Double Taxation Avoidance Agreement – An Overview
An overview of the Double Taxation Avoidance Agreement
In this post we will discuss the DTAA rates applicable for various countries. We will cover the following:
What is DTAA?
The Double Tax Avoidance Agreement (DTAA) is an arrangement between two countries that aims to make one country more desirable to investors while preventing NRIs from being taxed twice on the same income. While the DTAA does not free NRIs from taxes, it does help to prevent them from paying excessive taxes in both countries and lowers cases of tax evasion.
DTAA applies to several income types, including job income, business profits, dividends, interest, royalties, and capital gains. It gives guidelines for which countries have the authority to tax certain types of income. In general, the country where the money is earned has the primary right to impose taxes, but the government of residency may also tax it at a lower rate.
Benefits of DTAA
The Double Taxation Avoidance Agreement (DTAA) provides taxpayers various benefits, the most important of which is that they are not required to pay tax twice on the same income. Key benefits include:
- Lower Withholding Tax (TDS): Taxpayers in India can benefit from lowered TDS rates on interest, royalties, and dividends.
- Tax Credits: Some agreements permit tax credits in the source or operational country to avoid double taxation.
- Tax Exemptions: Certain agreements, such as those with Mauritius, Cyprus, Singapore, and Egypt, give exemptions from capital gains tax, allowing taxpayers to lower their overall tax liability.
Note: The primary purpose of DTAA agreements between countries is to minimize tax evasion and provide relief to taxpayers by simplifying tax duties across nations.
DTAA Rates
DTAA rates vary amongst nations depending on their agreements with other countries. Here are some important points you should know:
- Varies by Country: The tax rate under the DTAA is determined by the agreement signed between the two nations.
- No Fixed End Date: DTAA agreements are valid until one of the countries decides to terminate them.
- Possible Changes: Terms and rates can be changed if both countries agree.
- TDS on Interest: The tax rate on interest income usually falls from 10% to 15%, but this varies by agreement.
- Tax on Dividends: Foreign companies or non-residents receiving dividends from India are taxed in accordance with the specific DTAA.
How to Determine if DTAA is Applicable?
- Identify the Countries: Select your residency and the country where you generate your income. Check if they have a DTAA.
- Confirm Residency Status: Verify the taxpayer’s residency status in both countries, as DTAA often applies to residents of the contracting states.
- Identify the Type of Income: Determine the type of income (e.g., salary, business income, interest, dividends, royalties, capital gains), as DTAAs treat various types of income differently.
- Review the DTAA Terms: Get the applicable DTAA document and review the requirements for the specific income, including definitions, scope, and any limitations.
- Check Conditions and Exemptions: Check for any DTAA-specific limitations, such as minimum stay periods, income thresholds, or exemptions.
- Understand the Relief Method: Identify how relief is granted (exemption or credit mechanism) and how it is applied in both countries.
- Ensure Compliance: To claim DTAA benefits, comply with both tax authorities’ paperwork requirements and submit any appropriate documents.
Types of Income Covered Under DTAA
Under the Double Tax Avoidance Agreement (DTAA), NRIs are not required to pay tax twice on the following income earned in India:
- Services given in India.
- Salaries received in India.
- Income from House Property in India.
- Capital gains on asset transfers in India.
- Interest in Fixed Deposits in India.
- Interest on savings bank accounts in India.
How to Claim Benefits Under DTAA?
- Check Eligibility: Make sure you are a tax resident of a nation with a DTAA agreement with the one where you obtained the money. Confirm that your income qualifies for DTAA benefits.
- Get a Tax Residency Certificate (TRC): To prove your residency status, apply for a TRC from your country’s tax office.
- Gather Documents: Collect supporting documents such as income statements, proof of tax payments in the source nation, and any relevant contracts or agreements.
- Fill the Required Forms: To file a DTAA claim in India, you must fill out and submit Form 10F.
- Submit a Declaration: File a declaration form with the source country’s tax authority or income payer.
