Double Taxation Avoidance Agreement with Bhutan: A Comprehensive Guide

The Double Taxation Avoidance Agreement (DTAA) is an agreement between two countries that seeks to eliminate dual taxation on the same income or profits earned by a resident of one country in the other country. In the case of Bhutan, the country has signed DTAA with various countries, including India, Thailand, and Singapore. In this article, we will discuss the DTAA between Bhutan and India, its provisions, and its impact on bilateral trade.

What is DTAA between Bhutan and India?

The DTAA between Bhutan and India was signed on 12th April 2019 and came into effect on 1st April 2020. The agreement aims to avoid double taxation on income earned by residents of one country in the other country. The agreement covers taxes on income from sources such as royalties, dividends, interest, and capital gains.

Provisions of DTAA between Bhutan and India

The DTAA between Bhutan and India has several provisions that benefit businesses and individuals operating in both countries. Here are some of the key provisions:

1. Taxation of Income: The DTAA provides that income earned by a resident of one country in the other country shall be taxed only in the country in which it is earned. This provision ensures that the income is not subject to double taxation.

2. Royalties, Dividends, and Interest: The DTAA provides that royalties, dividends, and interest earned by a resident of one country in the other country shall be taxed at a reduced rate. For instance, royalty income shall be taxed at 10% in Bhutan and 15% in India.

3. Capital Gains: The DTAA provides that capital gains arising from the sale of shares of a company shall be taxed in the country of residence of the person disposing of the shares. However, if the shares derive the majority of their value from immovable property situated in the other country, the capital gains shall be taxed in that country.

4. Avoidance of Double Taxation: The DTAA provides for various methods of avoiding double taxation, including a tax credit mechanism. Under this mechanism, if a resident of one country pays tax in the other country, the tax paid shall be allowed as a credit against the tax payable in the country of residence.

Impact of DTAA on Bilateral Trade

The DTAA between Bhutan and India is expected to boost bilateral trade and investment. The agreement provides certainty and predictability to businesses and investors, which is essential for cross-border transactions. The reduced tax rates on royalties, dividends, and interest are expected to attract more Indian companies to invest in Bhutan. Similarly, Bhutanese companies are likely to benefit from the reduced tax rates on royalties, dividends, and interest earned from Indian companies.

Conclusion

The DTAA between Bhutan and India is a significant development in bilateral relations between the two countries. The agreement aims to avoid double taxation and provide a conducive environment for businesses and investors. The reduced tax rates on royalties, dividends, and interest are expected to boost bilateral trade and investment. Overall, the DTAA is a step towards strengthening economic ties between Bhutan and India.