india’s free trade and double tax agreements · india’s free trade and double tax agreements....

Issue 37 • December 2017

From Dezan Shira & Associates

India’s Free Trade and Double Tax Agreements

www.india-briefing.com

Evaluating India’s Free Trade Agreements for Your Business

How to Use India’s Double Tax Agreements

P.04

P.08

P.13 Access India and ASEAN through Singapore

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Introduction

ROHIT KAPURCountry Manager

Dezan Shira & Associates

India has attracted global attention this year for the country’s ambitious new goods and service

tax (GST): consolidating procedures while bringing more industries into the formal economy.

The Indian government is making it easier to penetrate the country’s growing markets and

businesses the world over are taking notice. In fact, the 2016 financial year marked a record

amount of foreign direct investment entering India in a single year – US$60.1 billion.

A surge in isolationist polices in Western countries are encouraging many businesses to rethink

once taken for granted trade relations and explore new, emerging markets. India’s free trade

and double tax agreements with individual countries and groups of nations alike present

new trading routes throughout Asia.

These agreements can, at times, appear convoluted and confusing. The benefits of each

respective agreement must be analyzed for applicability to ensure fiscal improvements to

foreign business models.

In this issue of India Briefing magazine, we take a look at the bilateral and multilateral trade

agreements that India currently has in place and highlight the deals that are still in negotiation.

We analyze the country’s double tax agreements, and conclude by discussing how foreign

businesses can establish a presence in Singapore to access the Indian and ASEAN markets.

With kind regards,

Rohit Kapur

www.dezshira.com

www.asiabriefing.com

www.aseanbriefing.com

www.indonesiabriefing.com

www.vietnam-briefing.com

CreditsPublisher / Adam LivermoreEditor / Melissa Cyrill, Bradley DunseithDesign / Kking Lu

Years1992-2017

ReferenceIndia Briefing and related titles are produced by Asia Briefing Ltd., a wholly owned subsidiary of Dezan Shira Group.

Content is provided by Dezan Shira & Associates. No liability may be accepted for any of the contents of this publication. Readers are strongly advised to seek professional advice when actively looking to implement suggestions made within this publication.

For queries regarding the content of this magazine, please contact: [email protected]

All materials and contents © 2017 Asia Briefing Ltd.

Asia Briefing Ltd., Unit 507, 5/F, Chinachem Golden Plaza77 Mody Road, Tsim Sha Tsui EastKowloon, Hong Kong

www.china-briefing.com

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Table of ContentsFTA DTAA

This Issue’s Topic

India’s Free Trade and Double Tax Agreements

Online Resources on Emerging Asia

Capital Gains Tax in India: An Explainer

The IT Sector: Time to Invest in India

An Introduction to Doing Business in India 2017

Tax, Accounting and Audit in India 2017-18 (3rd Edition)

Knowledge Sharing Platform

ASEAN-Hong Kong Free Trade Agreement Signed

Hong Kong Finalizes FTA with ASEAN, DTAA with India

Vietnam and the ASEAN-Hong Kong Free Trade Agreement

Hong Kong’s Advance Pricing Arrangement Program

Online Resources from India BriefingIndia Briefing Magazine is published six times a year. To subscribe, please Click Here

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Legal, Tax, Accounting News

Cross Region Comparisons

Industry Studies

Magazines, Guides, Reports

Podcast & Webinar

Regulatory Framework & Updates

Professional Services

Strategic Advisory & Commentary

Evaluating India’s Free Trade Agreements for Your Business

P.04

How to Use India’s Double Tax AgreementsP.08

Access India and ASEAN through SingaporeP.13

ASIA BRIEFING

This Month’s Cover Art from Rang Art Gallery

Sudhir.P.Talmale, Vibrance, Oil on canvas, 30 x 41 [email protected] +91 98 1107 8742http://www.rangartgallery.com

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Evaluating India’s Free Trade Agreements for Your BusinessBy: Dezan Shira & Associates

Free trade agreements (FTAs) are arrangements

between two or more countries, or between a

country and a trading bloc to abolish or reduce

tariffs, quotas, and preferences on goods and

services traded.

Countries often agree to FTAs if their economic

structures are complementary, not competitive.

