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What is a double taxation agreement?

What is a double taxation agreement?

Double Taxation Agreements are International Treaties signed by two States in order to avoid double taxation

What is a double taxation agreement?

Double taxation agreements are international treaties that establish the operation and rules for not having to pay the same tax twice in the same period, when income is subject to the tax system of one country due to it having been obtained in that country, but it has been obtained by a citizen of another country and vice versa.

To clarify the situation, here are some examples when double taxation can occur:

  • If you live in one EU country and work in another.
  • If you are displaced for work abroad for a short period of time.
  • If you live and look for work abroad and have transferred your unemployment benefits abroad from your home country.
  • If you have retired in one country and receive a pension in another.

Fortunately, most countries have double taxation agreements to avoid paying tax twice; so anyone who is a resident or not and has income, earnings or assets in more than one country, should check if there is an agreement between the relevant countries, and how it is applied, in order to understand the tax obligations that they have in each one of them.

In this way, double taxation agreements clarify how we should pay our taxes, without this involving a larger payment than if we do so as a resident in the country that has generated that revenue or income.

Types of double taxation agreements

  • Bilateral agreements:  These are signed by two countries in order to avoid double taxation and prevent tax evasion. Mainly, they affect income taxes (residents and non-residents) and wealth, as well as the regulations on information with respect to income earned abroad. They also prevent money laundering in tax havens.
  • Multilateral agreements: These are signed with multinational organizations such as the European Union, which essentially affect taxes on commercial transactions.
  • Agreements signed with international organizations:  These are not purely double taxation agreements, but include applicable tax regulations.

If you have displaced workers or have retired in Spain and need specific advice about taxation, here at GD Global Mobility we can provide all the help you need to analyze bilateral double taxation agreements.

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