Double Tax Treaties in the United Kingdom

The prospect of having to pay for something twice is not an appealing one to many. If possible, most people would avoid paying more than they should. The same can be inferred about paying taxes, given we would not want to pay them twice!

Territorial double taxation occurs when commercial trade and transactions exist between two parties of different nationalities. It necessitates the payment of taxes for the same income to both countries. However, in the spirit of encouraging international trade, double tax treaties were established by many countries. These treaties allow tax residents to pay their taxes for the same income only once.

You may be pleased that the United Kingdom has one of the largest treaty networks for double taxation. Over 130 countries have signed double tax treaties with the United Kingdom, and the coverage is substantially vast. This article will explore the essentials of double tax treaties and how you can benefit from them.

 

What is a Double Tax Treaty?

In simplest terms, a double tax treaty is a bilateral agreement between two countries about taxation rules. It is also known as the “Double Tax Agreement” or “DTA.” This agreement is meant to avoid or stop double taxation on the same income. With this agreement, both countries will understand what to do with taxes derived from international trade.

Double tax treaties serve an essential purpose, to make international trade and commerce less “taxing” and more appealing. It creates a conducive global trade environment for investors as trade is inherently good for all parties involved. It also gives the impression that international trade need not be more tax-cost than local businesses.

This website contains a comprehensive list (by country) of double-tax treaties signed by the United Kingdom. These treaties can encompass the taxing arrangements of the taxpayer’s income (active and passive), wealth, estate, or capital. The specific terms and arrangements can vary between countries.

 

How Do You Claim Double Tax Relief?

This article will only highlight the most basic of procedures. Note that the specific rules depend on which country you are dealing with and other details. You may want to consult with legal and tax experts when applying for double tax relief. You may also contact the HMRC to find out more.

The first step would be to refer to the specific double tax treaty based on the country of interest. This is the country where you derive foreign income from. Examine the terms, preferably with the assistance of experts, and determine if you are eligible. The document will also detail the types of taxes, definitions, and other crucial details.

You should, after researching and consulting, be able to establish the following information. The country you pay tax in, the country you apply for relief, and the amount of relief you are entitled to. Reliefs can be partial or full or refunds (if you have already paid). Depending on the country, tax rates and tax relief amounts may differ.

Once all the details are ascertained, you may start filling in a “Claim Form.” This claim form will be submitted to the foreign tax authority’s office, confirming your eligibility. These forms are country-specific and have a standard (individual) and company variant. The Claim Form can be found here.

 

Key Takeaway

By leveraging the flexibilities in these treaties, you can expect substantial double tax relief, saving you time and money. Given the terms and procedures differ based on countries and other factors, we highly encourage you to seek professional assistance. You may contact the HMRC, tax experts, or consult legal authorities to ensure tax compliance.