FTAs also cover areas such as intellectual property

rights (IPRs), investment, and government

procurement and competition policies. At the

regional level, every customs union, trade common

market, economic union, and customs and

monetary union negotiate free trade areas.

India looks favorably upon these regional trading

arrangements (RTAs), which include FTAs as

well as Preferential Trade Agreements (PTAs)

and Comprehensive Economic Cooperation

Agreements (CECAs).

India’s trade promotion strategies India’s trade promotion strategies are briefly

outlined below.

Early Harvest Scheme An Early Harvest Scheme (EHS) is a precursor to an

FTA between two trading partners. At this stage, the

negotiating countries identify certain products for

tariff liberalization pending the conclusion of actual

FTA negotiations. The EHS is, therefore, used as a

mechanism to build greater confidence between

the trading partners, and structurally prepares them

for subsequent, deeper economic engagement.

India is keen on such schemes, and some EHS

agreements are incorporated within existing treaties.

India and Thailand signed an EHS in October 2003,

where both countries agreed to reduce tariff duties

on 83 products to zero, in a phased manner.

Trade agreementsThese are bilateral or multilateral treaties, or any other

enforceable accord, which commit two or more

countries to specified terms of trade and commerce.

They mostly involve mutually beneficial concessions.

Framework agreementsPrior to negotiating trade accords, potential trading

partners sign framework agreements, which set

the period for future substantive liberalization by

defining the scope and provisions of orientation for

some new area of discussions.

India has previously signed framework agreements

with the ASEAN (Association of Southeast Asian

Nations) and MERCOSUR (Southern Common

Market in Spanish) trade blocs, and countries like

Japan and Korea.

Issue 37 · December 2017 · IndIa BrIefIng

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Aside from FTAs, India has negotiated other types of

agreements to promote trade liberalization:

• Preferential Trade Agreements (PTAs)

In this type of agreement, two or more partners give

preferential right of entry to certain products. This is

done by reducing duties on an agreed number of

tariff lines. A PTA is established through a trade pact,

and is a stepping stone towards better economic

relations with the concerned country. India enjoys

PTAs with several countries, including Bangladesh,

China, South Korea, and Sri Lanka.

The key difference between an FTA and a PTA is that

in a PTA there is a positive list of products on which

duty is to be reduced; in an FTA, there is a negative

list on which duty is not reduced or eliminated.

• Comprehensive Economic Cooperation

Agreement (CECA) and Comprehensive

Economic Partnership Agreement (CEPA)

These terms refer to integrated trade negotiations on

goods, services, and investments as well as agreement

on a broad range of areas such as trade facilitation and

customs cooperation, investment, competition, and

IPR. India has signed CEPA with Korea (in effect since

2010) and Japan (in effect since 2011) and CECA’s with

Singapore (2005) and Malaysia (2011).

India’s bilateral and multilateral FTAsIndia has negotiated trade l iberal izat ion

arrangements with several countries and trade

groupings, including pre-FTA level schemes and

alternative trade relaxation programs.

ASEAN Founded on August 8, 1967, ASEAN consists of Brunei

Darussalam, Cambodia, Indonesia, Lao PDR, Malaysia,

Myanmar, Philippines, Singapore, Thailand, and

Vietnam. 2017 marked 25 years of India’s dialogue

partnership with ASEAN, 15 years of summit level

meetings, and five years of strategic partnership.

India places great importance on developing its

relationship with ASEAN given the organization’s

economic, political, and strategic significance in the

larger Asia-Pacific region. Strong ties with ASEAN is

necessary to expand India’s market access, and to build

greater connectivity between India’s northeastern

states that border the Southeast Asian region.

Towards this, India inked the framework agreement

to activate its CECA with ASEAN on October 8, 2003.

This initial agreement provided for an EHP, which

covered areas of economic cooperation and a

common list of items for exchange as an assurance

building measure. Subsequently, the ASEAN-India

Free Trade Area (AIFTA) was negotiated, and came

into force on January 1, 2010. India also signed an

FTA in services and investments with ASEAN in

2014, which came into force in 2015.

In 2016-17, ASEAN accounted for about 10.4 percent

of India’s exports and 10.6 percent of India’s imports.

