There is a common misconception amongst expats and those with financial interests in and overseas that because two countries have a 'double tax treaty' agreement in place, they will just automatically be paying the right tax to the right place.

In an ideal world, this would be true however, it doesn't always work like that in practice.

Double taxation treaties (DTT) are created to protect the UK government’s taxing rights and protect against attempts to avoid or evade tax. They contain provisions for the exchange of information between national taxation authorities.

There are more than 3,000 double taxation treaties worldwide and the UK has the largest network of treaties, covering around 120 countries.

Why Double Taxation Happens

Double taxation occurs when a person is taxed by their country of residence and the country where their income is earned. For instance, if you're a UK citizen working abroad and still considered a UK tax resident, you may be taxed by both the UK and the country you're currently living in. Without proper agreements in place, this could significantly diminish your income.

How Double Taxation Treaties Work

Double taxation treaties clarify which country has taxing rights over your income. The UK has treaties with 130 nations, and these agreements vary in detail. They typically outline:

• Tax Residency: Defining which country is your primary tax jurisdiction.
• Exemptions: Providing exemptions or reduced tax rates for certain types of income like dividends, interest, or pensions.
• Relief Mechanisms: Offering credit or exemption methods to prevent double taxation.

For example, if you're a UK citizen working in a country with a DTT with the UK, you might pay tax only in the host country or receive a tax credit against your UK tax liability.

What Should You Do?

1. Check Your Tax Status: Confirm your tax residency status with HMRC and local tax authorities.
2. Understand the Treaty: Familiarise yourself with the specific DTT between the UK and your current country of residence.
3. Consult Us: Given the complexities, seeking professional advice is essential to understand your obligations and entitlements.

Double taxation treaties are vital for reducing the financial burden of being taxed in two jurisdictions. By understanding these treaties and planning ahead, you can better manage your global tax liabilities and focus on thriving wherever you reside.

UK tax clarity for global clients - Pay the right tax in the right place at the right time.