries on business in that other Contracting State (whether through a permanent establishment or otherwise) shall not of itself constitute a permanent establishment of the other company.

 

Article 6

Income from Real Property

1. Income derived by a resident of a Contracting State from immovable property (including income from agriculture or forestry) situated (including income from agriculture or forestry) situated in the other Contracting State may be taxed in that other State.

 

2. The term “immovable property” shall have the meaning which it has under the law of the Contracting State in which the property concerned is situated. The term shall in any case include property accessory to immovable property, livestock and equipment used in agriculture and forestry rights to which the provisions of private law respecting landed property, usufruct of immovable property and rights of real estate and rights to variable or fixed payments for the exploitation or concession of exploitation of mineral deposits, springs and other natural resources; ships and aircraft are not considered as real ships and aircraft are not considered as real estate.

 

3. The provisions of paragraph 1 shall apply to income derived from the direct operation, rental or leasing and any other form of exploitation of real property.

 

4. The provisions of paragraphs 1 and 3 shall also apply to income from the real estate of an

company.

 

Article 7

Business Profits

1. The profits of an enterprise of a Contracting State shall be taxable only in that State unless the enterprise carries on business in the other Contracting State through a permanent establishment situated therein. If the enterprise carries on business in such a manner, the profits of the enterprise may be taxed in the other State, but only to the extent that they are only to the extent that they are attributable to that permanent establishment.

 

2. Subject to the provisions of paragraph 3, where an enterprise of a Contracting State carries on business in the other Contracting State through a permanent establishment situated therein, there shall in each Contracting State be attributed to that permanent the profits which it might be expected to make if it were a separate enterprise engaged in the same or similar activities carrying on the same or similar activities under the same or similar conditions and dealing wholly independently with the taxpayer shall be deemed to have paid the tax on the profits which it would have realized if it had been a separate enterprise engaged in the same or similar activities under the same or similar conditions and dealing wholly independently with the enterprise of which it is a permanent establishment.

 

3. In determining the profits of a permanent establishment, there shall be allowed as deductions expenses incurred for the purposes of permanent establishment, including executive and general administrative expenses incurred, either in the State in which incurred either in the State in which such permanent establishment is situated or elsewhere.

 

4. If it is customary in a Contracting State to determine the profits to be attributed to a permanent establishment on the basis of an apportionment of the total profits of the permanent establishment, then the profits of the permanent establishment shall be attributed to that permanent establishment on the basis of an apportionment of the total profits of the enterprise to its various parts, nothing in paragraph 2 shall not prevent that Contracting State from determining the taxable profits according to the customary apportionment; the method of apportionment adopted shall, however, be such as to produce a result consistent with the principles contained in this Article.

 

5. No profit shall be attributed to a permanent establishment by reason of its having merely purchased goods or merchandise for the enterprise.

 

6. For the purposes of the preceding paragraphs, the profits to be attributed to the permanent establishment shall be determined annually the taxpayer is entitled to the benefit of the taxpayer’s own income and to the benefit of the taxpayer’s own assets and liabilities, and to the benefit of the taxpayer’s own assets and liabilities.

 

7. Where profits include items of income which are dealt with separately in other Articles of this Convention, the provisions of those Articles shall not be affected by the provisions of this Article.

 

Article 8

Maritime and Air Navigation

1. Profits from the operation of ships or aircraft in international traffic shall be taxable only in the Contracting State in which the place of effective management of the enterprise is situated.

 

2. For the purposes of this Article, profits from the operation of ships or aircraft in international traffic include:

 

(a) profits from the bareboat charter of ships or aircraft;

(b) profits from the use, maintenance or rental of containers (including trailers and equipment relating to the transport of containers) used for the transportation of goods where such rental or use, maintenance or leasing is incidental to the operation in international traffic, of ships or aircraft;

 

3. If the place of effective management of a shipping enterprise is on board a ship, that place of effective management shall be deemed to be in the Contracting State in which the home port of that ship is situated, or in the absence of a home port in the Contracting State of which the operator of the ship is a resident.