While ASEAN has committed to tariff reduction on

over 4,000 products and tariff liberalization of over 90

percent – India currently suffers a trade deficit with

the region. This is in the case of five ASEAN member

states – Malaysia, Indonesia, Thailand, Brunei, and Lao

PDR. The biggest deficit is with Indonesia, which has

eliminated tariffs on only 50.1percent items out of

those named in the FTA agreement.

MERCOSURFormed in 1991, MERCOSUR is a sub-regional

trading community in Latin America, and comprises

of Argentina, Brazil, Paraguay, and Uruguay.

Chile, Bolivia, Peru, Colombia, Ecuador as well as

Guyana and Suriname are its associate members.

While Bolivia is still negotiating membership

status (Protocol of Accession stage), Venezuela’s

membership was suspended in 2016. MERCOSUR is

the third largest integrated market in the world after

the European Union (EU) and the North American

Free Trade Agreement (NAFTA).

India and MERCOSUR signed an initial framework

agreement on June 17, 2003, which outlined

mutual tariff preferences and proposed a free

trade area between the two parties in line with

the rules of the World Trade Organization (WTO).

Subsequently, India signed a PTA with MERCOSUR,

which came into effect on June 1, 2009.

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India’s Free Trade Agreements

GroupingNumber of member countries

Member countriesType of agreement, stage of implementation

Asia-Pacific Trade Agreement (APTA)

5 Bangladesh, China, South Korea, Sri LankaPreferential Trade Agreement (PTA), in effect

India-ASEAN Trade in Goods Agreement (India-ASEAN TIG)

11Brunei Darussalam, Cambodia, Indonesia, Lao PDR, Malaysia, Myanmar, Philippines, Singapore, Thailand, Vietnam, and India

FTA

Bangladesh India Myanmar Sri Lanka Thailand Economic Cooperation (BIMSTEC)

7Bangladesh, India, Myanmar, Sri Lanka Thailand, Bhutan, and Nepal

FTA, under negotiation

Global System of Trade Preferences (GSTP)

43

Algeria, Argentina, Bangladesh, Benin, Bolivia, Brazil, Cameroon, Chile, Colombia, Cuba, Ecuador, Egypt, Ghana, Guinea, Guyana, India, Indonesia, Iran, Iraq, Libya, Macedonia, Malaysia, Mexico, Morocco, Mozambique, Myanmar, Nicaragua, Nigeria, North Korea, Pakistan, Peru, Philippines, South Korea, Singapore, Sri Lanka, Sudan, Thailand, Trinidad and Tobago, Tunisia, Tanzania, Venezuela, Vietnam, Zimbabwe

PTA, in effect

South Asia Free Trade Agreement (SAFTA)

7Afghanistan, Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan, and Sri Lanka

FTA, in effect

India Sri Lanka FTA (ISLFTA) 2 India, Sri Lanka FTA, in effect

India Malaysia Comprehensive Economic Cooperation Agreement (IMCECA)

2 India, Malaysia CECA, in effect

Japan India Comprehensive Economic Partnership Agreement (JICEPA)

2 Japan, India CEPA, in effect

India Korea CEPA (IKCEPA) 2 India, Korea CEPA, in effect

India Brazil and South Africa (IBSA)

3 India, Brazil, and South Africa Under negotiation

Bilateral Trade and Investment Agreement (BTIA)

29

India and the EU (Austria, Belgium, Bulgaria, Croatia, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxemburg, Malta, Netherlands, Poland, Romania, Slovakia, Slovenia, Spain, Sweden, and the U.K.)

FTA, under negotiation

India Israel FTA 2 India, Israel FTA, under negotiation

India Canada CEPA 2 India, Canada CEPA, under negotiation

India Peru FTA 2 India, Peru FTA, under negotiation

India New Zealand FTA 2 India, New Zealand FTA, under negotiation


7

As of 2017, India has requested for a third round

of PTA expansion talks with MERCOSUR. Under

the existing terms of the PTA – India has brought

down duties on 452 items, ranging from 10 to 100

percent. These include meat products, chemicals,

raw hides and skins, leather articles, wool, cotton

yarn, glass and glassware, iron and steel, machinery

and equipment, optical, photographic, and

cinematographic apparatus. Meanwhile, India has

secured preferential access for organic chemicals,

pharmaceuticals, essential oils, plastics and articles,

rubber and rubber products, tools and implements,

machinery items, as well as electrical machinery

and equipment.

