Agreement between the Government of Jersey and the Government of the Kingdom of Bahrain: Elimination of double taxation (taxes on income) and prevention of tax evasion/ avoidance

STATES OF JERSEY

AGREEMENT BETWEEN THE GOVERNMENT OF JERSEY AND THE GOVERNMENT OF THE KINGDOM OF BAHRAIN: ELIMINATION OF DOUBLE TAXATION (TAXES ON INCOME) AND PREVENTION OF TAX EVASION/ AVOIDANCE

Lodged au Greffe on 27th January 2026 by the Minister for External Relations Earliest date for debate: 10th March 2026

STATES GREFFE

2026  P.17

PROPOSITION

THE STATES are asked to decide whether they are of opinion

to approve the text of the Agreement between the Government of Jersey and the Government of the Kingdom of Bahrain for the Elimination of Double Taxation with Respect to Taxes on Income and the Prevention of Tax Evasion and Avoidance, as set out in Appendix 1 to the accompanying Report.

MINISTER FOR EXTERNAL RELATIONS

REPORT

Executive Summary

On 15 September 2025, the Minister for External Relations signed the Jersey-Bahrain DTA in a formal treaty signing ceremony hosted in Manama by Bahrain's Minister of Finance  and  National  Economy. A  signed  copy  of  the Agreement  is  attached  as Appendix 1 to this report.

The negotiation and conclusion of bilateral agreements is identified as a priority activity in the Common Policy for External Relations, as approved by the Council of Ministers. The DTA conforms with Jersey's longstanding policy of alignment with international minimum standards set by the Organisation of Economic Cooperation and Development (OECD).

The Agreement will come into force subject to the completion of the respective domestic approval processes in both Jersey and Bahrain. The provisions of the Agreement will have effect from the first day of January following the year in which the Agreement enters into force. The earliest possible effective date is therefore 1 January 2027.

Background

In December 2023, the Government of Jersey and the Government of the Kingdom of Bahrain (the "Parties") signed a Memorandum of Understanding on Cooperation in Financial, Digital and Cultural Sectors. The Memorandum included a commitment to negotiate a new DTA "with a view to signing the Agreement in the near future".

Officials from Jersey and Bahrain undertook DTA negotiations in Manama in May 2024 which were successful and resulted in the initialling of a draft Agreement. At the time of the negotiation, both Jersey and Bahrain were in the process of amending their tax regimes in response to the OECD's two-pillar initiative on the digitalisation of the global economy.  This  required  both  sides  to  subsequently  agree  an  exchange  of  letters alongside the DTA confirming that the DTA applies to Jersey's new Multinational Corporate Income Tax ("MCIT"), which was approved by the States Assembly after the agreement of the text, but before the date of signature of the Agreement. Further details are set out below and the side letters are attached as Appendix 2 to this report.

The DTA secures nil rates of withholding taxes for dividends, interest, and royalties. It will provide certainty for individuals and businesses with interests between the two jurisdictions, facilitate inward and outward investment and will safeguard Jersey's future tax position. Bahrain's position as a medium sized but growing financial centre in the Middle East, with established commercial ties to Jersey that are supported by the activities of Jersey Finance and its member firms, increases the attractiveness of the Agreement.

Aligning with the strategy outlined in the Common Policy for External Relations, which states that Jersey will negotiate and conclude international agreements for the economic benefit of the Island, it is anticipated that the DTA will also be complemented in due course by the conclusion of a Jersey-Bahrain Bilateral Investment Treaty to promote and protect further investment between Jersey and Bahrain.

Key provisions of the Jersey-Bahrain DTA

The articles in the DTA are generally consistent with the Organisation for Economic Co-operation  and  Development  ("OECD")  Model  Convention  on  Income  and  on Capital, which is the model on which Jersey bases its double tax agreements. In particular, the provisions dealing with fundamental concepts such as the persons and taxes covered by the Agreement, the elimination of double taxation, mutual agreement procedures, non-discrimination and information exchange follow the OECD Model closely.

The DTA achieves greater certainty for taxpayers, with a tie-breaker clause for dual resident companies based on the place of effective management, and residence state taxation only for dividends, interest, royalties and pension payments. It is in line with the minimum standards set by the OECD's Base Erosion and Profit Shifting (BEPS) initiative to prevent the misuse of double tax agreements and to ensure consistency in access by taxpayers to a mutual agreement process.

