UK Double Taxation treaties.
If a company has income from a source in one country and is resident in another, it may be liable to pay tax in both countries under their tax laws. To avoid Double Taxation in this situation, the UK has negotiated Double Taxation treaties with more than 100 other countries. Companies resident in a country with which the UK has a Double Taxation treaty may be able to claim exemption or partial relief from UK tax on certain types of income from UK sources.
How double taxation agreements work
- you pay tax in your country of residence and get an exemption or relief from tax in the country where you have made your income or gain
- you pay tax in the country where you have made your income or gain and get an exemption or relief from tax in the country where you are resident
- tax is deducted in the country where you make your income or gain and you declare this tax as already paid on your tax return for the country where you are resident – the tax already paid is known as ‘withholding tax’
The agreements work in the same way for residents of both countries involved, but which system is in place depends on the individual agreement between those two countries (and can depend on the type of income involved).