 

4. The provisions of paragraph 1 shall also apply to profits derived from participation in a pool, a joint business or an international operating agency.

 

Article 9

Associated Enterprises

1. Where

(a) an enterprise of a Contracting State participates directly or indirectly in the management, control or capital of an enterprise of the capital of an enterprise of the other Contracting State, or

(b) the same persons participate directly or indirectly in the management, control or capital of an enterprise of a Contracting State and of an enterprise of the other Contracting State,and in either case the two enterprises are connected in their commercial or financial relations by agreed or imposed conditions which are conditions agreed upon or imposed which differ from those which would be agreed upon between independent enterprises, profits which, but for those conditions, would have accrued to one of the enterprises, but in fact did not because of those conditions, may be such conditions may be included in the profits of that enterprise and taxed accordingly.

 

2. Where a Contracting State includes in the profits of an enterprise of that State – and taxes accordingly -profits on which an enterprise of the other Contracting State has been taxed in that other State, and the profits so included are included are profits which would have accrued to the enterprise of the first-mentioned State if the conditions agreed upon between the two enterprises had been those which would have been agreed upon between independent enterprises, the other State shall make an appropriate adjustment to the amount of tax imposed therein on such profits. In determining such adjustment, due regard shall be had to the other provisions of this Convention and, if necessary, the competent authorities of the Contracting States shall consult each other. 

 

Article 10

Dividends

1. Dividends paid by a company that is a resident of a Contracting State to a resident of the other Contracting State may be taxed in that other State.

 

2. However, such dividends may also be taxed in the Contracting State of which the company paying the dividends is 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

(a) 0 percent of the gross amount of the dividends if the beneficial owner is a company (other than a partnership) that owns directly at least 10 percent of the capital of the company paying the dividends;

(b) 10 percent of the gross amount of the dividends, in all other cases. This subsection does not affect the taxation of the corporation in respect of the profits out of which the dividends are paid dividends.

 

3. The term “dividends” as used in this section means income from shares, jouissance shares or warrants shares, mining shares, founder’s shares or other profit shares, with the exception of claims, as well as income from other income from other shares which is subject to the same taxation treatment as income from shares under the laws of the State of which the distributing company is a resident, and in the case of Luxembourg the profit shares received as a result of its investment in a commercial in a commercial, industrial, mining or artisanal enterprise, by the financial backer remunerated in proportion to the arrears and interest on bonds when a right to attribution is granted for these securities, outside the allocation, apart from the fixed interest, of an additional interest varying according to the amount of the profit distributed.

 

4. The provisions of paragraphs 1 and 2 shall not apply if the beneficial owner of the dividends, being a resident of a Contracting State carries on business in the other Contracting State of which the company paying the dividends is a resident through business activity through a permanent establishment situated therein, and the holding in respect of which the dividends are paid is effectively connected with such permanent establishment dividends are effectively connected with it. In such a case, the provisions of Article 7 shall apply.

 

5. Where a company which is a resident of a Contracting State derives profits or income from the other Contracting State, that other State may not impose any tax on dividends paid by the company, except to the extent that such dividends are paid to a resident of the other State or to the extent that the holding in respect of which the dividends are paid is effectively connected with a dividends is effectively connected with a permanent establishment situated in that other State, nor impose any tax, in respect of the company’s undistributed profits, even if the dividends paid or the undistributed paid or the undistributed profits consist wholly or partly of profits or income arising in that other State.

 

6. Notwithstanding the provisions of paragraph 2, dividends arising in a Contracting State and paid to the Government of the other Contracting State or to a local authority, public institution or agency thereof, or to the National Bank or to any other company wholly owned by that other State, shall be exempt from tax in the first-mentioned Contracting State.