Article-by-article explanation

Article 1, "Persons Covered", sets out who can benefit from the DTA. It states that the DTA applies to residents of Jersey, residents of Bahrain and dual residents of both Bahrain and Jersey.

Article 2, "Taxes Covered", lists the taxes which are covered by the DTA. The DTA applies to income tax in Jersey and corporate income tax in Bahrain, including new or similar taxes  imposed  after the  signing of the  Agreement. The MCIT has been confirmed to be a covered tax under the DTA in the Side Letters exchanged at the time of signature of the Agreement.

Article 3, "General Definitions", defines key terms used in the DTA.

Article 4, "Resident", defines who is considered to be a resident of Jersey and Bahrain for the purposes of the DTA. In the case of a taxpayer who is considered to be dual resident in both jurisdictions, the article includes provisions setting out the process to identify in which jurisdiction the taxpayer is to be considered to be resident for the purposes of the provisions of the DTA.

Article 5, "Permanent Establishment", defines what is considered to form a taxable permanent establishment (branch) of an overseas business. The definition includes facilities used for the purposes of extraction, exploration and refinement of oil and gas.

Article 6, "Income from Immovable Property", covers income derived from real estate and provides that income from such property may be taxed in both the jurisdiction in which the property is located and the jurisdiction of residence of the owner.

Article 7, "Business Profits", provides that if a business established in either Jersey or Bahrain earns business income from the other jurisdiction, its profits are only taxable in the jurisdiction in which the enterprise is resident, unless the income is derived from a permanent establishment in the other jurisdiction, in which case the article sets out the way in which the taxable profits of the permanent establishment are calculated.

Article  8,  "Shipping  and  Air  Transport",  provides  that  profits  from  international transport are taxable in the place of effective management of the enterprise carrying on the shipping or air transport activity.

Article 9, "Associated Enterprises", is an anti-avoidance provision, which allows either jurisdiction to make an adjustment to the taxable profits of a business where transactions

between members of the same group of businesses have not been conducted on the same basis as they would have been if made between independent businesses.

Articles 10, 11 and 12, "Dividends", "Income from Debt Claims" and "Royalties" cover  the  taxation  of  dividends,  interest  and  royalties  paid  by  a  resident  of  one jurisdiction to a resident of the other. In each case, no withholding taxes will be paid by the jurisdiction from which the income is paid and the income will only be taxed in the jurisdiction in which the recipient is resident.

Article 11 is usually entitled "Interest" in Jersey's DTAs. In the case of the Jersey- Bahrain DTA, the article has been renamed to "Income from Debt Claims" to ensure that the provision covers Islamic finance instruments, and this has been reflected in the language of the article. Penalty charges for late payment shall not be regarded as interest for the purposes of the article.

Article 13, "Capital Gains", sets out rules which determine where gains from the disposal of certain types of asset can be taxed.

Article 14, "Income from Employment", provides for the taxation of salaries and wages from employment.

Article 15, "Directors' Fees", provides that fees for the provision of the services can be taxed in both the jurisdiction in which the director is resident and the jurisdiction in which the company paying the fees is located.

Article 16, "Artistes and Sportsmen", provides that the jurisdiction in which an artiste or sportsperson performs their activities may tax earnings from that activity, except in the case of publicly-funded performances, which will be taxed only in the jurisdiction of residence of the artiste or sportsperson.

Article  17,  "Pensions"  provides  that, generally,  pensions  are  only taxable  in  the jurisdiction in which the recipient resides.

Article 18, "Government Service", covers the tax treatment of government salaries and pensions and provides that salaries paid by the government of one jurisdiction to a resident of the other jurisdiction are normally taxed in the first jurisdiction, while pensions paid in respect of past government service are only taxed in the jurisdiction in which the recipient is resident.

Article 19, "Students", exempts payments made to a person studying in one jurisdiction from tax in that jurisdiction if the payment is made for the purposes of the student's education, training or maintenance.

Article 20, "Other Income", states that any types of income that are not specifically mentioned in the Agreement are generally taxable only in the country where the person receiving the income is resident.

