Recently, Bhutanese Finance Minister, Lyonpo Wangdi Norbum signed the Double Taxation Avoidance Agreement (DTAA) with the Indian Finance Minister, P. Chidambaram. This will facilitate the bilateral exchange of banking information and help monitor tax evasion. This is for the first time that Bhutan has signed a DTAA with any other country. Both ministers are confident that the agreement will provide tax stability to the Indian and Bhutanese residents and facilitate mutual economic cooperation. In addition, the DTAA will stimulate the flow of investment, technology, and services between the two countries.
According to the pact, business profits will only be taxable in the country of its origin. Dividends, interest, royalty income and fees for technical or professional services will be taxed in the country of residence and in the country of source of income. Furthermore, the pact entails that the maximum rate of tax in the source country will not exceed 10 per cent while the capital gains from the sale of shares will be taxable in the country of source. India and Bhutan enjoy healthy relations where the DTAA pact will bridge the two neighbors closer to create bilateral trade opportunities, which will benefit the region as well.