What is a Double Taxation Agreement?
A Double Taxation Agreement (DTA) is entered into between two countries to eliminate the possibility that the same income or gains might be fully taxed in both. This may happen where a natural person or legal entity is resident in one of the countries and has income or gains arising in the other. A DTA allocates the taxing right over items of income and gains to one or other of the countries. Where, however, certain items remain taxable in both, the DTA will generally provide that the country of residence of the taxpayer will either exempt the income or gains from further taxation or, alternatively, give a credit against its tax for the tax paid in the other country.
A double taxation agreement is an arrangement between the UK and another country, which aims to prevent, or give relief for, double taxation. It provides that income will be taxed in one country only or, if taxed in both, that one country will allow credit for the tax paid in the other (‘tax credit relief’). Tax credit relief cannot exceed the amount of UK tax which can be attributed to the overseas income. For example, if you have 100 of overseas income on which you have paid foreign tax of 20, your liability to UK tax on the 100 would be reduced by 20 or, if less, by the amount of UK tax chargeable on that overseas income. There is a list of the countries with which the UK has double taxation agreements in booklet IR 20 ‘Residents and non-residents – liability to tax in the United Kingdom’. You can get details of any agreement which might affect you from a Tax Enquiry Centre, your UK Tax Office or the overseas tax authority. What other relief is available? If the UK does not have a d
