Avoidance of Double Taxation refers to the process of ensuring that individuals and businesses do not pay tax on the same income in multiple jurisdictions. This issue often arises for entities that operate across borders, where income can be subject to taxation in both the country of origin and the country of residence.
To mitigate this, countries enter into Double Taxation Agreements (DTAs), which establish rules for how income, dividends, royalties, and other forms of earnings will be taxed. These agreements typically give tax credits or exemptions to taxpayers, allowing them to offset the tax paid in one jurisdiction against their tax liabilities in another.
The relevance of Avoidance of Double Taxation in finance and payments is significant. It promotes international investment and trade by providing greater certainty and reducing the overall tax burden on cross-border transactions. This can enhance cash flow for businesses and individuals, ultimately fostering economic growth and cooperation among countries.
