What is a double taxation agreement
Double taxation is the placement of two or more taxes on the same income, assets or financial transactions. Double taxation agreements are made between two states, with their purpose being to protect the taxpayer against the risk of an individual or corporate entity being taxed twice.
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Double taxation agreement explained
A Double Taxation Agreement is entered into between two countries, with its purpose being to eliminate the chance of one income being fully taxed in both countries. This may occur when, for example, a natural person or legal entity is a resident in one country, but has income or gains arising in another. It can also occur when an individual or company is a tax resident in two countries, meaning that they are subject to the tax laws of each country.
A Double Taxation Treaty allocates the taxing right over items of income and gains to one of the countries. Double taxation agreements are therefore negotiations between the two countries, where a decision is made on which jurisdiction will have the first or sole right to tax specific types of income.
Double taxation agreements are advantageous because they enable the tax payer to reduce the amount of tax withheld from interest, dividends and so on paid by a resident of one country to residents of the other country.
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