Double taxation

Double taxation means that taxpayer has to pay taxes on the same income in two countries, for example, in the country of residence and the country of one’s citizenship.

The issue of double taxation is faced by citizens who have moved to a permanent place of residence in another country, as well as companies that receive income in two countries.

In order to resolve the issue of double taxation, countries sign relevant conventions (or agreements) on the avoidance of double taxation (hereinafter – “DTT”). Here are links on DTT of Germany, Ireland, Austria, Switzerland, USA, UK.

The content of conventions between different countries can vary greatly, while the structure of the conventions is often similar.

The main models of taxation according to the DTTs can be the following:

Income is taxed in only one country.
Income is taxed in both countries, but in the “second” country the amount of tax is reduced by the amount of tax paid in the “first” country. At the same time, which country is the “first” and which is the “second” is determined in the relevant article of the agreement between the countries.
Income is taxed in both countries, but in the “second” country the amount of tax cannot exceed a certain rate.
Income is taxed in both countries.

DTT have an article that defines the list of taxes to which such an treaty applies. They are usually listed in Art. 2 of the treaty. Social security taxes and duties a well as municipal taxes not included in this list do not get double taxation preferences; they will have to be paid (with rare exceptions).

Separate articles of the double taxation agreement define the taxation procedure for certain types of income (income from immovable property, business profits, dividends, interest, royalties, etc.). Accordingly, each separate article regulates the taxation of a particular type of income: in which country and how it is taxed, whether the tax paid in one country is applied when taxed in another country.

If separate articles do not define the procedure for taxing a particular type of income, or, according to such an article, double taxation is not excluded, then a special article (usually No. 23) of the agreement is applied, which is called “Elimination (also: avoiding) double taxation”. It also determines how a particular income is taxed.

Accordingly, in order to apply the provisions of the double tax treaty, the taxpayer must submit to the tax authorities a certificate of tax residency in another state and / or a tax return confirming the payment of relevant taxes in another state.

For professional resolution of issues with specific situations, we strongly recommend contacting tax lawyers and tax consultants.

Examples of the work of our lawyers on the issue of double taxation :

Protected from double taxation

We also offer the following legal advice and sample documents for reading:

How IT-freelancers work in Ukraine (legal issues)

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Filling (annual) information about beneficial owner of Ukrainian companies

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