International Double Taxation Agreements: Benefits and How to Avoid Double Taxation

International Double Taxation Agreements (DTAs) are bilateral or multilateral agreements between countries that define what income and assets are subject to taxation in each of the countries participating in the agreement to prevent double taxation of income and capital. The first double taxation agreement was signed between Austria and Hungary in 1899. To date, there are more than 3,000 such agreements in the world. In this article, the international law firm Antwort Law provides an overview of the main aspects of the DTAs and how to use it.

What are the advantages of DTAs?

Avoidance of double taxation and reduction of tax rates: DTAs prevent double taxation of income and capital by determining which country has the right to tax certain incomes, and also establish reduced tax rates for certain types of income such as dividends, interest and royalties, making investments more attractive.

Determining taxing jurisdictions: DTAs establish rules that determine which country has the right to tax certain types of income and assets, helping to avoid the situation where the same income is taxed twice in different countries.

Credits and Exemptions: DTAs often provide mechanisms, such as tax credits or exemptions, that allow taxpayers to reduce the amount of taxes paid in one country by the amount of taxes paid in another.

Arbitration Procedures: Some DTAs include dispute resolution procedures that allow taxpayers to resolve conflicts between tax authorities in different countries.

How to use international double taxation agreements?

Step 1: Check for cross-country DTAs 

Make sure that there is a double tax treaty between your country and the country where you receive the income. This can be done by contacting the tax authorities, ministries of finance or checking official government websites.

Step 2: Study the content of the agreement

Read the agreement carefully to understand what types of income and assets are covered. See the articles on the taxation of dividends, interest, royalties, wages and capital gains and read about the conditions under which tax benefits such as reduced tax rates or tax exemptions are available.

Step 3: Get a tax residency certificate

This document confirms that you are a tax resident in your country and you are entitled to benefits in relation to DTAs, it can be obtained from the tax authority of your country by submitting an appropriate application.

Step 4: Collect and submit the required documents

Prepare all the necessary documents that prove your right to benefits under DTAs and provide these documents to the tax authorities or financial institutions in the country where you receive income in order to take advantage of the benefits provided by DTAs. These can be:

- certificate of tax residency;

- income declarations;

- copies of agreements and contracts;

- Payment documents and bank statements

Example of using DTAs:

Let's say you are a German tax resident and receive dividends from a US company. The FTA between Germany and the USA provides for a reduction in the tax rate on dividends from 30% to 15%. For this you need:

1. Check the existence of the DTAs between Germany and the USA;
2. To study the conditions of taxation of dividends in DTAs;
3. Obtain a certificate of tax residency in Germany;
4. Provide the certificate and other necessary documents to the tax authorities in the USA;

By following these steps, you will be able to effectively use the DTAs and reduce your tax liability, avoiding double taxation, but given the complexity and nuances of the DTAs application, we recommend that you seek help from tax lawyers or consultants. Antwort Law will help you interpret the agreement correctly, prepare documents and avoid mistakes that can lead to denial of benefits or penalties.

Lidia Ivanova

International lawyer
Antwort Law