An overview on Double Tax Agreements (DTAs)

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Different nations around the world follow specific taxation laws that must be carefully observed by their citizens; else, they will face legal consequences. Managing and understanding taxes can be challenging enough but imagine if you’re moving to another country. What are the things that you, as a non-citizen, should know when it comes to paying taxes?


More specifically, if an individual decides to move to another country either for work or to start a business, are they required to answer to their home country’s taxman and again pay taxes in the country in which their income or profit was made? Perhaps everyone can agree that this is inequitable and unfair. This is where double tax agreements (DTAs) come in.


Many countries including the United States make bilateral double taxation agreements with each other. In fact, the U.S. cover income tax treaties with an impressive number of foreign nations. This agreement ensures that alien residents and non-citizens either enjoy tax reduction rates or be exempted from U.S. income taxes on specified items of income they gained within the U.S.


Under this agreement, there are instances in which taxes should be paid in the country of residence but will be exempt in the country in which the gain was made. Other cases however require the opposite, and taxpayers can receive a foreign tax credit in the country where they currently reside as a form of compensation and a proof that tax has already been paid. However, this is only possible if an individual legally declares a non-resident status.


It should be noted that U.S. tax treaties include a “saving clause” to prevent individuals from the partner country who are legal citizens or residents of the U.S. from using this agreement to reduce their U.S. tax liabilities.