 

Article 11

Income from Debt Claims

1. Income from debt-claims arising in a Contracting State and beneficially owned by a resident of the other Contracting State shall be taxable only in that other State.

 

2. The term “income from debt-claims” or “income” as used in this Article means income from debt-claims of every kind, whether or not secured by mortgage and whether or not carrying a right to participate in the debtor’s profits of the debtor, including income from government securities and income from bonds or debentures, including premiums and prizes attached to such securities. However, the terms “income from debt-claims” or “income” do not include the income referred to in Article 10. referred to in section 10. Penalties for late payment shall not be considered “debt income” or “income” within the meaning of this article.

 

3. The provisions of paragraph 1 shall not apply if the beneficial owner of the income, being a resident of a Contracting State, carries on business in the other Contracting State, carries on business in the other Contracting State in which the income arises through a permanent establishment situated therein, and the debt-claim arising from the income is effectively connected therewith. In such a case, the provisions of Article 7 shall apply.

 

4. Where, by reason of a special relationship between the debtor and the beneficial owner or between both of them and with third parties, the amount of the income, taking into account the claim for which it is paid, exceeds the amount the debtor and the beneficial owner would have agreed in the absence of such relationship, the provisions of this Article shall apply only to the latter amount. In such a case, the excess part of the payments shall remain taxable according to the laws of each Contracting State, due regard being due to the other provisions of this Convention.

 

Article 12

Royalties

1. Royalties arising in a Contracting State and beneficially owned by a resident of the other Contracting State shall be taxable only in that other State.

 

2. The term “royalties” as used in this Article means payments of any kind for the use of or the right to use any copyright of literary, artistic or scientific work, including cinematograph films or scientific work, including motion pictures, a patent, a trademark, a design or model, a plan, a formula or a secret plan, formula or process, and for information concerning experience in the industrial, commercial or scientific field.

 

3. The provisions of paragraph 1 shall not apply where the beneficial owner of the royalties, being a resident of aState, carries on business in the other Contracting State in which the royalties arise through a permanent through a permanent establishment situated therein, and the right or property in respect of which the royalties are paid is effectively connected with

effectively connected therewith. In such a case, the provisions of Article 7 shall apply.

 

4. Where, by reason of a special relationship between the payer and the beneficial owner or between both of them and with third parties, the amount of the royalties, taking into account the service for which they are paid, exceeds the amount of the royalties, taking into account the performance for which they are paid, exceeds the amount that would have been agreed upon by the obligator and the beneficial owner in the absence of such relationship, the provisions of this Article shall apply only to the latter amount. In such a case, the excess part of the payments shall remain taxable according to the laws of each Contracting State, due regard being due to the other provisions of this Convention.

 

Article 13

Capital Gains

1. Gains derived by a resident of a Contracting State from the alienation of real property referred to in Article 6 and situated in the other Contracting State may be taxed in that other State.

 

2. Gains from the alienation of movable property forming part of the business property of a permanent establishment which an enterprise of a Contracting State has enterprise of a Contracting State has in the other Contracting State, including such gains from the alienation of that permanent establishment (alone or with the whole enterprise) may be taxed in that other State.

 

3. Gains from the alienation of ships or aircraft operated in international traffic, or movable property ships or aircraft operated in international traffic, or movable property pertaining to the operation of such ships or aircraft, shall be taxable only in the Contracting State in which the place of management of the enterprise is situated.

 

4. Gains from the alienation of any property other than that referred to in paragraphs 1, 2 and 3 shall be taxable only in the Contracting State of which the transferor is a resident.

 

Article 14

Income from Employment

1. Subject to the provisions of Articles 15, 17 and 18, salaries, wages and other similar remuneration derived by a resident of a Contracting State in respect of an employment shall be taxable only in that State unless The employment is exercised in the other Contracting State. If the employment is exercised in the other Contracting State, the remuneration received in respect thereof may be taxed in that other State.

