Posted on: 10th July 2025

Double Tax Agreements: What are They and How Do They Work?

If you live or earn income across borders, chances are you’ve come across the term double taxation .

It’s exactly what it sounds like—paying tax twice on the same income in two different countries. Thankfully, many countries have signed up to something called a Double Tax Agreement (DTA) to prevent this from happening.

So what exactly is a DTA? How do these agreements work, and why do they matter—especially if you're investing abroad, relocating, or applying for residency or citizenship by investment? Let’s break it all down.

What Is a Double Tax Agreement?

A Double Tax Agreement (also called a double taxation treaty) is a legal arrangement between two countries. The main purpose? To stop individuals and companies from being taxed twice on the same income.

These agreements set out the rules for which country gets to tax specific types of income—like salaries, business profits, pensions, or dividends—when a person or business has connections to both.

Most DTAs follow internationally recognised templates, like the OECD Model Tax Convention or the UN Model Convention, but each treaty is negotiated individually, so the details vary from country to country.

Why Are DTAs Important?

Double taxation can be a major burden for global investors, digital nomads, and expats. Imagine paying tax on your rental income in Portugal and again in the UK. Not ideal.

DTAs help by:

• Avoiding double taxation – so you’re not taxed twice on the same income

• Clarifying tax residency – helping determine which country you legally “belong” to for tax purposes

• Encouraging investment and trade – by making cross-border income flows more predictable

• Increasing transparency – as countries share information to prevent tax evasion

How Do DTAs Work?

Each DTA has different clauses, but most include a few key provisions. Here’s what they usually cover:

1. Tax Residency and Tie-Breakers

To decide which country has the right to tax you, the treaty looks at where you reside for tax purposes. But what if both countries consider you a resident?

In that case, tie-breaker rules come into play. These consider factors like where your permanent home is, where you spend most of your time, or even your nationality.

2. Permanent Establishment (PE)

If you run a business abroad, a DTA outlines when your operations become significant enough to be taxed in the other country. This is called having a permanent establishment—like an office, branch, or site where business is regularly carried out.

If you don’t have a PE, most treaties won’t allow the foreign country to tax your business profits.

3. Withholding Tax Rates

Many countries charge a withholding tax on income paid to foreign individuals or companies (like dividends or royalties). DTAs often reduce these rates—sometimes from 30% down to 5% or even zero.

This can make a huge difference for investors receiving income from overseas.

4. Relief from Double Taxation

If you’ve already paid tax on your income abroad, your home country will either:

• Exempt that income from further tax, or

• Give you a tax credit for the foreign tax you’ve paid

This ensures you’re not paying twice on the same money.

5. Limitation of Benefits (LOB) Clauses

To prevent abuse, some treaties include LOB clauses. These restrict treaty benefits to residents with real business or personal ties to the country. In other words, you can’t just set up a shell company in a treaty country and claim tax breaks.

6. Dispute Resolution and Cooperation

If tax authorities in both countries disagree on how the treaty should be applied, there’s usually a Mutual Agreement Procedure (MAP) in place. This helps resolve disputes fairly.

Most treaties also include rules for information sharing to fight tax evasion and improve compliance.

A Real-World Example: India–Oman Treaty Update

In 2025, India and Oman updated their DTA to better reflect modern economic activity.

The new rules clarify how income from self-employment, business, and remote work will be taxed. For example, freelancers and salaried professionals working between both countries now have a clearer picture of where their tax obligations lie.

This update shows how treaties evolve with changing global work patterns—something very relevant in today’s digital and mobile world.

Why DTAs Matter for Investors and Global Citizens

For those considering citizenship or residency by investment, DTAs can offer real peace of mind. Here’s how:

• You avoid being taxed twice when moving or investing abroad

• You may benefit from lower withholding taxes on foreign income

• You gain clarity on your tax residency status

• You can structure your income more efficiently for the long term

• You reduce risk when choosing where to live, invest, or retire

For example, if you're planning to relocate to a Caribbean country with a favourable DTA with the UK or Canada, you might save considerably on tax.

Challenges and Considerations

Of course, DTAs aren’t always perfect.

• Each treaty is different—there’s no one-size-fits-all

• Interpretation can vary by country or tax office

• LOB clauses may block access to benefits if you’re not careful

• The rules around permanent establishment can be confusing

• Treaties are subject to change and updates

That’s why working with qualified tax professionals is so important—especially when relocating or structuring cross-border income.

Looking Ahead: DTAs in a Changing Global Tax Landscape

DTAs are just one part of a bigger picture. International tax is changing rapidly, with initiatives like:

• OECD’s BEPS (Base Erosion and Profit Shifting) measures

• The Common Reporting Standard (CRS) for data sharing

• The Multilateral Instrument (MLI), which updates multiple treaties at once

It’s essential to stay informed and plan proactively—especially if your income or investments span multiple jurisdictions.

Final Thoughts

Double Tax Agreements play a key role in today’s global economy.

For international investors, expats, and those pursuing alternative residency or citizenship, they offer protection, clarity, and financial efficiency.

Whether you’re planning to move abroad, invest overseas, or simply want to protect your wealth—understanding how DTAs work is a smart move. And if you’re unsure, speak with your tax advisor or get in touch with a professional who understands both the legal and strategic sides of global mobility.