India’s bilateral trade with the bloc was US$10.08 billion

in the 2015-16 financial year, but India now wants to

expand PTA coverage to up to 2,500 tariff lines.

BIMSTECThe Bay of Bengal Initiative for Multi Sectoral

Technical and Economic Cooperation (BIMSTEC) is a

technical and economic cooperation forum formed

in 1997, and including Bangladesh, India, Myanmar,

Sri Lanka, and Thailand. Bhutan and Nepal joined

the group in February 2004. BIMSTEC includes five

members of the South Asian Association for Regional

Cooperation (SAARC) – India, Bangladesh, Bhutan,

Nepal, and Sri Lanka as well as two ASEAN members,

Thailand and Myanmar, and is seen as a bridge

between the two major regional organizations.

India is pushing for the conclusion of an FTA

with BIMSTEC, which has been pending since

talks began in 2004. Currently, India and Thailand

disagree on matters related to market access

for professionals and duty cuts on traded goods

and policy relaxation. Another major obstacle is

India’s demand to negotiate fresh terms to the

initial framework agreement, whereas all the other

members want to maintain status quo. Otherwise,

Bangladesh and Sri Lanka have been pushing for

China’s entry, as an observer, which India is not

open to considering.

SAFTA South Asia’s FTA is linked to the regional body SAARC,

which was formed in Dhaka in December 1985.

SAARC members are: Afghanistan, Bangladesh,

Bhutan, India, Maldives, Nepal, Pakistan, and Sri

Lanka. During the organization’s 12th SAARC

Summit in Islamabad in January 2005, all member

states approved to establish an FTA within their

region. Consequently, SAFTA came into force on

January 1, 2006.

SAFTA has eliminated trade blockages, facilitated

the cross-border movement of goods between the

territories of the contracting states, promoted fair

competition, created mechanisms to achieve joint

administration and resolution of disputes, among

other things.

How to evaluate India’s FTAs for your businessFTAs are, by nature, complicated documents. To

establish whether the contents are applicable to

your business, the following questions need to be

addressed:

• Is your product or service included within the

FTA’s remit?

• If so, what are the dutiable advantages?

• What are the implementing rules and

documentary requirements on claiming lower

duties?

• Are there any tax advantages that may apply to

my business operations?

• How can I implement and claim these?

Such advice typically needs to be handled by a

professional firm that is familiar with India’s FTA

agreements and can assist with on-the-ground

administration in order to ensure benefits can be

obtained.

India has tended to be somewhat long-winded and

bureaucratic about some of its trade agreements.

Despite this, certain FTAs, such as those with the

ASEAN region have provided significant reductions

on trade tariffs.

While navigating India’s FTAs can be a protracted

process, their benefits cannot be overstated and

should always form part of your overall business

strategy for investing in India.

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How to Use India’s Double Tax AgreementsBy: Dezan Shira & Associates

Double taxation avoidance agreements (DTAs or

DTAAs) aim to prevent the same income from being

taxed by two or more states, while also eliminating

tax evasion and encouraging cross-border trade

efficiency. DTAAs within a bilateral agreement

enshrine the treatment of many forms of tax,

including corporate income tax, individual income

tax, withholding tax, and dividends tax.

DTAAs prevent double taxation by allowing the

tax paid in one of the two countries to be offset

against the tax payable in the other country. This

is secured by providing exemptions or reduced

tax rates for specific income types, such as interest,

royalties, and dividends. For instance, in India, the

withholding tax rate on dividends is 15 percent as

per the Income-tax Act, 1961, but DTAAs serve to

reduce interest and royalty rates.

India has taken a largely positive view when it

comes to entering into double tax agreements with

other nations – it now has over 90 such treaties,

many of them coming into effect recently. DTAAs

are useful for companies that have a presence in

multiple countries, but also for trading companies

that do not have a permanent presence in India

but provide services to an India-based entity. Such

services are typically subject to withholding tax, but

effective use of the applicable DTAA can lessen this

burden significantly.