Article 21, "Elimination of Double Taxation" sets out the mechanism by which relief will be given under the Agreement to avoid double taxation.

Article 22, "Non-Discrimination", is an anti-discrimination article, intended to ensure that nationals of each of the parties are not discriminated against by the tax system or the administration of the tax system of the other jurisdiction. In the case of Jersey, "national" is defined to mean a resident of Jersey.

Article  23,  "Mutual  Agreement  Procedure",  outlines  the  mechanism  by  which  a taxpayer which believes they have not been treated in accordance with the provisions of the Agreement may present their case to the authorities of either jurisdiction and ask them to address it. It also sets out the mechanism whereby the competent authorities of

each jurisdiction may agree questions about the interpretation or application of the Agreement, as needed.

Article 24, "Exchange of Information", provides for information sharing between Jersey and Bahrain's tax authorities for tax purposes.

Article  25,  "Members  of  Diplomatic  Missions  and  Consular  Posts",  preserves fundamental international law rules regarding the treatment of diplomatic and consular positions.

Article 26, "Entitlement to Benefits", is an anti-abuse provision intended to prevent the misuse of double tax agreements.

Article 27, "Entry into Force", states that the Agreement shall have effect from the first day of January following the year in which the Agreement enters into force, and that the Agreement shall enter into force on the later of the dates on which each jurisdiction notifies the other of the completion of their domestic procedures necessary to give effect to the Agreement.

Article 28, "Termination", outlines procedures for ending the agreement which include inter alia giving written notice of termination to the competent authority of the other jurisdiction.

The side letters

In Article 2 of the DTA, the Jersey tax to which the DTA applies is defined as "income tax". After the finalisation of the DTA text, the States Assembly approved legislation implementing the MCIT, as a result of which in-scope companies are no longer subject to income tax under the Income Tax (Jersey) Law, but instead, are subject to tax under the MCIT. As the MCIT was introduced after the conclusion of the text, but before the date of signature of the Agreement, there was a risk of unintentional double taxation.

To resolve this timing issue, a formal exchange of letters (appended to this paper) was made at the same time as the signing of the DTA, to confirm that Jersey's MCIT is a tax to which the DTA applies.

Entry into force

As  stated  in Article  27  of  the Agreement,  the  DTA  will  enter  into  force  upon confirmation by both Parties that the respective procedures for domestic approval of the Agreement have been concluded.

Subject to the approval of the text of the Agreement by the States Assembly, the Minister for External Relations will seek to inform Bahrain of the completion of Jersey's domestic procedures. Jersey is yet to receive notification that Bahrain has completed its own domestic procedures.

Once both jurisdictions have notified the other of the completion of the procedures required by law for the bringing into force  of the Agreement in their respective jurisdictions, the Agreement will enter into force. It will have effect from 1 January of the year following the date of entry into force.

The  States,  on  15  June  2010,  adopted  the  Taxation  (Double  Taxation)  (Jersey) Regulations 2010. The Schedule to these Regulations lists the countries with which Double Tax Agreements have been entered into with Jersey. The necessary Order to provide for the inclusion in the Schedule of the Agreement with the Kingdom of Bahrain will be made subsequent to the approval of the text of the Agreement by the States Assembly.

Recommendation

The Minister requests that the States Assembly approve the text of the Agreement so that the Minister can notify Bahrain of the completion of Jersey's domestic procedures.

Financial and staffing implications

There  would  be  no  additional  financial  or  staffing  implications  if  the  States Assembly approves this Proposition.

Children's Rights Impact Assessment

I consider that this proposition has no direct or indirect impact on children and that the duty to have due regard to the UN Convention on the Rights of the Child does not arise. Accordingly, a Children's Rights Impact Assessment is not required under the Children (Convention Rights) (Jersey) Law 2022 .

Appendix 1 – Agreement between the Government of Jersey and the Government of the Kingdom of Bahrain for the Elimination of Double Taxation with Respect to Taxes on Income and the Prevention of Tax Evasion and Avoidance

Appendix 2 – Exchange of Letters confirming the treatment of Jersey's Multinational Corporate Income Tax ("MCIT") under the Agreement.

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P.17/2026