What is a Double Tax Treaty?
A Double Tax Treaty (DTT), also known as a Double Taxation Avoidance Agreement (DTAA), is a bilateral agreement between two countries designed to prevent the same income from being taxed in both jurisdictions. These treaties aim to promote and facilitate cross-border trade and investment by reducing the tax burden on individuals and businesses operating in more than one country.
Double Tax Treaties typically outline the taxing rights of each country on various forms of income such as dividends, interest, royalties, and employment income. They establish rules for determining the residency of taxpayers and often include provisions for the elimination or reduction of withholding taxes on payments made between countries.
The primary goals of a DTT include:
- Elimination of double taxation on income
- Providing clarity and certainty regarding tax obligations
- Encouraging foreign investment and economic cooperation
- Preventing tax evasion and cross-border tax avoidance
In summary, Double Tax Treaties play a crucial role in the global tax landscape, benefiting governments and taxpayers by fostering international trade and investment while ensuring fair taxation practices.