Double Tax Avoidance Agreement (DTAA) Between India and Netherlands (2024)

When you file your income tax return, one question that arises for people with income from foreign sources is, "Do I need to pay tax on my income in both countries?" To solve the confusion regarding double tax payments on foreign income, the Indian government has come up with the Double Taxation Avoidance Agreement (DTAA).

For NRIs who work in foreign countries, the DTAA helps avoid double tax payments on income earned in India and their country of residence. This agreement has been signed by India with almost 100 countries worldwide.

This article will help you to understand DTAA between India and Netherlands and its relevant details.

DTAA Between India and Netherlands

In 1989, India decided to enter into a double taxation agreement with the Netherlands to help taxpayers avoid paying income taxes in both the Netherlands and India. This DTAA applies to different types of taxes, such as dividends and income taxes.

The India-Netherlands DTAA was founded on the values of justice and equity. It established a tax credit and exemption mechanism to prevent double taxation of income received. This means that if an Indian resident generates income in the Netherlands, they will only be taxed in India and not in the Netherlands. Similarly, if a Dutch person generates income in India, they will only be taxed in the Netherlands, not in India.

With recent revisions to trade treaties between India and countries like Singapore, Mauritius, and Cyprus prohibiting investment routing, the Netherlands has emerged as the new preferred destination for investors. If Dutch shareholders meet specific agreement requirements, they can enjoy exemption from Indian capital gains tax.

Significance of DTAA for India and Netherlands

DTAA between India and Netherlands possesses significance for both countries when it comes to taxation and investment aspects.

DTAA has been helpful in attracting foreign investment from the Netherlands. The agreement eliminates double taxes on income earned from Dutch organisations in India, enticing more Dutch corporations to invest here. The agreement also permits the sharing of information between the two nations, thus assisting in reducing tax avoidance and evasion.

Being one of the largest investors in India, Dutch businesses can enjoy significant tax benefits as per the provisions of this agreement and avoid paying double taxes. DTAA helps to promote trade between India and the Netherlands, thus ensuring predictable and stable economies for both countries.

Taxes Covered under DTAA Agreement Between India and Netherlands

The taxes under the DTAA agreement between India and Netherlands are covered under Article 2 of the agreement. The details are as follows:

• The convention is applicable to taxes on capital gains and income earned in one State or its political local authorities or subdivisions.
• Income and capital taxes include any tax charged on a person's income or capital gains, whether on the overall amount or specific aspects. It includes taxes on profits generated from selling assets, taxes on salaries paid by firms, or taxes on capital appreciation.
• The taxes applicable in the countries are as follows:
  • Netherlands:
    • Income tax
    • Tax on net profits from sale of Government shares pursuant to the Mining Act of 1810 as per concession issued from 1967, or, taxes levied as per Netherlands Continental Shelf Mining Act 1965.
    • Wages tax
    • Capital tax or Netherlands tax
    • Dividend tax
  • India:
    • Surtax
    • Income tax including surcharges
    • Wealth tax or Indian tax
• The convention is applicable even on taxes that are identical or nearly the same, enacted after the signing of the agreement. The competent authorities of the respective States must keep each other informed of significant changes in their tax laws.

Note: As per DTAA, "State" refers to India or Netherlands, as per the context.

India Netherlands DTAA Tax Rates

The tax rates applicable as per DTAA India Netherlands are based on different types of income. Some incomes subject to taxation under withholding tax include dividends, interest, royalties, and fees for technical services. It states that a beneficial owner must be a company directly owning at least 10% of the company's capital distributing dividends. The applicable tax rate is 10%.

Moreover, TDS is also applicable to the interests earned as per DTAA. The rate followed by Netherlands is 10%.

Capital Gains under DTAA

Apart from DTAA between India and Netherlands for salary income, there are provisions for taxation of capital gains under Article 13.

• A resident deriving gains of one State in regards to alienating immovable property as referred to in Article 6 and gets situated in another State may get taxed in that other State.
• If a business in one State sells moveable property from a fixed base in another State for personal services, the earnings may be taxed in the other State.
• Profits from the sale of ships or aircraft used in international commerce, or related moveable assets, can only be taxed in the State where the enterprise's effective management is located. For this purpose, the rules of Article 8A(3) shall apply.
• If you are a resident of one State and sell shares in a corporation belonging to another State that owns real estate in that State, you may be taxed in that State. This only applies if the shares are not listed on a recognised stock market and you own 25% or more of the company's capital stock.

Final Word

DTAA is a crucial financial agreement signed between two countries to help tax collecting authorities maintain transparency regarding tax deductions. India Netherlands DTAA helps Indian taxpayers with income sources in the Netherlands avoid paying taxes in both countries. Under the agreement's provisions, you can also claim TDS and other credit benefits.