 

2. Notwithstanding the provisions of paragraph 1, remuneration derived by a resident of a Contracting State in respect of an employment exercised in the other Contracting State shall be taxable only in the first-mentioned State if

(a) the recipient is present in the other State for a period or periods not exceeding in the aggregate 183 days in any twelve month period commencing or ending in the calendar year concerned, and

(b) the remuneration is paid by or on behalf of an employer who is not a resident of the other State, and

(c) the remuneration is not borne by a permanent establishment that the employer has in the other State.

 

3. Notwithstanding the preceding provisions of this Article, remuneration derived in respect of an employment on board a ship, aircraft or road vehicle operated in international traffic may be taxed in the Contracting State in which the Contracting State in which the place of effective management of the enterprise is situated.

 

Article 15

Directors’ Fees

Directors’ fees and other similar payments derived by a resident of a Contracting State in his capacity as a member of the board of directors member of the board of directors or supervisory board of a company which is a resident of the other Contracting State, may be taxed in that other State.

 

Article 16

Artists and Athletes

1. Notwithstanding the provisions of Articles 7 and 14, income derived by a resident of a Contracting State from his personal activities as an entertainer, such as a theater, motion picture, radio or television artiste, in the other Contracting State. income derived by a resident of a Contracting State as an entertainer, such as a theatre, motion picture, radio or television artiste, or a musician, or as an athlete, may be taxed in that other State.

 

2. Where income from activities which an entertainer or sports person performs personally and in that capacity is attributed not to the entertainer or athlete himself but to another person, such income may, notwithstanding the provisions of Articles 7 and 14, be taxed in that other State.

notwithstanding the provisions of Articles 7 and 14, such income may be taxed in the Contracting State in which the activities of the entertainer or athlete are exercised.

 

Article 17

Pensions

1. Subject to the provisions of paragraph 2 of Article 18, pensions and other similar remuneration paid to a resident of a Contracting State in respect of past employment shall be taxable only in that State.

 

2. Notwithstanding the provisions of paragraph 1, pensions and other amounts paid under the social security laws of a Contracting State shall be taxable only in that State..

 

3. Notwithstanding the provisions of paragraph 1, pensions and other similar remuneration (including lump-sum payments) arising in a Contracting State may be taxed only in that State  and paid to a resident of the other Contracting State shall not be taxable in the other Contracting State if such payments are derived from contributions, allowances or insurance premiums contributions, allowances or insurance premiums paid to a supplementary pension plan by or on behalf of the recipient, or contributions made by the contributions, allowances, insurance premiums or endowments made by the employer to a domestic plan, and if such contributions, allowances, insurance premiums or endowments have actually been tax in the first-mentioned Contracting State.

 

Article 18

Public Offices

(a) Salaries, wages, and other similar remuneration, other than a pension, paid by a Contracting State or a local authority thereof to an individual in respect of services rendered to that State or authority shall not be taxed in that State or authority.

(b) However, such salaries, wages and other similar remuneration shall be taxable only in the other Contracting State if the services are rendered in that State and the individual is a resident of that State who:

(i) is a national of that State, or

(ii) did not become a resident of that State solely for the purpose of rendering the services.

 

2.

(a) Pensions paid by a Contracting State or a local authority thereof, either directly or out of funds established by it, to an individual in respect of services rendered to that State

(b) However, such pensions shall be taxable only in the other Contracting State if the individual is a resident of that State and is a national of that State.

 

3. The provisions of Articles 14, 15, 16 and 17 shall apply to salaries, wages and other similar remuneration and pensions paid in respect of services rendered in connection with a business carried on by a Contracting State or one of its local authority thereof.

 

Article 19

Students

Amounts paid to a student or a trainee who is, or who was immediately before entering a Contracting State, a resident of the State and who is present in the first-mentioned State solely for the purpose of furthering his education or training, shall be education or training, receives to defray the expenses of his maintenance, education or training shall not be taxable in that State, provided that such State, provided that such remuneration is derived from sources outside that State.

