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Double Taxation Agreement
A treaty between two countries intended to prevent the same income from being taxed twice, once in each country, for a person with ties to both.
A Double Taxation Agreement (DTA), also called a tax treaty, is a bilateral agreement between two countries intended to prevent the same income or gain from being taxed twice — once in each country — for a person or entity with genuine tax ties to both.
These agreements typically specify which country has primary taxing rights over specific income types and provide a mechanism (commonly a foreign tax credit, see Kaavon's "Foreign Tax Credit" glossary definition) for the other country to reduce or eliminate the resulting double taxation.
Examples
- A Double Taxation Agreement between two countries might specify that capital gains are taxed only in the taxpayer's country of residence, not in both.
- Not every pair of countries has a Double Taxation Agreement with each other, which can leave a genuine double-taxation risk for someone with ties to both.