Double Tax Avoidance Agreement (DTAA) Between India and Thailand

Globalisation is an essential component of the modern economy where exporting or importing goods and services or investing in other countries’ economies is considered crucial for increasing the domestic economy. As a result of globalisation, organisations and individuals are increasingly participating in cross-border transactions, thereby leaving the issue of double taxation. This challenge has, however, been addressed through the signing of Double Tax Avoidance Agreements (DTAA). Of those, one significant is the DTAA between India and Thailand. 

India-Thailand DTAA can be described as a framework for bilateral relationships in the economic aspect between two Asian nations. It provides a clear method of how to eliminate double taxation, enhance trade and investment between the two countries, and provide the people within the two countries with legal certainty concerning taxes. This article focuses on the provisions of the India-Thailand DTAA and their impacts and relevance to various kinds of income and taxpayers. 

DTAA Between India and Thailand

The DTAA between India and Thailand was signed on 29 July 2015 and came into force on  13 October 2015. Since then, the DATA has had considerable significance, mainly in the fields of trade and investment liberalisation and the exchange of culture. 

The India-Thailand DTAA applies to business that is undertaken by persons of the contracting states or both the contracting states. This is concerning several types of income, including business profits, dividends, interests, royalties, capital gains, and employment income. The objective of the agreement is to know the allocation of taxing rights of income between the two countries to avoid tax exemptions and, at the same time, restrict tax evasion.

Significance of India - Thailand DTAA for Both Countries

From an economic perspective, the DTAA between India and Thailand is immensely important to both nations:

1. Promotes Bilateral Trade: First, the agreement helps to remove the barriers of taxation since it removes dual taxation and thus enhances the chances of higher trade between the two countries. 
2. Boosts Foreign Direct Investment (FDI): The DTAA benefits both countries because it gives certainty regarding taxes and encourages more foreign investors to invest in the respective countries. It has been observed that Thai and Indian companies have relatively easy access to investing in each other's countries. 
3. Enhances Competitiveness: Lowering tax burdens due to the DTAA can cut corporations' expenses, increasing their ability to compete in the international market. 
4. Facilitates Technology Transfer: This has been facilitated by provisions of royalties and fees for technical services that promote the exchange of technology and knowledge between the two countries. 
5. Supports Economic Growth: The DTAA plays a crucial role in developing a favourable business environment and, hence, in the economic development of both countries, namely India and Thailand. 

 Beyond its economic impact, the DTAA strengthens diplomatic ties between India and Thailand:

1. Demonstrates Mutual Trust: The agreement proves the taxation and finance aspects between the two governments. 
2. Encourages Cultural Exchange: By easing the tax issues, the DTAA contributes to the growth of people-to-people contacts, tourism, and student exchange. 
3. Provides a Framework for Dialogue: It outlines how the two countries' tax authorities will communicate and work together. 

The DTAA offers several legal and administrative advantages:

1. Legal Certainty: It outlines the legal means of solving common disputes regarding tax issues between the two countries.
2. Streamlined Procedures: This allows standard methods of providing information and mutual assistance in tax matters, increasing administrative effectiveness.
3. Reduced Compliance Burden: Taxpayers benefit from the simple compliance procedures and the possibility of lower tax rates for some types of income. 

Taxes Covered Under DTAA

What taxes are included in the DTAA is a crucial question that taxpayers in the two countries must answer. The agreement specifically mentions the following taxes:

For India

• Income Tax: This will include any additional charges on income tax.
• Wealth Tax: Although the wealth tax is not currently in force in India due to its removal in 2015, it was one of the agreements made.

For Thailand

• Income Tax: It covers the general income tax for citizens and resident companies.
• Petroleum Income Tax: A kind of tax relevant to income generated from petroleum business in Thailand.

Nevertheless, it also includes other similar taxes which may be imposed in the future in one or both of the contracting states after the date of execution of the DTAA. This clause is included to prevent the tax systems of both countries from changing to agree with each other.

India-Thailand DTAA Tax Rates

One advantage which has been integrated into the India-Thailand DTAA is the establishment of low taxation on some income categories. These rates apply where the beneficial owner of the income is a resident of the other contracting state or a person who is a resident of the first contracting state and who holds less than 50% of the voting stock of the company paying the dividends.