 

Article 20

Professors and researchers

1. An individual who travels to a Contracting State to teach or conduct research at university, college, school or other educational institution recognized in that State and who immediately before such departure is or was a resident of the other Contracting State, shall be exempt from tax in the first-mentioned Contracting State on remuneration derived from such teaching or research for a period not exceeding period not exceeding two years from the date of his first arrival for such purpose, provided that such remuneration from sources outside that State.

 

2. The provisions of paragraph 1 of this Article shall not apply to remuneration received for research, if such research is undertaken not in the public interest but primarily for the private benefit of a particular person or persons.

 

Article 21

Other Income

1. Items of income of a resident of a Contracting State, wherever arising, not dealt with in the foregoing Articles of this Convention shall be taxable only in that State.

 

2. The provisions of paragraph 1 shall not apply to income, other than income from immovable property as defined in paragraph 2 of Article 6, if the recipient of such income, being a resident of a Contracting State carries on business in the other Contracting State through a permanent establishment situated therein and situated therein, and the right or property in respect of which the income is paid is effectively connected with such permanent establishment. In such case, the provisions of Article 7 shall apply.

 

Article 22

Assets

1. Capital represented by immovable property referred to in Article 6 owned by a resident of a Contracting State and situated in the other Contracting State may be taxed in that other State.

 

2. Capital represented by movable property forming part of the business property of a permanent establishment which an enterprise of a Contracting State has in the other Contracting State may be taxed in that other State.

 

3. Capital represented by ships, aircraft and road vehicles operated in international traffic, by inland navigation vessels and by movable property used in the operation of such ships, aircraft, road vehicles or movable property may be taxed in that other State, vehicles or ships, shall be taxable only in the Contracting State in which the place of effective management of the enterprise is situated.

 

4. All other elements of capital of a resident of a Contracting State shall be taxable only in that State.

 

Article 23

Elimination of Double Taxation

1. In Bahrain, double taxation shall be avoided in the following manner:

(a) Where a resident of Bahrain derives income or owns capital which, in accordance with the provisions of this Convention, may be taxed in Luxembourg, Bahrain shall allow:

(i) from the tax it levies on the income of such resident, a deduction equal to the income tax paid in Luxembourg

(ii) from the tax it levies on the capital of such residents, a deduction equal to the tax on capital paid in Luxembourg.

In either case, however, such deduction may not exceed the fraction of the income tax or the wealth tax paid in Luxembourg.calculated before deduction, corresponding to the income or wealth taxable in Luxembourg, as the case may be taxable in Luxembourg.

(b) Where, in accordance with any provision of this Convention, income derived or capital owned by a resident of Bahrain is exempt from tax in Bahrain, Bahrain may nevertheless, in calculating the amount of tax on the remaining income or capital of that resident, take into account the exempted income or exempted income or assets.

 

2. In Luxembourg, subject to the provisions of Luxembourg law concerning the elimination of double taxation which do not affect the general principle thereof, double taxation shall be eliminated in the following manner:

(a) Where a resident of Luxembourg receives income or owns capital which, in accordance with the provisions of this Convention, may be taxed in Bahrain the amount of tax on the remaining income or capital of the resident, apply the same rates of tax as if the income or capital as if the income or capital had not been exempted.

(b) Where a resident of Luxembourg receives items of income which, in accordance with the provisions of Articles 10, 11, 12 and 16, may be taxed in Bahrain, Luxembourg shall accord to the individual or corporate income tax of such resident, a deduction in an amount equal to the tax paid in equal to the tax paid in Bahrain. This deduction may not, however, exceed the fraction of the tax, calculated before deduction, corresponding to such items of income received from Bahrain.

(c) The provisions of subparagraph (a) shall not apply to income received or capital owned by a resident of Luxembourg, where Bahrain applies the provisions of this Convention to exempt such income or capital from tax or shall apply the provisions of paragraph 2 of Articles 10, 11 or 12 to such income.

