How do double taxation agreements affect the taxation of foreign income?
April 10, 2022 | 110,00 EUR | answered by Albrecht Schneider
Dear tax advisor,
My name is Claudia Krause and I have been working for an international company for several years, which allows me to earn a portion of my income abroad. However, recently I have noticed that my income is being taxed both abroad and in Germany, leading to double taxation.
I am concerned about how this double taxation is affecting my financial situation and if there are ways to avoid or at least minimize it. I have heard that there are double taxation agreements that may help, but I am not sure how they work and how I can benefit from them.
Could you please explain to me how double taxation agreements affect the taxation of foreign income? Are there specific agreements that are relevant to my income? And what steps can I take to ensure that I am not unnecessarily double taxed?
Thank you in advance for your help and support.
Best regards,
Claudia Krause
Dear Mrs. Krause,
Thank you for your question regarding double taxation and double taxation agreements. Double taxation occurs when a taxpayer is taxed in both their country of residence and the country where they earn income. This can be a significant burden on your financial situation as you essentially have to pay taxes twice.
To avoid or at least minimize this double taxation, many countries have entered into double taxation agreements (DTAs). These agreements determine which country has the right to tax certain types of income and how double taxation can be avoided. Generally, income from dependent personal services (e.g. salary income) is taxed in the country of residence, while income from independent personal services is taxed in the country of activity.
For the income you earn abroad, it is important to check if Germany has a DTA with the relevant country. In most cases, these agreements specify that the right to tax certain types of income belongs exclusively to the country of residence, or that a credit method is applied to avoid double taxation.
If you find that there is a relevant DTA for your income, make sure you can provide all necessary documents and evidence to ensure the application of the agreement. This may require submitting a residence certificate or a certificate of foreign taxes paid, for example.
It is advisable to seek advice from an experienced tax advisor to ensure you benefit optimally from the provisions of the double taxation agreement. A tax advisor can also help you prepare your tax return in accordance with the agreement's regulations and take advantage of any tax benefits.
I hope this information has been helpful to you. If you have any further questions, please do not hesitate to contact me.
Sincerely,
Albrecht Schneider
