Double tax treaty

What is a double tax treaty?

Double taxation treaties are important in optimising finance in international trade. Double taxation treaties are also taken into account when an entity, whether an individual or a corporation, receives income from sources abroad. International double taxation treaties certainly do not modify or replace national tax legislation.

Such treaties merely change the legal regime of taxation which is established by national tax law. However, they change them only to the benefit of the tax subjects. The important and central question, however, is what these treaties are and what they are good for.

Very simply, a double taxation treaty limits the right of a contracting state to require payment of tax in certain cases from an entity that is subject to taxation in that same state under its domestic tax laws. Thus, if there is a situation where two States claim to tax a certain income of an entity, the double taxation treaty that is concluded between the States applies in this case.

Double taxation treaty in practice

In practice, the way this treaty works is that, for example, the amount you pay in tax in one country will be set off against your tax liability in the other country. Depending on different situations, a double tax treaty may also, for example, exempt you from tax liability in one country and leave you with only one tax liability in the other country.

There are many situations where these treaties are taken into account. It depends on many aspects of the entity itself as well as the method that is given under each treaty. Currently, the Czech Republic has double taxation treaties in force with 87 countries. An up-to-date list of these, together with details, methods of avoiding double taxation and the treaties in full, can be found on the website of the Ministry of Finance of the Czech Republic.

Double taxation treaties therefore have an important position in your foreign business and you need to know how to apply them.  Do not hesitate to contact us, arrange a personal meeting and we will answer your questions and advise you on your business.