Model Agreement for the Avoidance of Double Taxation between Developed and Developing Countries

Double Taxation Avoidance Agreement Model between developed countries and developing countries

This Agreement is entered into between two countries, which are and are parties made to avoid double taxation and the prevention of fiscal evasion with respect to taxes on income by and/or capital gains derived from investment by individuals in a developed country.

Article 1

Definitions

1.1 “Tax” means any income, profits, inheritance or similar tax regardless of whether the taxation is imposed directly or indirectly (e.g. through withholding);

1.2. “Taxes covered” means the taxes made subject to this Agreement by the Parties, whether imposed directly or indirectly;

1.3. Competent Authorities means the respective tax authorities of the countries or any other authority or agency appointed by the countries which is responsible for the administration or imposition of taxes covered;

1.4. “Resident” means any individual who, according to the laws of a country, is liable to tax therein and who, under the terms of this Agreement, may claim the benefits provided for in this Agreement;

1.5. “Writing” or “Writings” shall include communication by telegram, telefax or other electronic media and exchange of information through recognised channels.

Article 2

Object and Scope

2.1. The object of this Agreement is to eliminate double taxation and the prevention of fiscal evasion with respect to taxes on income derived from investment by individuals in a developed country.

2.2. This Agreement shall apply to taxes imposed on income and capital gains derived from investment by individuals within the territories of the countries hereto, but shall not affect any other taxes imposed by the countries.

Article 3

Obtaining Relief

3.1. A resident of the country promoting investment shall be exempt from tax on income derived from investment within the territory of the developed country, to the extent otherwise allowed by the laws of the developed country and subject to the following conditions:

(a) The resident shall have invested, or caused to be invested, funds in the developed country in accordance with applicable laws and regulations, either directly by making a capital investment or indirectly by way of portfolio investment;

(b) The resident shall have been in compliance with applicable laws and regulations of the country from which such funds were transferred;

(c) The resident shall have disclosed to the relevant authorities in their country any income received from such investments;

Double Taxation Avoidance Agreement (DTAA)

Double taxation avoidance agreement (DTAA) is an agreement between two countries or between a government and a company, to limit the double taxation by both countries or by both parties on certain income or capital. It is also known as Tax Avoidance Agreement or Double Taxation Agreement (DTA).

In general terms, a double taxation avoidance agreement can be described as an agreement between countries to cooperate and assist each other in tax matters. It ensures that income and wealth are taxed only once in the country of residence, by providing an exemption from taxation and avoidance of double taxation.

The purpose of such an agreement is to define the taxes that should be paid in each country, the allocation of taxing rights and the elimination of double taxation between the two countries. It also aims to facilitate the free flow of investment and the free flow of capital by mitigating the tax costs associated with both economies, while promoting the economic integration of the two countries.

Furthermore, the agreement may set out the taxes that must be paid and the rate at which it must be paid. The agreement also covers matters such as the exchange of information on taxes, the exchange of tax evaders, the ratification and resolution of agreements between the parties and the enforcement of obligations under the agreement.

The double taxation avoidance agreement is an important instrument for reducing financial barriers and promoting foreign direct investment between countries. It is an important tool for the international taxation norms applicable to all the countries which have joined the agreement.