 

Article 24

Non-Discrimination

1. Nationals of a Contracting State shall not be subjected in the other Contracting State to any taxation or any requirement connected therewith which is other or more burdensome than those to which nationals of that State are or may be subjected or more burdensome than those to which nationals of that other State in the same circumstances, in particular with respect to residence, are or may be subjected. This provision shall apply to any person who is not a national of a Contracting State and is not a national of a Contracting State. This provision shall apply notwithstanding the provisions of Article 1, to persons who are not residents of one or both of the Contracting States.

 

2. Stateless persons who are residents of a Contracting State shall not be subject in either Contracting State to any taxation or any requirement connected therewith that is other or more burdensome than those to which nationals of the State concerned who are in the same situation, in particular with regard to residence.

 

3. The taxation of a permanent establishment which an enterprise of a Contracting State has in the other Contracting State shall not be less favorably than the taxation of enterprises of that other State carrying on the same activity. This provision shall not be construed to require a Contracting State to grant to residents of the other Contracting State personal allowances, reliefs and reductions of tax on the basis of the This provision shall not be construed to require a Contracting State to grant to residents of the other Contracting State the personal allowances, reliefs and reductions for taxation purposes on account of civil status or family responsibilities that it grants to its own residents.

 

4. Unless the provisions of paragraph 1 of Article 9, paragraph 7 of Article 11 or paragraph 6 of Article 12 are applicable shall apply, interest, royalties and other expenses paid by an enterprise of a Contracting State to a resident of the other Contracting State shall, for the purpose of determining the taxable profits of that enterprise under the same conditions as if they had been paid to a resident of the first-mentioned State. Similarly, the debts of an enterprise of a Contracting State to a resident of the other Contracting State shall, for the purpose of determining the same conditions as if they had been contracted with a resident of the first-mentioned State, for the determination of the taxable capital of that contracted with a resident of the first-mentioned State.

 

5. Enterprises of a Contracting State, the capital of which is wholly or partly, directly or indirectly owned or controlled, directly or indirectly, by one or more residents of the other Contracting State, shall not be subject in the first-mentioned State to any tax or duty thereon which other or more burdensome than those to which other similar enterprises of the first-mentioned State are or may be other similar enterprises of the first-mentioned State.

 

6. The provisions of this Article shall apply to taxes covered by this Convention.

 

Article 25

Mutual Agreement Procedure

1. Where a person considers that the actions of one or both of the Contracting States result or will result in taxation not in accordance with the provisions of this Convention result or will result for him in taxation not in accordance with the provisions of this Convention, he may, irrespective of the remedies provided by the domestic law of those States, submit his case to the competent authority of the Contracting State of which it is a resident or, if its case comes under paragraph 1 of Article 24, to that of the Contracting State of which it is a national. State of which it is a national. The case must be submitted within three years from the first notification of the measure that results in taxation not in accordance with the provisions of the Convention.

 

2. The competent authority shall endeavor, if the objection appears to it to be justified and if it is not itself able to arrive at a satisfactory solution, to resolve the matter to resolve the case by mutual agreement with the competent authority of the other Contracting State with a view to avoidance of taxation not in accordance with the Convention. The agreement shall be applied irrespective of the time limits provided by the domestic law of the Contracting States.

 

3. The competent authorities of the Contracting States shall endeavor by mutual agreement to resolve any difficulties or doubts or to resolve any doubts as to the interpretation or application of the Convention. They may also consult together for the elimination of double taxation in cases not provided for in the Convention.

 

4. The competent authorities of the Contracting States may communicate directly with each other, including in a joint committee composed of such authorities or their representatives, with a view to reaching an agreement as set forth in the preceding paragraphs.