Typical DTAA benefitsApart from the principal of an individual or corporation

not being subject to “double taxation” – being taxed

both in one country and then back home – most

DTAAs also include “tax sweeteners” that international

businesses can take advantage of.

These include, but are not limited to, the following

reductions.

Dividends distribution taxIn addition to a 40 percent corporate income

tax (CIT) for foreign investors, India charges a 15

percent dividends distribution tax (DDT) upon

profit repatriation overseas. Many DTAAs provide

for a clause that reduces the dividends tax portion

by 50 percent.

DOWNLOAD

RELATED READINGProcedures for remitting profits from India are dependent on a firm’s investment model. It is important to stay updated with the latest rules and regulations. To learn more about what you need to know, please see our related publication on the subject.

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India’s DTAAs and WHT Rates

Recipient WHT (%) Recipient WHT (%)

Dividend Interest RoyaltyFor

technical services


technical services

Albania 10 10 10 10 France 15 0/10/15 20 10

Armenia 10 10 10 10 Georgia 10 10 10 10

Australia 15 15 10/15 10/15 Germany 10 10 10 10

Austria 10 10 10 10 Greece N/A N/A N/A N/A

Bangladesh 10/15 10 10 N/A Hungary 10 10 10 10

Belarus 10 /15 10 15 15 Iceland 10 10 10 10

Belgium 15 10 /15 20 10 Indonesia 10 10 10 N/A

Bhutan 10 10 10 10 Ireland 10 10 10 10

Botswana 7.5 /10 10 10 10 Israel 10 10 10 10

Brazil 15 15 25/15 15 Italy 15/25 15 20 20

Bulgaria 15 15 15/20 20 Japan 10 10 10 10

Canada 15/25 15 10/15 10/15 Jordan 10 10 20 20

China (People’s Republic of China)

10 10 10 10 Kazakhstan 10 10 10 10

Chinese Taipei (Taiwan)

12.5 10 10 10 Kenya 15 15 20 17.5

Colombia 5 10 10 10 Korea, Republic 15 10 10 15

Croatia 5/15 10 10 10 Kuwait 10 10 10 10

Cyprus 10 10 10 10/15 Kyrgyz Republic 10 10 15 15

Czech Republic 10 10 10 10 Latvia 10 10 10 10

Denmark 15/25 10/15 20 20 Libya N/A N/A N/A N/A

Egypt N/A N/A N/A N/A Lithuania 5/15 10 10 10

Estonia 10 10 10 10 Luxembourg 10 10 10 10

Ethiopia 7.5 10 10 10 Macedonia 10 10 10 10

Fiji 5 10 10 10 Malaysia 5 10 10 10

Finland 10 10 10/15 10 Malta 10 10 10 10

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India’s DTAAs and WHT Rates

Recipient WHT (%) Recipient WHT (%)


technical services


technical services

Mauritius 5/15 7.5 15 N/A South Africa 10 10 10 10

Mexico 10 10 10 10 Spain 15 15 10/20 20

Mongolia 15 15 15 15 Sri Lanka 7.5 10 10 10

Montenegro 5/15 10 10 10 Sudan 10 10 10 10

Morocco 10 10 10 10 Sweden 10 10 10 10

Mozambique 7.5 10 10 N/A Switzerland 10 10 10 10

Myanmar 5 10 10 N/A Syria 5/10 10 10 N/A

Namibia 10 10 10 10 Tajikistan 5/10 10 10 N/A

Nepal 5/10 10 15 N/A Tanzania 5/10 10 10 N/A

Netherlands 15 10/15 20 10 Thailand 10 10 10 N/A

New Zealand 15 10 10 10 Trinidad & Tobago 10 10 10 10

Norway 10 10 10 10 Turkey 15 10/15 15 15

Oman 10/12.5 10 15 15 Turkmenistan 10 10 10 10

Philippines 15/20 10/15 15 N/A Uganda 10 10 10 10

Poland 10 10 15 15 Ukraine 10/15 10 10 10

Portugal 10/15 10 10 10United Arab Emirates

10 5/12.5 10 N/A

Qatar 5/10 10 10 10 United Kingdom 10/15 0/10/15 10/15 10/15

Romania 10 10 10 10 United States 15/25 10/15 10/15 10/15

Russian Federation

10 10 10 10 Uruguay 5 10 10 10

Saudi Arabia 5 10 10 N/A Uzbekistan 10 10 10 10

Serbia 5/15 10 10 10 Vietnam 10 10 10 10

Singapore 10/15 10/15 10 10 Zambia 5/15 10 10 10

Slovenia 5/15 10 10 10


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Withholding TaxWithholding Tax (WHT) is an obligation on the

