World Tax Treaties: how to prevent double taxation

A tax treaty is a bilateral agreement made by two countries to resolve problems involving double taxation of passive and active income. Tax treaties generally set the amount of tax that a country can apply to a taxpayer's income, capital, estate, and wealth, on individuals and corporates.

When are they applied?

Depending on the double tax agreement, you may have to pay taxes in your country of work as well as in your country of residence. For instance:

  • If you represent an employee, the country where you work will, in most cases, tax the income you earn there.
  • If you are self-employed and registered as such in the country where you live but offer services across the border, you will habitually have to pay income tax in the country where you provide services

Definitely, if you live in one EU country but earn all or almost all of your income in another and pay tax there, the country where you earn your income should treat you as it would treat a resident. That is to say, it should give you the same tax reliefs and tax exemptions and any other tax benefits available to residents, such as personal allowances, or the possibility to fill a joint tax return with your spouse.

How could I know if I must pay double taxation?

As said in advance, you will always pay tax in the host country if you work there as an employee or self-employed. However, even in the following situations, you may have to pay taxes in the other Country:

  • In case you receive a benefit of unemployment from the other Country
  • You are posted abroad for a temporary assignment
  • You are living and seeking work abroad and have transferred unemployment benefits or parental benefit from your home country
  • You have retired to one country and receive a pension from another.

Double Tax Agreements

Fortunately, most countries have double tax agreements. These agreements usually spare you from double taxation.

In fact, under many bilateral tax agreements, the amount of tax you paid in the country where you work will be offset against the tax you owe in your country of residence.

In other cases, the income earned in the country where you work might be taxable only in that country and exempt from tax in your country of residence.

We should remark that the tax rates in the two countries involved will most likely be different. If the tax rate in the country where you work is higher, that is the final rate you will pay - even if the tax paid in that country is offset against the tax due in your country of residence, or if your country of residence exempts you from any further tax.

Claim your tax back

In order to claim relief from double taxation, you may need to prove where you are resident and that you have already paid taxes on your income. Check with the tax authorities what proof and which documents you need to submit.

Furthermore, if you find yourself in trouble, you can always contact us.

We assure you a FREE professional advice in addition to a FREE calculation of your income in both the Countries.

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Try to recalculate how much tax you paid, you may, in addition, claim the right to a tax refund.

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