Double Tax Treaties

Introducing Double Tax Treaties

We are seeing an increasing number of clients coming to us with international tax issues. Such clients range from the more complex individuals who may have residence in one country but have business interests, investments dotted over the world and travel on a regular basis, to those who may simply work from one country whilst being employed by a company resident in another. There may be cross-border tax issues to consider when working or investing internationally, and here we will answer the burning queries regarding double taxation treaties.

What are Double Tax Treaties and when are they used?

The UK has double taxation treaties with many countries which seek to allocate taxation rights between the country from which the income or gains originate and the country of residence. 

You should be considering such agreements in the following two scenarios:

• If you are resident in two countries at the same time; or 
• Are resident in a country that taxes your worldwide income, and you have income and gains from another (and that country also taxes that income on the basis that it is sourced there). In these two scenarios, you may be liable to tax on the same income in both countries. 

Double tax treaties generally tend to follow the same format and may all look the same or very similar however, they are not all identical and care should be taken in determining how treaty provisions may apply to each individual.

Why are Double Tax Treaties important?

Double taxation treaties can be helpful in ensuring that the same income and gains are not taxed twice or if such income is taxed twice, tax relief is available for foreign taxes paid, therefore avoiding double taxation.

Such agreements either override the domestic tax law in each jurisdiction or alternatively may allow for a credit of tax paid in one country to be offset against tax due in another.

I am working overseas under a UK contract – do I still need to consider this?

If you have a UK based employment contract but you are resident overseas and do not spend any time working in the UK, then you may be eligible for relief from UK taxation. This relief is normally given by way of an ‘NT’ coding notice by HMRC and applied to your salaried payments. As above, all treaties are different and if you are unsure of your position if you receive UK employment income but spend time overseas, you should seek professional advice.  

What if there is no Double Tax Treaty in place?

While the UK has a large treaty network (more than 100 countries), there are some countries with which the UK does not have a double tax treaty in place. In such situations and where the individual is UK resident, the UK will often allow relief for taxes suffered on any income received in the ‘host country’, eliminating any double taxation. 

ETC Tax have extensive experience advising individuals on the impact and relevance of double taxation treaties and the tax return reporting requirements which are required when claiming relief under a treaty. If you have any queries or would like specific advice on your personal tax position, please do not hesitate to get in touch.