DTAA Bangladesh – Double Tax Avoidance Agreement serves as a treaty between two nations, aimed at enhancing a country’s demand as an investment destination and facilitating relief for foreign investors from the burden of multiple tax payments. Double Taxation Avoidance Agreement (DTAA) is designed to enable taxpayers to prevent the imposition of taxes on their income in both the source country and the residence country. This agreement aims to eliminate the occurrence of double taxation for individuals or entities engaged in cross-border economic activities.
It is important to note that DTAA does not imply total tax exemption for foreign investments; rather, it allows them to avoid higher tax liabilities in both participating countries. Additionally, DTAA plays a role in minimizing instances of tax evasion.
Why DTAA arise under taxation system ?
The necessity for Double Taxation Avoidance Agreements (DTAA) arises from the imbalance in taxing global income for individuals/ entities. When engaging in business activities in a foreign country, individuals/entities may find themselves subjected to income taxes in both the country where the income is generated and the country of their citizenship or residence. For example, if someone relocates from Bangladesh to Canada while maintaining income sources such as interest from deposits in Bangladesh, they may be liable for taxation on interest income in both Bangladesh and Canada, based on their overall global earnings. This situation could result in double taxation (both in Bangladesh & in Canada) on the same income. DTAA serves as a valuable mechanism for taxpayers to mitigate tax liabilities in such instances.
Benefits of DTAA
There are lots of benefits associated with DTAA for taxpayers. The basic benefit includes not having to pay double taxes on the same income. Apart from this, some other benefits DTAA have:
- Lower Withholding Tax (Tax Deduction at Source or TDS);
- Tax credits;
- Exemption from taxes;
- Minimize the opportunity for tax evasion;
- Promotion of cross-border transactions;
- Facilitation of foreign trade;
- Enhanced transparency;
How DTAA works
To illustrate how DTAA functions, consider the following example. Suppose you are a resident of Bangladesh who has invested in a company based in the United States (US stocks). When you receive dividends or any income from these investments, it may be subject to taxation in both Bangladesh and the United States. However, if Bangladesh and the US have a DTAA in place, you would not be required to pay taxes twice on the same income. Instead, the income earned from the US would be taxed in either Bangladesh or the US, depending on the specific terms outlined in the DTAA agreement. This mechanism helps prevent the burden of double taxation for individuals/ entities engaged in international financial activities.
What are the Methods of DTAA?
Double Taxation Avoidance Agreements (DTAAs) offer relief from double taxation using two main approaches:
Exemption Method
In this approach, income taxed in one country is not subject to taxation in the other country. The taxpayer is exclusively taxed in their country of residence, while the source country allows an exemption on income earned within its jurisdiction. For instance, if a UK resident earns income in Bangladesh, they would be taxed solely in the Bangladesh. However, if taxes are also paid on that income in the UK, they can seek an exemption in Bangladesh in accordance with the Double Taxation Avoidance Agreement (DTAA) between the two nations.
Tax Credit Method
In this approach, income taxed in one country is eligible to be claimed as a credit against the tax liability in the other country. The taxpayer is liable to taxation in both countries but can offset the taxes paid in one against the tax obligation in the other. For example, a Bangladeshi resident earning income in the US and paying taxes on that income in the US can utilize a credit for the US tax paid to offset their Bangladesh tax liability, in accordance with the Double Taxation Avoidance Agreement (DTAA) between the two countries.
The selection of the appropriate method depends on the specific provisions outlined in the relevant Double Taxation Avoidance Agreement (DTAA), the characteristics of the income, the tax regulations of both countries involved, and the residency status of the individual.
Area of DTAA
Double Taxation Avoidance Agreements (DTAAs) encompass various types of income, including but not limited to-
- Income from employment;
- Income from immovable property;
- Business profits;
- Dividends;
- International shipping and air transport;
- Interest;
- Personal services (both dependent and independent);
- Directors’ fees and remuneration of top-level managerial officials;
- Artistes and sports persons;
- Pensions;
- government service;
- Professors, teachers and research scholars;
- Students and trainees;
- Other income;
- Royalties;
- Technical services;
- Capital gains; and many more
DTAA agreements establish clear guidelines regarding which country has the authority to impose taxes on specific categories of income. Generally, the country where the income is generated retains the primary right to levy taxes on that income. However, the country of residency may also have the right to impose taxes, often at a reduced rate. This allocation of taxing rights helps prevent double taxation and provides a framework for the fair distribution of tax responsibilities between the involved nations.
DTAA Bangladesh - Rates applicable
The Double Tax Avoidance Agreement (DTAA) signed by Bangladesh with various countries establishes predetermined rates at which taxes must be deducted on income paid to residents of those countries. In practical terms, when foreign individuals or entities earn income in Bangladesh, the applicable Tax Deducted at Source (TDS) is determined by the rates specified in the relevant Double Tax Avoidance Agreement with the respective country.
DTAA under Income Tax Act 2023
Section 244 of the Income Tax Act, 2023 in Bangladesh allows the government the authority to engage in agreements with the governments of other countries. These agreements aim to prevent double taxation and mitigate fiscal evasion concerning taxes on income as per the provisions of the Income Tax Act and the corresponding laws of the other country involved. The government is empowered to make necessary provisions for implementing these agreements, and such provisions can be announced through an official Gazette notification. Utilizing this authority, the Government of Bangladesh has entered into Double Taxation Avoidance Agreements (DTAA) with 42 different countries.
