Taking Advantage of a Double Taxation Agreement

A double taxation agreement ensures you will not have to pay taxes on your income in two states or two countries at once. Basically, you will pay the lower of the two taxes to one district and then pay the difference to the higher taxed district. This can sound confusing, but if you take advantage of the option, you can realize savings in your taxable income.

Example of Double Taxation

You may live in the United States, but own a corporation operating out of Switzerland. The two countries have a double taxation treaty. You can pay your business taxes to the Swiss authorities first. After you do so, the sum you paid to Switzerland will be deducted from the total sum you allow in the United States. Without this agreement, you would end up paying taxes twice on every dollar you earned.

International Tax Laws

While ensuring you follow a double taxation agreement is a legal way to reduce the sum you owe in taxes, you cannot set up shop in a foreign country to avoid US taxes all together. As long as you are a US citizen, you will owe income taxes to the IRS. Failing to report international income will result in potential criminal charges against you.

blog comments powered by Disqus