1. Dividends: 10% The DTAA has a provision whereby taxation of dividends paid by a company of one contracting state to the contractor state should not exceed ten per cent. This rate is below the domestic tax rates in both countries and this makes cross-border investors benefit a lot.
2. Interest: 10% This amount of Interest income is also charged a maximum tax of 10% in the country where it is earned, where the beneficial owner is a resident of the other contracting state. This accommodation includes interest from government securities, bonds or debentures.
3. Royalties: Royalties are subjected to a tax of 10% on the gross payment, while fees for technical services are subjected to a fixed tax of 10% in the country of source. This entails the act of paying for any copyrighted, patented, trademarked, designed, planned, secret formula or process to be used or the right to use it.

These reduced rates offer substantial benefits to businesses and individuals engaged in cross-border activities: These reduced rates offer substantial benefits to businesses and individuals engaged in cross-border activities:

• Regarding businesses, the rates of taxation of dividends and interest are lower; therefore, the necessary investments are more efficient and inexpensive.
• For authors or artists for instance, who get their royalties from another country, the reduced rate is a lot of taxes saved. 

Taxation on Capital Gains Under DTAA

An important component of the India-Thailand DTAA is the taxation of capital gains because it influences investment and transfers of assets between the two countries. The agreement provides specific provisions for different types of capital gains:

1. Income from immovable property: Capital gains arising from the disposal of immovable property are taxed in the country where the property is situated. This applies to: 

• Land and buildings 
• Fixtures and fittings of land and buildings 
• The rights to variable or fixed payments for the working of a mineral deposit and other natural resources 

This provision ensures that the country where the property is located has the principal right to tax the profit from the sale of such property, irrespective of the seller's residence. 

2. Gains from Shares: The taxation of gains from the alienation of shares depends on the nature of the shares:

• If the shares are quoted more than 50% directly or indirectly from immovable property in one of the contracting states, then such gains may be taxed in that state. 
• In other shares, the gains are usually taxed in the company's country of residence that issues the shares. 

This provision is especially important for investment in business real estate and intends to curb the use of holding companies to avoid taxes. 

3. Gains from Other Movable Property: For movable property forming part of the business property of a permanent establishment. Profits that are derived from the alienation of such property, including profits from the alienation of the permanent establishment, may be taxed in the country of the situs of the permanent establishment. 
4. Gains from Ships and Aircraft: Gains arising from the sale of ships or aircraft used in international traffic or movable property relating to such use are taxable only in the effective management of the enterprise's business. 
5. Other Property Gains: These are only taxable in the state of residency of the alienator, where such property is any property not included in the above provisions. 

These provisions offer several benefits and considerations for taxpayers:

• They provide clarity on where capital gains will be taxed, helping investors make informed decisions.
• They prevent double taxation of capital gains by allocating taxing rights between the two countries.
• They may influence investment structures, particularly for real estate investments.

Taxation on Employment Income Under DTAA

The provisions dealing with employment income are included in the India-Thailand DTAA, and they are important for persons who operate in the international environment. These provisions assist in figuring out where an employee's income will be taxed and under which conditions. 

There are two fundamental rules under the DTAA for taxing employment income: the general rule and the special rule. This entails that if an Indian resident earns an income from employment exercised in Thailand, then the income is generally considered taxable in Thailand. 

But one exceptional provision in the DTAA makes this general rule possible. Employment income remains taxable only in the employee's country of residence if all of the following conditions are met: 

1. The employee's presence in the other country is 183 days in the aggregate during any twelve-month period that begins or ends in the fiscal year. 
2. The remuneration is received for a service performed by an individual, or under an agreement with an individual, in a country other than the individual's country of residence, and the payment is made or borne by an employer who is not a resident of the other country. 
3. The remuneration is not for any permanent establishment or fixed base used by the employer in another country. 

This rule is known as the '183-day rule'; it is advantageous not only for short-term assignments or business trips but the employee will be exempted from taxation in the host country for temporary work. 

Final Word

The Indian and Thai DTAA acts as a tool that strengthens the economic relations between India and Thailand and helps to eliminate tax evasion. Through laying down specific rules on the taxation of different kinds of income, the DTAA holds a lot of advantages for business people, investors, and individuals dealing with cross-border operations. 

With the developing Indian and Thai economies and the enhancement of the countries' global connections, the DTAA becomes more significant. It does not only help in the exchange of goods and services as well as investments but also in cultural and technological exchanges between the two countries. 

Related Articles:
1. DTAA Between India and Canada
2. DTAA Between India and China
3. DTAA Between India And Hong Kong
4. DTAA Between India and Mauritius
5. DTAA Between India and Singapore
6. DTAA Between India And Japan
7. DTAA Between India and Ireland
8. DTAA Between India and Netherlands
9. DTAA Between India and Sweden
10. DTAA Between India and Spain
11. DTAA Between India and Malaysia 
12. DTAA Between India and UAE