What Is A Double Taxation Treaty?
Computing your income tax liabilities and filing on time the required tax forms for your specific tax classification is just more than ordinary to handle.
How could you cope having more in mind considering the basics of taxation and the different types of applicable tax treaties?
The countless tax terminologies can really bring about a lot of confusion and eventually cause you to totally miss out the important details. Meanwhile, this does not let you out of the burden of being a good citizen aware of the various laws and the features of dual tax treaties.
Fundamentally, these dual tax treaties are concessions between your country, and that of another, which also is bound by the treaty due to some act attributable to both. The Revenue booklet IR20 provides a list of all the states or countries that are considered as members. Essentially, dual tax treaties shield you from being taxed by more than one country for the same purpose.
For instance, these treaties prevent you from being held liable by both countries for taxes on your pension, which must only be paid in the country of your origin. At present, more than 2,500 dual tax treaties are in effect between different states, having the United Kingdom with the widest group covering 100 countries. If one is aware of an existing dual tax treaty between his home country and his present state of residence, he must immediately notify the authorities in the country where he resides to be able to benefit from receiving his pension to be paid in gross.
How Do Double Tax Treaties Work?
Dual tax treaties promote fairness in transactions if one is involved in cross-border dealings. These avoid issues of tax discrimination or undue preference that may be perceived if one has investments or profit undertaking overseas. Besides, the treaties also provide means for safeguarding one’s properties overseas in the same way that it thwarts any attempt of tax evasion, which are considered illegal, in one’s country of origin.
Also, these dual tax treaties encourage development and cultivation of trade and commerce among the citizens of member states as they become aware that their individual rights are secured. You can verify from the HMRC website the updated list of countries in which have dual tax treaties with UK. You can also easily obtain a copy of the Double Taxation conventions from the UK Legislation website.
The treaty made a clear stipulation on the two exceptions concerning the threshold on taxing dividends from the states bound by it. It is clearly provided that the source country taxation will not apply on corporate dividends, when the receiver of the dividend is an entity having at least 80 percent voting power in the entity which distributes the dividend. In addition to this, that entity must comply with the specific terms and conditions regulating holding and listing. For non-portfolio dividends, unrelated shareholdings of the company in the amount excessive of 10 percent shall have a fixed tax limit of 5 percent.
It is highly advised by revenue officers that everyone must seek guidance from a qualified tax specialist knowledgeable of these various treaties. The HMRC also provides a hotline for those who need advice on the mechanics of the treaties.