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INDIA- RUSSIA DOUBLE TAXATION AVOIDANCE AGREEMENT
A Double Taxation Avoidance Agreement (“DTAA”) was signed by the governments of India and the Russian Federation on December 29, 1994, which came into force on June 22, 1996, with the main goal to eliminate double taxation and reduce fiscal evasion with regard to income taxes. In order to bring the DTAA in consonance with the International Agreement to Implement Tax Treaty Related Measures to Combat Base Erosion and Profit Shifting, a synthesised text that provides further clarifications and adjustments to the international standards has also been issued by the signing states.
The DTAA is applicable to individuals and entities that are residents of either India or Russia and are liable to pay taxes in both countries on the same income. The treaty covers the following types of taxes-
a. In Russia:
- taxes on profits (income) of enterprises and organisations; and
- the income-tax on individuals.
b. In India:
- income-tax, including any surcharge thereon.
- Taxation of business profits: The DTAA provides that business profits will be taxable in the country where the business is carried out. However, if a business has a permanent establishment in both countries, the profits will be taxed in the country where the permanent establishment is located.
- Taxation of dividends: Dividends paid by a company of one country to a resident of the other country are taxable in the country of residence. However, the tax rate cannot exceed 10% of the gross amount of dividends.
- Taxation of interest and royalties: Interest and royalties paid by a resident of one country to a resident of the other country are taxable only in the country of residence. However, the tax rate cannot exceed 10% of the gross amount of interest or royalties.
- Capital gains tax: Capital gains arising from the sale of shares or other movable property are taxable only in the country where the seller is a resident. However, gains from the sale of immovable property are taxable in the country where the property is located.
- Exchange of information: The DTAA provides for the exchange of information between the tax authorities of the two countries to prevent tax evasion and fraud.
- Withholding tax rates: A withholding tax rate of 10% for interest, dividend and royalty. An exemption has been granted for interests earned by government institutions.
- Directors’ fees: Directors’ fees and other similar payments derived by a resident of a contracting state in his capacity as a member of the board of directors of a company which is a resident of the other contracting state, may be taxed in that other state.
The DTAA includes clauses like the elimination of double taxation, which states that the credit system shall be followed in Russia and a deduction with respect to such amount shall be permitted in India to eliminate double taxation, and exchange of information, which enables the authorities to obtain all tax-related information that is potentially relevant so they can impose the necessary taxes in accordance with their respective domestic laws. Overall, the India-Russia DTAA aims to provide certainty and clarity to taxpayers in both countries and facilitate cross-border trade and investment.
To know more about DTAA relations between India and Russia, please download our Guide.