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India-Saudi Arabia Double Taxation Avoidance Agreement (DTAA)

The Double Taxation Avoidance Agreement (DTAA) between the government of India and the Kingdom of Saudi Arabia, which came into force on November 1, 2006, plays a pivotal role in preventing double taxation and tax evasion related to income taxes in both countries.

Applicability of the DTAA

This DTAA is applicable to the following taxes in the contracting states:

In India:

  • The income tax, including any surcharge thereon.

In Saudi Arabia:

  • The income tax, which includes the natural gas investment tax.
  • The Zakat, a form of almsgiving and one of the Five Pillars of Islam.

Key Takeaways

  1. Residency: Any person who, according to the laws of a state, is subject to taxation due to domicile, residence, place of management, or any similar criterion, is considered a resident of that state for tax purposes.
  2. Permanent Establishments: As per the DTAA, a permanent establishment refers to a fixed place of business through which an enterprise conducts its business activities wholly or partially.
  3. Income from Immovable Property: Income derived by a resident of one contracting state from immovable property situated in the other contracting state may be subject to taxation in the latter.
  4. Business Profits: The profits of an enterprise of a contracting state are generally taxable only in that state. However, if the enterprise operates in the other contracting state through a permanent establishment, the profits attributed to that establishment may be taxed in the latter state.
  5. Dividends: Dividends paid by a company resident in one contracting state to a resident of the other contracting state may be taxed in the recipient’s state.
  6. Income from Debt-Claims: Income from debt-claims arising in one contracting state and paid to a resident of the other contracting state may be subject to taxation in the latter.
  7. Royalties: Royalties arising in one contracting state and paid to a resident of the other contracting state may be taxed in the recipient’s state.
  8. Capital Gains: Gains derived by a resident of one contracting state from the sale of immovable property situated in the other contracting state may be taxed in the latter.
  9. Director’s Fees: Payments received by a resident of one contracting state in their capacity as a member of the board of directors of a company resident in the other contracting state may be subject to taxation in the latter.
  10. Withholding Tax Rates: The DTAA prescribes withholding tax rates of 5%, 10%, and 10% for dividends, interest, and royalties, respectively. Notably, government institutions are exempt from taxes on interest income.

Inference

The India-Saudi Arabia DTAA incorporates numerous clauses and provisions aimed at facilitating the avoidance of double taxation and the amicable resolution of treaty-related issues. It specifies the use of the credit method to eliminate double taxation. This agreement aims to provide tax stability to the residents of both India and Saudi Arabia while fostering mutual economic cooperation, promoting investment, technology exchange, and facilitating the flow of services between the contracting states.

For comprehensive legal assistance and support related to the India-Saudi Arabia Double Taxation Avoidance Agreement or any other international tax agreements, please contact Chandrawat & Partners. Our team of experienced legal professionals specializes in international tax matters and is committed to providing tailored legal guidance to address your specific requirements. We prioritize the delivery of high-quality legal services to ensure your satisfaction and confidence. Should you have any questions or require assistance with legal matters, please do not hesitate to get in touch. We are here to serve you with professionalism and dedication.

To know more about DTAA relations between India and Saudi Arabia, please download our Guide.

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