India has notified the double taxation avoidance agreement (DTAA) with Mozambique on Tuesday.

This agreement will provide tax stability to the residents of both the countries and facilitate mutual economic cooperation, stimulate the flow of investment, technology and services.

The DTAA provides that business profits will be taxable in the source State if the activities of an enterprise constitute a permanent establishment in the Source State. Examples of permanent establishment include a branch, factory, office, place of management etc.

Profits of a construction, assembly or installation projects will be taxed in the State of source if the project continues in that State for more than 12 months.

The DTAA also provides for effective exchange of information including banking information. It also includes anti-abuse provisions to ensure that the benefits of the agreement are availed of by the genuine residents of both the countries.

Profits derived by an enterprise from the operation of ships or aircraft in international traffic will be taxable in the country of residence of the enterprise. Dividends, interest and royalties income will be taxed both in the country of residence and in the country of source.

However, the maximum rate of tax to be charged in the country of source will not exceed 7.5 per cent in the case of dividends and 10 per cent in the case of interest and royalties. Capital gains from the sale of shares will be taxable in the country of source.

krsrivats@thehindu.co.in

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