List of DTAA Bangladesh and other countries
| SL | Date of Agreemeent | Year | SRO Number | Country | Download |
|---|---|---|---|---|---|
| 1 | 14-01-2024 | 2024 | SRO No. 11-Law/Income Tax/2024 | Hong Kong | Download |
| 2 | 12-02-2023 | 2023 | SRO No. 40-Law/Income Tax/2023 | Iran | Download |
| 3 | 19-06-2022 | 2022 | SRO No. 190-Law/Income Tax/2022 | Maldives | Download |
| 4 | 27-05-2021 | 2021 | SRO No. 139-Law/Income Tax/2021 | Morocco | Download |
| 5 | 10-11-2020 | 2020 | SRO No. 304-Law/Income Tax/2020 | Cez Republic | Download |
| 6 | 20-02-2020 | 2020 | SRO No. 56-Law/2020 | Bhutan | Download |
| 7 | 20-02-2020 | 2020 | SRO No. 57-Law/2020 | Nepal | Download |
| 8 | 24-12-2018 | 2018 | SRO No. 376-Law/2018 | Kuwait | Download |
| 9 | 09-10-2017 | 2017 | SRO No. 301-Law/2017 | Bahrain | Download |
| 10 | 08-07-2014 | 2014 | SRO No. 189-Law/2014 | Belarus | Download |
| 11 | 18-10-2012 | 2012 | SRO No. 358-Law/2012 | Mayanmar | Download |
| 12 | 05-09-2012 | 2012 | SRO No. 313-Law/2012 | UAE | Download |
| 13 | 09-05-2012 | 2012 | SRO No. 122-Law/2012 | Mauritius | Download |
| 14 | 15-04-2012 | 2012 | SRO No. 103-Law/2012 | Saudi Arabia | Download |
| 15 | 23-02-2010 | 2010 | SRO No. 52-Law/2010 | Switzerland | Download |
| 16 | 02-02-2009 | 2009 | SRO No. 16-Law/2009 | Oman | Download |
| 17 | 10-05-2007 | 2007 | SRO No. 71-Law/2007 | USA | Download |
| 18 | 26-04-2007 | 2007 | SRO No. 60-Law/2007 | Indonesia | Download |
| 19 | 12-02-2006 | 2006 | SRO No. 20-Law/2006 | Norway | Download |
| 20 | 31-10-2005 | 2005 | SRO No. 308/Law/2005 | Turkey | Download |
| 21 | 18-10-2004 | 2004 | SRO No. 301-Law/2004 | Vietnam | Download |
| 22 | 04-03-2004 | 2004 | SRO No. 56-Law/2004 | Philippians | Download |
| 23 | 03-03-1999 | 1999 | SRO No. 39/Law/99 | Poland | Download |
| 24 | 07-09-1998 | 1998 | SRO No. 222-Law/98 | Thailand | Download |
| 25 | 14-01-1998 | 1998 | SRO No. 11-Law/98 | Bengium | Download |
| 26 | 13-05-1997 | 1997 | SRO No. 114-Law/97 | China | Download |
| 27 | 17-03-1997 | 1997 | SRO No. 72-Law/97 | Denmark | Download |
| 28 | 12-03-1997 | 1997 | SRO No. 63-Law/97 | Italy | Download |
| 29 | 14-09-1994 | 1994 | SRO No. 267-Law/94 | Netherlands | Download |
| 30 | 01-01-1994 | 1994 | SRO No. 1-Law/94 | Germany | Download |
| 31 | 27-02-1993 | 1993 | SRO No. 45-Law/93 | India | Download |
| 32 | 06-08-1991 | 1991 | SRO No. 235-Law/91 | Japan | Download |
| 33 | 15-02-1990 | 1990 | SRO No. 67-Law/90 | Malaysia | Download |
| 34 | 04-01-1989 | 1989 | SRO No. 2-Law/89 | France | Download |
| 35 | 10-12-1988 | 1988 | SRO No. 365-Law/88 | Sri Lanka | Download |
| 36 | 23-11-1988 | 1988 | SRO No. 348-Law/88 | Romania | Download |
| 37 | 11-07-1988 | 1988 | SRO No. 221-Law/88 | Pakistan | Download |
| 38 | 06-06-1985 | 1985 | SRO No. 247-L/85 | Canada | Download |
| 39 | 02-10-1984 | 1984 | SRO No. 433-L/84 | South Korea | Download |
| 40 | 19-10-1983 | 1983 | SRO No. 382-L/83 | Sweden | Download |
| 41 | 21-04-1982 | 1982 | SRO No. 124-L/82 | Singapore | Download |
| 42 | 08-07-1980 | 1980 | SRO No. 227-L/80 | UK | Download |
DTAA provision when making payments to non-residents
Generally, tax deduction is applicable at the rates specified in Section 119 of the Income Tax Act 2023 when making payments to non-residents. According to Section 119(2) of the Income Tax Act 2023, in the case of payments to a non-resident eligible for tax benefits in Bangladesh under any Double Taxation Avoidance Agreement (DTAA), either no tax is deducted from the payment, or tax is deducted at a reduced rate compared to the rates prescribed in Section 119 of the Income Tax Act 2023.
However, such tax benefits (non-deduction or lower-deduction) triggered by DTAA are not automatic; instead, the entity must obtain a certificate from the National Board of Revenue (NBR). It is important to note that filing an application with the NBR is a prerequisite for getting such a certificate. The NBR possesses the exclusive authority to issue certificates after a meticulous examination of the relevant DTAA and the specific payment under consideration.
Conclusion
DTAA Bangladesh – Currently, Bangladesh has Double Taxation Avoidance Agreements (DTAA) with 42 different countries. These agreements primarily aim to mitigate instances of double taxation arising from cross-border transactions.
DTAA Bangladesh - Source/ Reference:
- Income Tax Act 2023
- Bangladesh Gazette
- National Board of Revenue (NBR)
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