Updated
GL-D-04
Glossary · Taxes and residency
Double tax treaty - the agreement that decides where tax is paid
DTT — a double taxation treaty between countries that determines where and how cross-border income is taxed.
01 / In 30 seconds
The short answer
- 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
02 / In plain words
What DTT means
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.
A case from practice
An entrepreneur is structuring a holding company to receive dividends from several countries. We choose a jurisdiction with an advantageous network of double tax treaties that reduces withholding tax on the dividends. That way the profit is taxed once and at a reduced rate, not twice.
Where tax treaties matter
- International tax planning
- Choosing a country for a holding company
- Planning a change of residence
- Dividends, interest, royalties between countries
- Reducing withholding tax
- Credit for tax paid abroad
03 / What it covers
What matters about a DTT
What it is
- A treaty between two countries
- Against double taxation
- International
What it governs
- Dividends and interest
- Royalties and salaries
- Gains from property
Mechanisms
- Reducing withholding tax
- Credit for tax paid
- Allocation of rights
Who it matters to
- Income in different countries
- Change of residence
- Holding companies
04 / How it works
How to use a DTT
Identify the countries and types of income
Where the income comes from, what kind it is and where you live.
Check whether there is a treaty
Whether a treaty is in force between the countries.
Assess its terms and reliefs
Withholding rates, conditions and limits on benefits.
Build the structure with the DTT in mind
The holding, residence and documents to fit the treaty.
An optimal burden
Income is taxed once, at a reduced rate.
05 / Key facts
What you need to know
01What it is
An agreement between two countries
It sets out how income linked to both countries is taxed, so tax is not paid twice.
02What it divides
Taxing rights
Dividends, interest, royalties, salaries, gains on property - who taxes what, and how much.
03What it gives
Lower withholding and a credit
It often reduces or removes withholding tax and lets you credit tax already paid.
04Conditions
It does not apply automatically
You need proof of residence, forms and compliance with the specific treaty's conditions.
Common mistakes
Not checking whether a treaty exists
Find the treaty in force between the relevant countries before the deal.
Assuming the treaty applies automatically
Prepare a residence certificate and the payer's forms.
Choosing a jurisdiction without regard to its treaty network
Compare the treaty network of the holding or new residence country.
06 / Expert advice
How to prepare in advance
In international planning, check whether there are tax treaties between the countries concerned and on what terms: is there a DTT, what reliefs apply to dividends, interest and royalties, what credit mechanisms exist. Jurisdictions for a holding company or residence are chosen with the treaty network in mind. The paperwork to apply the reliefs is completed. Then the structure lawfully reduces the burden rather than creating double tax.
What we do for you. 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.
Dmitry NagyTax consultant, international taxation and compliance (ex-Big4)
07 / Questions
Frequently asked questions
A double tax treaty — an agreement between two countries determining how income connected with both is taxed, so as to avoid double taxation.
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.
The taxation of various types of income: dividends, interest, royalties, salaries, gains from the sale of property — often reducing or eliminating tax at source.
Anyone whose income, assets, business or residence is connected with different countries: with holding companies, investments, relocation and cross-border payments.
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.
Not always: documents (proof of residence and others) and compliance with conditions are often needed. We help apply treaty reliefs properly.
INITIAL ASSESSMENT
Tell us what outcome your family needs
We will design a solution for your case, choose the country and the right status, and take the whole process through to the result.