- Claim Tax Credits or Exemptions: When filing your tax return in your home country, claim the tax credit for taxes paid in the source nation or ask for the exemption permitted by the DTAA.
Countries with which India has DTAA
The DTAA between India and other countries are as below. The description of the Note 1, Note 2 Note 3 and Note 4 given in after the table.
Sl No | Country Name | Dividend (not being covered u/s 115-O) | Interest | Royalty | Fee for Technical Services |
1 | Albania | 10% | 10% (Note1) | 10% | 10% |
2 | Armenia | 10% | 10% (Note1) | 10% | 10% |
3 | Australia | 15% | 15% | 10% / 15% (Note 2) | 10% / 15% (Note 2) |
4 | Austria | 10% | 10% (Note1) | 10% | 10% |
5 | Bangladesh | a) 10% (if at least 10% of the capital of the company paying the dividend is held by the recipient company); b) 15% in all other cases | 10% (Note1) | 10% | No separate provision |
6 | Belarus | a) 10%, if paid to a company holding 25% shares; b) 15%, in all other cases | 10% (Note1) | 15% | 15% |
7 | Belgium | 10% | 10% (Note1) | 10% | 10% |
8 | Botswana | a) 7.5%, if the shareholder is a company and holds at least 25% of shares in the investee company; b) 10%, in all other cases | 10% (Note1) | 10% | 10% |
9 | Brazil | 15% | 15% (Note 1) | a) 25% for use of the trademark; >b) 15% for others | No separate provision |
10 | Bulgaria | 15% | 15% (Note 1) | a) 15% of royalty relating to literary, artistic, scientific works other than films or tapes used for radio or television broadcasting; b) 20%, in other cases | 20% |
11 | Canada | a) 15%, if at least 10% of the voting powers in the company, paying the dividends, is controlled by the recipient company; b) 25%, in other cases | 15% (Note 1) | 10%-15% | 10%-15% |
12 | China | 10% | 10% (Note 1) | 10% | 10% |
13 | Columbia | 10% | 10% (Note 1) | 10% | 10% |
14 | Czech Republic [Note5] | 10% | 10% (Note 1) | 10% | 10% |
15 | Denmark | a) 15%, if at least 25% of the shares of the company paying the dividend is held by the recipient company; b) 25%, in other cases | a) 10% if the loan is granted by the bank; b) 15% for others (Note1) | 20% | 20%< |
16 | Estonia | 10% | a) 10% (Note 1) | 10% | 10% |
17 | Ethiopia | 7.5% | 10% (Note 1) | 10% | 10% |
18 | Finland | 10% | 10% (Note1) | 10% | 10% |
19 | Fiji | 5% | 10% (Note1) | 10% | 10% |
20 | France | 10% | 10% (Note1) | 10% | 10% |
21 | Georgia | 10% | 10% (Note1) | 10% | 10% |
22 | Germany | 10% | 10% (Note1) | 10% | 10% |
23 | HongKong | 5% | 10% (Note1) | 10% | 10% |
24 | Hungary | 10% | 10% (Note1) | 10% | 10% |
25 | Indonesia | 10% | 10% (Note1) | 10% | 10% |
26 | Iceland | 10% | 10% (Note1) | 10% | 10% |
27 | Ireland | 10% | 10% (Note1) | 10% | 10% |
28 | Israel | 10% | 10% (Note1) | 10% | 10% |
29 | Italy | a) 15% if at least 10% of the shares of the company paying a dividend is beneficially owned by the recipient company. b) 25% in other cases | 10% (Note1) | 20% | 20% |
30 | Japan | 10% | 10% (Note1) | 10% | 10% |
31 | Jordan | 10% | 10% (Note1) | 20% | 20% |
32 | Kazakhstan | 10% | 10% (Note1) | 10% | 10% |
33 | Kenya | 10% | 10% | 10% | 10% |
34 | Korea | 15% | 10% | 10% | 10% |
35 | Kuwait | 10% (Note1) | 10% | 10% | 10% |
36 | Kyrgyz Republic | 10% | 10% (Note1) | 15% | 15% |
37 | Latvia | 10% | 10% (Note1) | 10% | 10% |
38 | Lithuania | 5%*, 15% | 10% (Note1) | 10% | 10% |
39 | Luxembourg | 10% | 10% (Note1) | 10% | 10% |
40 | Malaysia | 5% | 10% (Note1) | 10% | 10% |
41 | Malta | 10% | 10% (Note1) | 10% | 10% |
42 | Mongolia | 15% | 15% (Note1) | 15% | 15% |
43 | Mauritius | a) 5%, if at least 10% of the capital of the company paying the dividend is held by the recipient company b) 15%, in other cases | 7.5% | 15% | 10% |