payer (either resident or non-resident) of income

to withhold tax when making payments of a

specified nature, such as rent, commission, salary,

professional services, contracts, etc. at rates

specified in India’s tax regime.

The tax rate is the rate prescribed in the IT Act, 1961,

or DTAA, whichever is lower. Non-residents are liable

to pay taxes in India on source income, including:

• Interest, royalties, and fees for technical services

paid by a resident;

• Salary paid for services rendered in India; and

• Income arising from a business connection or

property in India.

For a taxpayer to avail the benefit of the tax treaty,

they are required to demonstrate residency of the

country with which India has a DTAA. This means

furnishing the following documents:

• Tax residency certificate from the tax authorities

of home country certifying residency;

• Self-declaration in the form prescribed by the

Indian tax authorities; and,

• Self-declaration certifying that the taxpayer does

not have a Permanent Establishment in India.

Transfer pricingIndia enacted transfer pricing ( TP) rules in

2001, which prescribe that income arising from

international transactions or specified domestic

transactions between Associated Enterprises

(AE) should be computed using the arm’s-length

price principle, that is, the amount payable if the

trading companies were unrelated. The rules are

enumerated under Sections 92 to 92F of the IT

Act, 1961.

‘International transactions’ refers to transactions

between two (or more) AEs involving the sale,

purchase, or lease of tangible or intangible

property, the provision of services or cost-sharing

agreements, the lending and borrowing of money,

or any other transaction with a bearing on the

profits, income, losses, or assets of such enterprises.

New safe harbor rules for TP have come into effect

from April 1, 2017, which align accepted safe harbor

margins with industry standards. They will remain

in force for two years, up to Assessment Year (AY)

2019-2020.

Advance Pricing AgreementsIn 2012, the government introduced Advance

Pricing Agreements (APAs) with a view to reduce

transfer pricing litigation. It comes under Section

92CC of the IT Act.

An APA is an agreement between the tax authority

and a taxpayer to determine, in advance, the

arm’s length price in relation to the taxpayer’s

international transactions with its associated

groups (AGs) for future years. Through the APA,

the tax authority may accept not to look for a TP

adjustment for enclosed transactions as long as

the taxpayers follow the terms and conditions as

agreed under the APA.

Mutual Agreement ProcedureIn addition to APAs, countries usually agree to a

Mutual Agreement Procedure (MAP) at the time

of concluding a DTAA. The procedure is usually

contained in Article 25 of the DTAA, which requires

two contracting countries to endeavor to amicably

resolve tax disputes (by way of arbitration) that arise

from the DTAA.

India’s tax department now allows TP disputes to

be settled through MAP and bilateral APAs, even

with DTAA partners where specific provisions to

this effect are absent.

Transfer pricing documentation An enterprise entering into an international

transaction with an associate enterprise must

maintain transfer pricing documentation, the

requirements of which are set out in Section 92D

of the IT Act and Rule 10D of the Income Tax Rules.

The rules require enterprises to submit details of

international transactions in Form 3CEB, which is

appended to the tax return. Any supplementary

documentation must be produced before the tax

authority upon request.

IndIa BrIefIng · Issue 37 · December 2017

12

Transfer pricing documentation is pivotal in

defending the enterprise’s own transfer pricing

treatment and avoiding transfer pricing penalties.

A penalty is applicable where the enterprise has

failed to file Form 3CEB, or where the enterprise

fails to submit all necessary details of international

transactions and associated enterprises, and

where submitted, the details provide an inaccurate

account of particulars of income.

