The Double Taxation Avoidance Agreement (DTAA) is a bilateral accord established between two nations in order to significantly reduce the chances of being taxed on the earnings and capital gains generated in one nation but collected by citizens of the other.
The Double Taxation Avoidance Agreement (DTAA) allows NRIs functioning in overseas nations to opt out of paying dual taxation received in both their home country and their country of residency. Its main goal is to allow individuals in these countries to avoid paying taxes repeatedly on the same earnings. The DTAA’s main goal is to encourage and boost financial-economic cooperation between two countries by eliminating multiple payments.
What is the Double Taxation Avoidance Agreement-DTAA?
A Double Taxation Avoidance Agreement (DTAA) is an understanding between multiple countries to avoid taxing the same earnings twice. These agreements are made for the purpose of prohibiting taxpayers from paying taxes twice on the same earnings and aim to encourage cross-border trade and investment. The DTAA protects people who live in one country but make money in another. This indicates that the nations concerned have negotiated on tax brackets and territories for money generated within their borders.
Benefits of Double Taxation Avoidance Agreement
Some of the benefits of Double Taxation Avoidance Agreement are:
- Individuals benefit from lower tax liability since they can pay less TDS on their interest, royalties, or investment income.
- Such assistance is offered by omitting revenue generated in a foreign nation from taxation in the domestic nation or by extending finance for payments made overseas.
- Reductions in tax rates.
- Between both of the member nations, eliminating the potential of tax evasion.
- The goal of a Double Tax Avoidance Agreement is to make the region seem more appealing to investors by offering exemption from double payment.
DTAAs come in a variety of types
DTAA are of the following types:
Relief from a single source
If there is no common understanding between the nations, the home country gives the assistance.
Bilateral Agreements
When two nations reach a deal on a DTAA, alleviation is determined based on the consensual operation of the two nations.
It can be further classified into two, are as follows:
- Credit for taxes: In both nations, profits are taxed. The payer receives assistance in the nation where he or she resides.
- Method of deduction: Profits are taxed in only one nation underneath this system.
Characteristics Of Double Taxation Avoidance Agreement
- Restricted: Restricted DTAAs are ones that are only applicable to particular categories of earnings.
- Expansive: Expansive DTAAs encompass practically all forms of earnings that are addressed by any type of agreement. The tax increase, estate taxes, flat tax, and other taxes are frequently covered by treaties.
Double Taxation Avoidance Agreement Country List
Below you will find the DTAA country list along with their TDS rates, they are as follows:
| Countries | TDS Rates |
|---|---|
| Armenia | 10% |
| Australia | 15% |
| Austria | 10% |
| Bangladesh | 10% |
| Belarus | 10% |
| Belgium | 15% |
| Botswana | 10% |
| Brazil | 15% |
| Bulgaria | 15% |
| Canada | 15% |
| China | 15% |
| Cyprus | 10% |
| Czech Republic | 10% |
| Denmark | 15% |
| Egypt | 10% |
| Estonia | 10% |
| Ethiopia | 10% |
| Finland | 10% |
| France | 10% |
| Georgia | 10% |
| Germany | 10% |
| Greece | As per agreement |
| Hashemite Kingdom of Jordan | 10% |
| Hungary | 10% |
| Iceland | 10% |
| Indonesia | 10% |
| Ireland | 10% |
| Israel | 10% |
| Italy | 15% |
| Japan | 10% |
| Kazakhstan | 10% |
| Kenya | 15% |
| South Korea | 15% |
| Kuwait | 10% |
| Kyrgyz Republic | 10% |
| Libya | As per agreement |
| Lithuania | 10% |
| Luxembourg | 10% |
| Malaysia | 10% |
| Malta | 10% |
| Mauritius | 7.5-10% |
| Mongolia | 15% |
| Montenegro | 10% |
| Morocco | 10% |
| Mozambique | 10% |
| Myanmar | 10% |
| Namibia | 10% |
| Nepal | 15% |
| Netherlands | 10% |
| New Zealand | 10% |
| Norway | 15% |
| Oman | 10% |
| Philippines | 15% |
| Poland | 15% |
| Portuguese Republic | 10% |
| Qatar | 10% |
| Romania | 15% |
| Russia | 10% |
| Saudi Arabia | 10% |
| Serbia | 10% |
| Singapore | 15% |
| Slovenia | 10% |
| South Africa | 10% |
| Spain | 15% |
| Sri Lanka | 10% |
| Sudan | 10% |
| Sweden | 10% |
| Swiss Confederation | 10% |
| Syrian Arab Republic | 7.50% |
| Tajikistan | 12.50% |
| Thailand | 25% |
| Trinidad and Tobago | 10% |
| Turkey | 15% |
| Turkmenistan | 10% |
| UAE | 12.50% |
| UAR (Egypt) | 10% |
| Uganda | 10% |
