What is the difference between double taxation agreement and double taxation?
December 3, 2022 | 120,00 EUR | answered by Isabel Zimmermann
Dear tax advisor,
My name is Eva Neumann and I am currently very confused about the topic of double taxation. I have heard that there are both double taxation agreements and double taxation, but I am unsure of the exact difference between the two terms.
My current situation is as follows: I have income from abroad, as I rent out a property there. Now I am wondering whether I have to pay taxes on this income in Germany and if there could potentially be double taxation involved.
My concerns stem from the fact that I do not fully understand how double taxation works and what impact it could have on my tax burden. I want to ensure that I comply with all relevant tax laws and do not have to pay unnecessary taxes.
Could you please explain to me what the difference between double taxation agreements and double taxation is? Are there possible solutions to avoid or at least reduce double taxation? I would greatly appreciate your support and advice on this matter.
Thank you in advance.
Best regards,
Eva Neumann
Dear Mrs. Neumann,
Thank you for your inquiry regarding the topic of double taxation. It is understandable that you are concerned and want to ensure that you manage your taxes correctly and efficiently. I am happy to assist you in clarifying your questions and informing you about the relevant aspects of double taxation.
Firstly, I would like to explain the difference between a double tax agreement and double taxation. A double tax agreement is an international treaty between two countries aimed at preventing the same income from being taxed in both the residence country and the source country. These agreements determine which country has the right to tax certain incomes and how double taxation can be avoided or minimized.
On the other hand, double taxation occurs when two states claim the right to tax the same income without a relevant agreement to prevent this. This can result in taxpayers having to pay taxes in both countries, leading to an unfair double burden.
In your case, as you have income from abroad, there is a possibility that both Germany and the foreign country have the right to tax this income. To avoid or reduce double taxation, there are various options available. One of them is the tax credit method, where the source country collects taxes and the residence country credits these taxes to avoid double taxation. Another option is the exemption method, where the source country waives taxation and the residence country has the sole right to tax.
It is important to consult with an experienced tax advisor to analyze your individual situation and find the best solution for your specific issue. I am happy to assist you with any further questions and support you in optimizing your tax situation.
Best regards,
Isabel Zimmermann
