Double Tax Treaties: What They Are and Why They Matter
Introduction to Double Tax Treaties
Double tax treaties (also known as Double Taxation Agreements/DTAs) are formal arrangements between two countries that aim to prevent individuals and businesses from being taxed twice on the same income. As global mobility and cross-border trade continue to grow, these treaties play an increasingly vital role in simplifying international tax compliance, encouraging foreign investment, and ensuring fair taxation between jurisdictions.
Double tax treaties allocate taxing rights between countries.
For example, a treaty may specify whether income such as dividends, royalties, employment income, pensions, or capital gains should be taxed in the country where the income arises or where the recipient resides, or both, with relief given in the residence country. Treaties often define ‘permanent establishment’ thresholds to determine when a foreign company becomes liable for tax in the other country.
In addition to clarifying who gets to tax what, DTAs provide mechanisms for tax relief. A UK resident earning income in a treaty country might be exempt from tax in the UK on that income or may be eligible to claim a credit for tax paid abroad, depending on the treaty provisions. These agreements typically also include dispute resolution mechanisms and clauses that allow for the exchange of tax information between countries, helping to prevent tax evasion and promote transparency.
The UK currently has over 130 double tax treaties in force, covering most of its major trading partners. These treaties are essential for both expatriates and multinational businesses seeking clarity and consistency in their tax affairs.
UK/India Social Security Agreement
A recent development in international tax cooperation is the UK/India Double Contributions Convention (DCC), which complements the existing tax treaty between the two nations. Signed in 2025 as part of the wider UK/India Free Trade Agreement, the DCC is a social security coordination agreement designed to prevent individuals and their employers from having to contribute to two social security systems at the same time during temporary cross-border assignments.
Under domestic rules, workers posted from the UK to India (and vice versa) could previously become liable for contributions in both countries after the first 52 weeks of their assignment. The DCC aims to eliminate this dual liability for assignments of up to three years.
Once in force, which is expected by mid-2026, the agreement will allow Indian professionals posted to the UK to continue contributing to India’s Employees’ Provident Fund (EPF), provided they obtain a Certificate of Coverage from Indian authorities. In turn, UK-based employees sent to India will remain under the UK’s National Insurance system. After 36 months, local social security obligations resume in the host country from day one.
Importantly, the DCC is limited in scope to contribution liability; it does not affect eligibility for benefits or pension aggregation. It also does not alter immigration or visa rules. However, the financial and administrative relief it offers is significant. For some, the savings on employer contributions could amount to tens of thousands of pounds per employee over the three-year exemption period.
Conclusion
Whether you’re an international assignee, an expat tax advisor, or a business planning overseas expansion, understanding the interaction between double tax treaties and social security agreements like the UK/India DCC is essential.
These instruments reduce complexity and cost, while offering legal clarity for cross-border operations. As more such agreements come into effect, it’s critical to seek up-to-date advice to ensure full compliance and to maximise relief available under treaty provisions. If ETC Tax can help in any way, please get in contact with us.
