DTT
Double Taxation Treaty
DTT — a double taxation treaty between countries that determines where and how cross-border income is taxed.
- What it is
- A DTT — a treaty between countries on avoiding double taxation
- Why
- So that one income is not taxed twice in two countries
- What it determines
- Where and how cross-border income is taxed
- Who it matters to
- Those with income, assets or residence in different countries
- How to use it
- Take the existence of a treaty into account when planning
In plain words
A DTT (double tax treaty) is an international agreement between two countries that determines how income connected with both countries is taxed. Its aim is to prevent the same income being taxed twice: both in the source country (where it arises) and in the country of residence (where the recipient lives).
Such treaties allocate the rights to tax various types of income — dividends, interest, royalties, salaries, gains from the sale of property — between the two countries, often reducing or eliminating tax at source and setting up mechanisms for crediting tax already paid. It is the existence and terms of a DTT between particular countries that largely determine whether a given international structure is advantageous.
For a person with an international life — income, assets, business or residence in different countries — a DTT is a key planning tool. When choosing a country for a holding company or a new residence, for example, the existence of an advantageous treaty with the countries you need can substantially reduce the tax burden. We take the network of tax treaties into account when planning a client’s structure and relocation.
Where tax treaties matter
What matters about a DTT
- A treaty between two countries
- Against double taxation
- International
- Dividends and interest
- Royalties and salaries
- Gains from property
- Reducing withholding tax
- Credit for tax paid
- Allocation of rights
- Income in different countries
- Change of residence
- Holding companies
How to use a DTT
- 01Identify the countries and types of income
- 02Check whether there is a treaty
- 03Assess its terms and reliefs
- 04Build the structure with the DTT in mind
- 05An optimal burden
What you need to know
- A DTT is a treaty on avoiding double taxation
- It prevents one income being taxed twice
- It allocates taxing rights between two countries
- It often reduces or eliminates tax at source
- A key tool of international planning
Common mistakes
- Not checking whether there is a treaty between the countries concerned
- Ignoring the terms of the particular DTT
- Choosing a jurisdiction without regard to tax treaties
- Not completing the paperwork to apply the reliefs
- Assuming the treaty applies automatically, without conditions
What this means for a BRIDGES client
We take the network of double tax treaties into account when planning your international structure and relocation: we choose jurisdictions with advantageous treaties and assess the reliefs and credit mechanisms. That way your cross-border income is taxed once and optimally, not twice in two countries.
Frequently asked questions
01 /What is a DTT?
A double tax treaty — an agreement between two countries determining how income connected with both is taxed, so as to avoid double taxation.
02 /Why are such treaties needed?
So that one income is not taxed twice — both in the source country and in the country of residence. They allocate taxing rights and set up credit mechanisms.
03 /What does a DTT govern?
The taxation of various types of income: dividends, interest, royalties, salaries, gains from the sale of property — often reducing or eliminating tax at source.
04 /Who does this matter to?
Anyone whose income, assets, business or residence is connected with different countries: with holding companies, investments, relocation and cross-border payments.
05 /How does a treaty help in choosing a jurisdiction?
An advantageous DTT with the countries you need can substantially reduce the burden — the tax on dividends, for example. We take the treaty network into account when choosing a structure.
06 /Is the relief applied automatically?
Not always: documents (proof of residence and others) and compliance with conditions are often needed. We help apply treaty reliefs properly.
See also
Read next
This material has undergone editorial review by BRIDGES.
Income or assets in different countries?
We will take the network of tax treaties into account when planning your structure — so that income is taxed once and at the optimal rate.