India today signed Double Taxation Avoidance Agreement (DTAA) with Latvia to prevent income tax evasion by entities in both the countries, a move that is also expected to increase economic cooperation.

Latvia is the third Baltic country with which DTAA has been signed by India. The pacts have already come into force with Lithuania and Estonia.

DTAA provides that business profits will be taxable in the source country if the activities of an enterprise constitute a permanent establishment (PE) there, an official statement said.

The agreement with the European nation provides for fixed place PE, building site, construction or assembly PE, Off-shore exploration PE and agency PE, it said.

Dividends, interest and royalties & fees for technical services income will be taxed both in the country of residence and in the country of source, it said.

The low level of withholding rates of taxation for dividend, interest and royalties and fees for technical services (10 per cent) will promote greater investments, flow of technology and technical services between the two countries, the statement added.

The agreement will provide tax stability to the residents of India and Latvia and will facilitate mutual economic cooperation between the two, it said.

The pact was signed here by External Affairs Minister Salman Khurshid and Edgars Rinkevics, Minister of Foreign Affairs of Latvia.