India Signs Double Taxation Avoidance Agreement with Ethiopia

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May 31 – India signed a double taxation avoidance agreement (DTAA) with the Federal Democratic Republic of Ethiopia on May 25, 2011 for the prevention of double taxation and fiscal evasion with respect to taxes on income. The contract was signed by External Affairs Minister of India on behalf of the Government of India and by Sufian Ahmed, Minister of Ethiopia in the attendance of the Prime Minister of India Manmohan Singh and the Ethiopian Prime Minister Meles Zenawi.

The DTAA offers that business profits will be taxable in the source state if the actions of an enterprise constitute a permanent establishment in the source state. Illustrations of permanent establishment comprise of a branch, factory, and other such entities. Profits from construction, assembly or installation projects will be levied in the state of source if the project continues in that state for more than 183 days.

Profits obtained by an endeavor from the operation of ships or aircrafts in international traffic shall be taxable in the country of residence of the enterprise. Dividends, interest, royalties and fees for technical services income will be taxed both in the country of residence and in the country of source. On the other hand, the maximum rate of tax to be charged in the country of source will not surpass 7.5 percent in the case of dividends and 10 percent in the case of interest, royalties and fees for technical services. Capital gains from the level of shares will be chargeable in the country of source.

The agreement would also allow efficient swapping of information, including banking data, and assistance in collection of taxes. It includes anti-abuse provisions to guarantee that the benefits of the agreement are availed of by the authentic residents of India and Ethiopia. The subject of black money and tax avoidance has become a serious issue in the last couple of years after instances of Indians supposedly hiding money away in hidden locations abroad came to light.

The DTAA will provide tax stability to the residents of India and Ethiopia and assist mutual economic cooperation as well as stimulate the flow of investment, technology and services between India and Ethiopia.

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