UAE-Bahrain Double Taxation Treaty Takes Effect 1 January 2026

The Double Taxation Avoidance Agreement (DTAA) signed between the United Arab Emirates and the Kingdom of Bahrain entered into force for tax periods commencing on or after 1 January 2026. With this addition, the UAE's treaty network covers 140 jurisdictions. Recent additions in 2025 included treaties with Kuwait and an updated agreement with Qatar.

Why this treaty matters

The GCC has historically had limited intra-regional double-taxation treaty coverage despite the high volume of cross-border business activity. Bahraini banking and financial-services businesses with operations or counterparties in the UAE, and UAE companies with Bahraini investments or branch operations, have until now relied on domestic-law mechanisms that were not always favourable.

Key provisions

The treaty follows the standard OECD model with GCC-specific adaptations. Withholding-tax rates on dividends, interest, and royalties are generally aligned to the lower of the two jurisdictions' domestic rates (in many cases 0%, given both countries' tax-favourable positions). Tax residency tie-breakers, permanent-establishment definitions, and information-exchange provisions follow contemporary OECD standards.

For Pillar Two purposes, the treaty does not alter the DMTT analysis: in-scope MNE groups still face the 15% minimum effective tax rate test independently of treaty positions.

What businesses should review

For UAE-Bahrain group structures:

• Tax Residency Certificate eligibility for the relevant entity. Treaty benefits depend on residence status being demonstrable in line with the treaty's definition.
• Withholding-tax positions on intra-group dividends, interest, royalties, and service fees. Where domestic withholding was previously a structural cost, treaty relief may now apply.
• Permanent-establishment risk for service activities crossing the border. The treaty's PE definition includes the standard fixed-place-of-business test and the dependent-agent test.

For tax-residency certificate applications and cross-border treaty positions, our tax practice runs the analysis and files with the FTA. Initial consultations are complimentary.