What is a Double Tax Treaty?
This is an agreement between two countries to prevent international double taxation. The UK has a double tax treaty with many countries (over 110 in total) to try to make sure that individuals and companies do not pay tax twice on the same income.
This may happen when someone goes to work overseas or comes from overseas to work in the UK.
Double tax treaties (or Double Taxation Agreements) specify which country has taxing rights over an individual/company, and, if they both have such rights, which one takes priority. The agreements may set down different rules for different types of income. They may also agree to exempt some income or gains from tax or allow a set-off of tax paid in one country against tax due in the other.
Residency
The treaty will lay down rules as to in which of the countries, the individual/company is resident.
The country where you are deemed resident for tax purposes will probably grant you double taxation relief in the form of either a tax credit for any tax paid abroad or else an exemption for your foreign income so that the tax paid in the foreign country is the final tax on your foreign income.
Note that if the tax in the other country is higher, you will only get relief for the amount of tax due in the country of residence.
Relief
With a treaty in place you can usually claim double tax relief. How you claim depends on where you are resident and whether your foreign income has already been taxed. There are different ways to claim depending on whether you are UK resident or non-UK resident. A UK resident can usually claim Foreign Tax Credit Relief when reporting overseas income in their UK personal tax return.
Please do feel free to get in touch if you have any specific questions in connection with the above.
Farley Kaye FCA
Managing Partner
For more information please contact Farley:
farley.kaye@fkgb.co.uk
052 627 7472