 

Article 26

Exchange of Information

1. The competent authorities of the Contracting States shall exchange such information as is foreseeably relevant to the provisions of this Convention or for the administration or enforcement of the domestic laws concerning taxes of every kind and description imposed on behalf of the taxes of every kind and description imposed on behalf of the Contracting States or their local authorities to the local authorities insofar as the taxation thereunder is not contrary to the Convention. The exchange of information is not restricted by Articles 1 and 2.

 

2. Information received under paragraph 1 by a Contracting State shall be treated as secret in the same manner as information obtained under the domestic laws of that State and shall be disclosed only to persons or authorities (including courts and administrative bodies) concerned with the assessment or collection of the assessment or collection of the taxes referred to in paragraph 1, in proceedings or prosecutions in respect of such taxes, in the assessment or collection of the taxes referred to in paragraph 1, the determination of appeals in relation to such taxes, or the oversight of any of the foregoing. Such persons or authorities shall use such information only for such purposes. They may disclose such information in public court hearings or in judgments.

 

3. In no case shall the provisions of paragraphs 1 and 2 be construed to require a Contracting State the obligation

(a) to take administrative action at variance with the laws and administrative practice of that or of the other Contracting State

(b) to supply information that is not obtainable under the laws or in the normal course of the administration of that or of the other Contracting State

(c) to supply information which would disclose any trade, business, industrial, commercial or professional secret or trade process, or information, the disclosure of which would be contrary to public policy.

 

4. If information is requested by a Contracting State in accordance with this Article, the other Contracting State shall use the powers at its disposal to obtain the information requested, even if it does not need such information for its own tax purposes. The obligation in the preceding sentence is subject to the limitations of paragraph 3 unless such limitations are likely to prevent a Contracting State from providing information solely because it has no domestic interest in the information.

 

5. In no case shall the provisions of paragraph 3 be construed to permit a Contracting State to refuse to supply information upon request solely because the information is held by a bank, other financial institution, or other entity by a bank, other financial institution, nominee or person acting in an agency or fiduciary capacity or because the information relates to the property rights of a person.

 

Article 27

Members of Diplomatic Missions and Consular Posts

The provisions of this Convention shall not affect the fiscal privileges of members of diplomatic missions or consular posts members of diplomatic missions or consular posts under the general rules of international law or under the provisions of special agreements.

 

Article 28

Entry into force

1. Each of the Contracting States shall notify the other in writing through diplomatic channels of the completion of the procedures required by its law for the entry into force of this Convention.

 

2. This Convention shall enter into force on the date of the later of these notifications and its provisions shall be applicable:

(a) in Bahrain:

(i) in respect of taxes withheld at source – on or after the first day of January in the calendar year immediately following the year in which the Convention enters into force

(ii) in respect of other taxes on income and on capital – to the taxes due for any taxable year beginning on or after the first day of January in the calendar year immediately following the year in which the Convention enters into force

(b) in Luxembourg:

(i) in respect of taxes withheld at source – on or after January 1 of the calendar year immediately following the year in which the Convention enters into force

(ii) in respect of other taxes on income and on capital – to the taxes due for any taxable year beginning on or after the first day of January in the calendar year immediately following the year in which the Convention enters into force

 

Article 29

Denunciation

1. This Convention shall remain in force until terminated by a Contracting State. Each Contracting State may denounce the Convention through diplomatic channels with a minimum of six months notice before the end of each calendar year beginning after the expiration of five years from the date of its entry into force.

 

2. The Convention shall cease to have effect

(a) with respect to taxes withheld at source, to income allocated on or after January 1 of the calendar year immediately following the year in which notice is given

(b) in respect of other income and capital taxes, to the taxes payable for any taxation year beginning on or after January 1 of the calendar year immediately following the year in which the notice is given.

 

IN WITNESS WHEREOF, the undersigned, being duly authorized thereto, have signed this Convention.DONE at Luxembourg, this 23rd day of June 2009, in two originals, in the French, Bahrain and English languages, all versions being equally authentic.