India has signed a double taxation avoidance agreement (DTAA) with Ethiopia.
The agreement would provide tax stability to residents, facilitate mutual economic cooperation and flow of investments, technology and services between the countries.
The DTAA was signed by Mr S.M. Krishna, External Affairs Minister, and Mr Sufian Ahmed, Ethiopian Minister, at Addis Ababa on Wednesday in the presence of the Prime Minister, Dr Manmohan Singh, and Ethiopian Prime Minister, Mr Meles Zenawi.
Under the DTAA, business profits will be taxable in the source State if the activities of an enterprise constitute a permanent establishment.
Permanent establishment include branch and factory.
Profits of a construction, assembly or installation projects will be taxed in the source State if the project continues in that State for more than 183 days.
Profits from operation of ships or aircraft in international traffic will be taxable in the country of residence of the enterprise.
The DTAA also provides that dividends, interest, royalties and fees for technical services (FTS) income will be taxed both in the country of residence and in the country of source.
However, the maximum rate of tax that could be charged in the source country will not exceed 7.5 per cent in the case of dividends and 10 per cent in the case of interest, royalties and FTS.
Capital gains on sale of shares will be taxable in the source country.
The DTAA provides for effective exchange of information between tax authorities including banking information.
It also incorporates anti-abuse provisions to ensure that the benefits of the agreement are obtained only by genuine residents of both the countries.