Double taxation treaties.

These are frequently misunderstood. I often hear people say something like: "I pay my tax in the UK and they have a double taxation treaty with Austria so I do not have to pay tax there."

Double taxation treaties are not designed to allow you the tax payer to choose in which regime to pay your tax. They are designed to deal with the situation where a tax payer has a tax liability in two (or more) countries for the same slice of income.

If you have read all of the rest of my UK tax site, you will have realised that, if leave the UK to work for nine months in Germany and then return to the UK, you have a tax liability in the UK and in Germany.

Double taxation treaties then come into play. One country will have first go at your money. In the example above, that country is Germany. They will assess you for income tax on the full amount of money. Let's suppose that, in your nine months, you earn DeM100,000 and the Germans decide that you must pay income tax of DeM40,000. (Remember, the rules for social taxes are different and they are not covered by this.) So, you pay the tax and go back to the UK and fill in your friendly self assessment form. On that form, you declare the DeM100,000 and the tax man assesses you for income tax on the whole amount. He tells you that you own him DeM33,000 for tax. You then show him your nice certificate from the Germans to the effect that you have already paid DeM40,000 and he tells you that all is fine and you owe him nothing.

Now, suppose that you have instead gone and worked in Holland for the same period of time and earned NFl100,000. You make full use of all of the magic allowances for foreign high tech workers and you are pleased to note that, as a result, you only pay NFl25,000 in tax. That's jolly nice but when you return to the UK and you are assessed, you are told that you owe the Inland Revenue NFl33,000. You show them your certificate and they say that's nice, they knock off the twenty five and tell you that you owe them the difference which is NFl8,000.

Well, that's double taxation treaties for you!

Home Go to my home page
UK Tax My main UK overseas tax page