44 | Montenegro | 5% (in some cases 15%) | 10% (Note1) | 10% | 10% |
45 | Myanmar | 5% | 10% (Note1) | 10% | No separate provision |
46 | Morocco | 10% | 10% (Note1) | 10% | 10% |
47 | Mozambique | 7.5% | 10% (Note1) | 10% | No separate provision |
48 | Macedonia | 10% | 10% (Note1) | 10% | 10% |
49 | Namibia | 10% | 10% (Note1) | 10% | 10% |
50 | Nepal | 5%**, 10% | 10% (Note1) | 15% | No separate provision |
51 | Netherlands | 10% | 10% (Note1) | 10% | 10% |
52 | New Zealand | 15% | 10% (Note1) | 10% | 10% |
53 | Norway | 10% | 10% (Note1) | 10% | 10% |
54 | Oman | a) 10%, if at least 10% of shares are held by the recipient company b) 12.5%, in other cases | 10% (Note1) | 15% | 15% |
55 | Philippines | a) 15%, if at least 10% of the shares of the company paying the dividend is held by the recipient company; b) 20%, in other cases | a) 10%, if interest is received by a financial institution or insurance company; b) 15% in other cases [Note1] | 15% if it is payable in pursuance of any collaboration agreement approved by the Government of India | No separate provision |
56 | Poland | 10% | 10% (Note1) | 15% | 15% |
57 | Portuguese Republic | 10%***/15% | 10% | 10% | 10% |
58 | Qatar | a) 5%, if at least 10% of the shares of the company paying the dividend is held by the recipient company; b) 10%, in other cases | 10% (Note1) | 10% | 10% |
59 | Romania | 10% | 10% (Note1) | 10% | 10% |
60 | Russian Federation | 10% | 10% (Note1) | 10% | 10% |
61 | Saudi Arabia | 5% | 10% (Note1) | 10% | No separate provision |
62 | Serbia | a) 5%, if recipient is company and holds 25% shares; b) 15%, in any other case | 10% (Note1) | 10% | 10% |
63 | Singapore | a) 10%, if at least 25% of the shares of the company paying the dividend is held by the recipient company; b) 15%, in other cases | a) 10%, if loan is granted by a bank or similar institute including an insurance company; b) 15%, in all other cases | 10% | 10% |
64 | Slovenia | a) 5%, if at least 10% of the shares of the company paying the dividend is held by the recipient company; b) 15%, in other cases | 10% | 10% | 10% |
65 | South Africa | 10% | 10% (Note1) | 10% | 10% |
66 | Sri Lanka | 7.5% | 15% (Note1) | 10%/20%[Note 3] | 20%[Note 3] |
67 | Sudan | 10% | 10% (Note1) | 10% | 10% |
68 | Sweden | 10% | 10% (Note1) | 10% | 10% |
69 | Swiss Confederation | 10% | 10% (Note1) | 10% | 10% |
70 | Syrian Arab Republic | a) 5%, if at least 10% of the shares of the company paying the dividend is held by the recipient company b) 10%, in other cases | 10% (Note1) | 10% | No separate provision |
71 | Tajikistan | a) 5%, if at least 25% of the shares of the company paying the dividend is held by the recipient company b) 10%, in other cases | 10% (Note1) | 10% | No separate provision |
72 | Tanzania | 5%****, 10% | 10% | 10% | No separate provision |
73 | Thailand | 10% | 10% (Note1) | 10% | No separate provision |
74 | Trinidad and Tobago | 10% | 10% (Note1) | 10% | 10% |
75 | Turkey | 15% | a) 10% if loan is granted by a bank, etc.;b) 15% in other cases [Note1] | 15% | 15% |
76 | Turkmenistan | 10% | 10% (Note1) | 10% | 10% |
77 | Uganda | 10% | 10% (Note1) | 10% | 10% |
78 | Ukraine | a) 10%, if at least 25% of the shares of the company paying the dividend is held by the recipient company; b) 15%, in other cases | 10% (Note1) | 10% | 10% |
79 | United Arab Emirates | 10% | a) 5% if loan is granted by a bank / similar financial institute; b) 12.5%, in other cases | 10% | No separate provision |
80 | United Mexican States | 10% | 10% (Note1) | 10% | 10% |