Taking advantage of India’s DTAAsThe practical steps to take when looking to utilize

India’s DTAAs are as follows:

• Examine whether or not applicable services are

included under the specific DTAA;

• Examine whether the DTAA includes any other

benefits such as withholding or dividend tax

reductions;

• Include any applicable treaty benefits into your

pre-incorporation business plan and Articles of

Association;

• Examine any Indian tax registration processes

that may require additional registration, and

advise them of your intent to invoke treaty status

(this is a specific registration process in India).

If you have not completed this process or are unsure

how to proceed, seek professional advice. The tax

amount saved will almost certainly cover any fees

involved in year one alone.

India – Hong Kong DTAABy Vasundhara RastogiIndia Briefing News

India and the Hong Kong Special Administrative Region (HKSAR) of China recently entered into a double tax avoidance agreement, after years of negotiation, on November 10, 2017.

When it comes into force, the DTAA will hold important tax implications for international businesses having operations in both India and Hong Kong.

The agreement will also benefit trading companies that do not have a permanent presence in India but service to an India-based entity.

Some of the benefits in the India-Hong Kong DTAA include:

• Lower withholding tax (tax deducted at source or TDS) rates, which can be as high as 40 percent

in the absence of a DTAA;

• Lower dividend distribution tax (DDT) that is an additional tax levied on foreign investors besides

the corporate income tax; and,

• Credits for taxes paid on the double-taxed income can be encashed at a later date, in certain

circumstances.

RELATED NEWS

READ MORE

13

Access India and ASEAN through Singapore

EXPERT COMMENTARY

A key incentive of Indian trading – both inbound

and outbound – is the relationship India enjoys

with the Association of South East Asian Nations

(ASEAN). India has a complete free trade agreement

(FTA) with ASEAN, which reduces tariffs on 90

percent of all good from two to zero. Furthermore,

the 2015 ASEAN-India Investment and Services

Agreement empowered India’s business process

outsourcing (BPO) industry to export their talent

across emerging South East Asian markets.

India is also improving its connectivity to ASEAN by

land and sea. The ambitious Trilateral Highway is in

the process of developing roads joining the north-

eastern states of India to Myanmar and Thailand.

The highway will eventually extend into Cambodia,

Laos, and Vietnam.

Singapore is an ASEAN member which can service

firms interested in doing business not only with

India, but other nations within ASEAN. With a highly

skilled workforce and reliable financial services, the

city-state has become a global investment hub.

Foreign investors qualify to participate in ASEAN’s

FTAs by simply being incorporated there.

In the 2016 financial year (FY ), foreign direct

investment (FDI) from Singapore to India accounted

for US$8.7 billion – nearly a fourth of India’s US$43.4

billion FDI inflow for the entire 2016 FY.

ASEAN-India Trade in Goods 2014-2016(US$ Billion)

Singapore-India FDI Flows(US$ Billion)

2014 2015 2016

40

50

30

20

10

43.7 40.5 37.624.3 19.5 20.8

Imports from ASEAN Exports to ASEAN

2014 2015 2016

20

25

15

10

5

1.2 0.84 0.876.7 15.1 8.7

Indian FDI to Singapore Singpore FDI to India

BRADLEY DUNSEITHAssociate

Dezan Shira & AssociatesMumbai Office


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India-Singapore DTAA: New taxes on capital gainsForeign investors active in India are beginning to

witness the effects of the current government’s

crackdown on ‘black’ or untaxed money. The

Indian government recently amended its double

taxation avoidance agreements (DTAAs) with Cyrus,

Mauritius, and Singapore, granting India more

power to tax capital gains.

Effective April 1, 2017, capital gains made off the sale

of shares in India by a Singapore company will now be

taxed by the Indian government. India and Singapore

have agreed to several conditions to the new protocol

in order to better facilitate the transition.

First, any capital gains from the sale of shares

purchased before April 1, 2017 will not be taxed

in India – irrespective of when said shares are

sold. Secondly, Indian shares acquired after April 1,

2017, but sold before April 1, 2019, will be subject

to only 50 percent of the applicable Indian tax

rate. To avail both conditions, however, third party

residents must meet the conditions set out in the

Limitation of Benefits (LoB) provision incorporated

into the DTAA.