| UK | 15% |
| Ukraine | 10% |
| United Mexican States | 10% |
| USA | 15% |
| Uzbekistan | 15% |
| Vietnam | 10% |
| Zambia | 10% |
Documents Required To Avail The Benefits Under DTAA
The documents required to avail of the benefits under Double Taxation Avoidance Agreement are as follows:
- Passport copy (self-attested)
- PAN card copy (self-attested)
- Form for self-declaration and indemnification
- TRC – Tax Residency Certificate
- Proof copy of POI
The Finance Act, 2013 states “If a person does not give a Tax Residency Certificate to the deductor, he or she will not be able to claim any advantage of relief under the Double Taxation Avoidance Agreement. An application for a Tax Residency Certificate must be submitted to the income tax authorities in Form 10FA (Application for Certificate of Residence for the purposes of an Agreement Under Section 90 and 90A of the Income-tax Act, 1961). The certificate will be issued in Form 10FB once the application has been satisfactorily processed.”
Read More: Guide to an Offshore Company
How Can NRIs Take Advantage Of The DTAA?
Non-resident Asians living in any of the DTAA nations can take advantage of the tax incentives available under the agreement by submitting the necessary documentation each accounting year by the appropriate dates.
- The number of the PAN: To receive tax breaks, you must also provide your PAN (Permanent Account Number) including the aforesaid paperwork.
- Tax Residency Certificate (TRC): To collect benefits under the DTAA, you must produce a TRC. You can receive a TRC by contacting the income officials in your actual home nation, who will issue you a TRC when you fill out Form 10F.
- Form 10F contains the following information: To take advantage of DTAA benefits, you must fill out Form 10F.
Procedure to apply for Double Taxation Avoidance Agreement
The procedure to apply Double Taxation Avoidance Agreement, are as follows:
- Evaluate if the problem falls within the meeting’s boundaries.
- Check to see if the tax in question is covered by the agreement.
- Verify sure the treaty is in effect for the tax year in question.
How do I make a DTAA claim?
Three ways exist for claiming the DTAA benefit:
- Deduction: Tax deductions are allowed in the nation where the taxpayer resides for taxes paid to foreign governments.
- Exemption: Under this procedure, tax relief may be requested in either of the two nations.
- Tax credit: Using this technique, tax relief may be obtained in the nation of domicile.
Categories of Relief are covered by the DTAA
There are primarily two techniques to provide relief from double taxation.
Bilateral Relief
By agreeing on the foundation for the relief’s granting, the governments of the two nations can reach a deal that offers relief from double taxation.
Bilateral relief can be granted in 2 different ways:
- Exemption Approach: Specific earnings are only taxed in the nation of origin and are exempt in the country of residency.
- Tax Credit Approach: According to each nation’s tax legislation, income is taxable in both. The nation of residence permits a tax credit for taxes paid in the nation of origin.
Unilateral Relief:
In the event that no DTAA has been signed with the nation, this procedure offers relief. By doing this, a nation can unilaterally exempt its citizens from paying taxes to other nations.
Conclusion
A DTA is a treaty involving two nations to avoid double taxation and enable the exchange of products, services, and capital. By removing the burden of double taxes, a double tax avoidance agreement aims to promote a nation as a desirable investment location. These agreements enhance international economic cooperation by removing or reducing double taxation and clarifying tax responsibilities.
The prevention of double tax treaties assures that genuine individuals do not have to pay tax in two nations. It can also be used to promote growth from specific countries and provide tax breaks or reduced taxes. It is an excellent technique to encourage cross-border partnerships that is free of ambiguities.
Read More: Singapore DTA
FAQ’s
People who live in one nation but receive significant earnings from another are protected by the Double Taxation Avoidance Agreement (DTAA).
DTAA can be utilized in two different methods:
- Tax reduction – This strategy includes payment tax reduction in your own nation.
- Exemption – This approach gives legal tax reduction in either of the two nations.
In order to prevent double taxation on taxpayers, a DTAA establishes guidelines for the division of taxing authority between two nations.