81 | United Kingdom | 15%/10%(Note 4) | a) 10%, if interest is paid to a bank; b) 15%, in other cases [Note1] | ||
82 | United States | a) 15%, if at least 10% of the voting stock of the company paying the dividend is held by the recipient company; b) 25% in other cases | a) 10% if loan is granted by a bank/similar institute including insurance company; b) 15% for others | 10%/15%[Note 2] | 10%/15%[Note 2] |
83 | Uruguay | 5% | 10% (Note1) | 10% | 10% |
84 | Uzbekistan | 10% | 10% (Note1) | 10% | 10% |
85 | Vietnam | 10% | 10% (Note1) | 10% | 10% |
86 | Zambia | a) 5%, if at least 25% of the shares of the company paying the dividend is held by a recipient company for a period of at least 6 months prior to the date of payment of the dividend b) 15% in other cases | 10% (Note1) | 10% | 10% |
*If the beneficial owner is a company (other than a partnership) which holds directly at least 10% of the capital of the company paying the dividends.
**5% if the beneficial owner of shares is a company and it holds at least 10% of shares of the company paying the dividends.
***If the beneficial owner is a company that, for an uninterrupted period of two fiscal years prior to the payment of the dividend, owns directly at least 25% of the capital stock of the company paying the dividends.
****5% if the recipient company owns at least 25% share in the company paying the dividend.
Note 1 – Dividend / interest earned by the Government and certain specified institutions, inter-alia, Reserve Bank of India is exempt from taxation in the country of the source (subject to certain condition).
Note 2 – Royalties and fees for technical services would be taxable in the country of the source at the rates prescribed for different categories of royalties and fees for technical services. These rates shall be subject to various conditions and nature of services / royalty for which payment is made.
Note 3 – Royalties and fees for technical services would be taxable in the country of the source at the following rates:
- 10% in case of royalties relating to the payments for the use of, or the right to use industrial, commercial or scientific equipment;
- 20% in case of fees for technical services and other royalties.
Note 4
- 15% of the gross amount of the dividends where those dividends are paid out of income (including gains) derived directly or indirectly from immovable property within the meaning of Article 6 by an investment vehicle which distributes most of this income annually and whose income from such immovable property is exempted from tax;
- 10% of the gross amount of the dividends, in all other cases
Note 5 – The Central Board of Direct Taxes has clarified that DTAA signed with the Government of the Czech Republic on the 27th January 1986 continues to be applicable to the residents of the Slovak Republic. [Notification No. 25, dated 23-03-2015].
This post on the DTAA rates applicable for various countries has come to an end. Please share your views and opinions with us in the comment section below.
FAQ
1. Who falls under DTAA's coverage?
Ans: People who are citizens of one country while earning income in another are eligible for coverage under the Double Taxation Avoidance Agreement (DTAA).
2. How can I avail DTAA advantages?
Ans: NRIs fall under the purview of DTAA. They must provide their “Tax Residency Certificate (TRC)” to the deductor, along with Form-10F and PAN No.
3. How many nations have signed DTAA agreements with India?
Ans: India currently has operational Double Taxation Avoidance Agreements (DTAA) with 86 out of a total of 88 countries.