Capital gain from Indian shares purchased by a

Singapore company after April 1, 2017 and sold after

April 1, 2019 will be taxed at applicable Indian tax rates.

While the new amendment on capital gains

ultimately dilutes the strength of the India-

Singapore DTAA, the amendment also adds legal

legitimacy to investors who access India through

Singapore.

Furthermore, the new amendments to India’s DTAA

with Singapore include deeper relief for double

taxation in instances of transfer pricing – making it

easier for multinational corporations to do business

between India and Singapore.

Both Mauritius and Singapore continue to be the

greatest sources of FDI to India. But, foreign investors

should be wary of investing in India through

countries reputed as tax havens. Singapore’s pro-

business policies and positive relations with the

Indian government will prove enticing even to

Mauritius-based companies contemplating India’s

changing DTAAs.

Establishing a company in Singapore When incorporating in Singapore, a professional

services firm must be engaged to register on the

behalf of companies with non-Singapore National

Registration Identity Card (NRIC) holders, non-

Employment Pass holders, and non-Dependent

Pass holders in the role(s) of director, company

secretary, and shareholder.

A Singapore private limited company should have

at least one shareholder, but no more than 50. The

shareholder can be a person or another legal entity

(such as a foreign company). Singapore permits

100 percent foreign shareholding. New shares can

be issued or existing shares can be transferred

to another person any time after the Singapore

company has been incorporated.

However, at least one director must be a Singapore

resident. A resident is defined as a Singapore

citizen, a Singaporean permanent resident, an in-

principle approval (IPA) Employment Pass holder,

or a person who has been issued an Employment

Pass. This means that a foreigner intending to be

employed by the Singapore company can be the

sole director of that company, providing they obtain

an employment pass and pay taxes in Singapore.

There is no limit on the number of additional local

or foreign directors a Singapore private limited

company can appoint.

Most companies will have at least two directors,

as banks and other financial institutions usually

require two signatories. The sole shareholder and

sole director can be the same person, but non-

shareholders may also be appointed as directors.


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Singapore companies must also:

• Appoint a company secretary, this individual

must be a Singapore resident;

• Maintain a minimum paid-up capital (known as

share capital) of S$1 (US$0.74); and,

• Provide a Singapore address.

Typically, a private limited liability company can be

incorporated in 1-2 days. Company registration is

completed online with the Accounting & Corporate

Regulatory Authority (ACRA).

Company name approval To apply for a company name in Singapore, said

company must propose the name and its principal

activities as identified in the Singapore Standard

Industrial Classification 2015 (SSIC) code.

Directors and shareholders must provide the

following information:

• Name;

• ID number;

• Nationality;

• Residential address;

• Contact number and email address; and,

• Position held.

A company’s name cannot be identical to that of

another entity on the register while certain words

(i.e. bank, finance, law, etc.) in a proposed name

may require the review and approval of the relevant

government authority.

Company registration Following the approval of a company name, an

application to incorporate a company should be

submitted. The application for incorporation is

similar for all types of businesses. A company is

usually incorporated within 15 minutes after the

registration fee is paid. Incorporation will only take

longer – typically an additional 14 to 60 days – if the

application needs to be referred to other authorities

for approval or review.

The company must submit the following

information with the application:

• Name application number or approved company

name;

• Company type;

• Registered office address; and,

• Share capital details.

The required share capital details include:

• Allotment of shares;

• Group shares information;

• Class of shares;

• Memorandum and Articles of Association; and,

• Par t iculars of addit ional directors and

shareholders.

Following successful incorporation, the Company

Registrar will send an official email notification,

which is treated as the official certificate of

incorporation. A business profile containing the

particulars of the new company can also be

obtained online for a small application fee. These

two documents are sufficient in Singapore for all

legal and contractual purposes, including opening

of corporate bank accounts, signing an office lease,

and subscribing to telephone and internet services.

Once the company has been successfully

incorporated and issued a Unique Entity Number

(UEN), the company may begin operations.

PROFESSIONAL SERVICESDezan Shira & Associates has a dedicated tax practice, which covers international tax, transfer pricing, GST, and IIT. To arrange a free consultation, please contact us at [email protected].

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