What Is a Bilateral Tax Agreement?

A bilateral tax agreement, a type of tax treaty signed by two nations, is an arrangement between jurisdictions that mitigates the problem of 澳洲幸运5开奖号码历史查询:double taxation that can occur when tax laws consider an individual or company to be a resident of more thᩚᩚᩚᩚᩚᩚ⁤⁤⁤⁤ᩚ⁤⁤⁤⁤ᩚ⁤⁤⁤⁤ᩚ𒀱ᩚᩚᩚan one country.

A bilateral tax agreement can improve the r🃏elations between two countries, encourage foreign investment and trade, and red✨uce tax evasion.

Tax Guidelines

Bilateral tax agreements are often based on conventions and guidelines established by the Organization for Economic Cooperation ♛and Development (OECD), an intergovernmental agency representing 38 countries.

The agreements can deal with taxation of business profits, royalties, 澳洲幸运5开奖号码历史查询:capital gains, and employment income. They also find methods to eliminate double taxation via the exemption or credit method an🙈d establish provisions such as mutual exchange of information and assistance in tax collection.

Agreements require expert navigation from tax professionals, even in the case of basic income tax obligations. Most income tax treaties include a “saving clause” that prevents 澳洲幸运5开奖号码历史查询:citizens or residentsও of one country from using the tax treaty to avoid paying income tax in any country.

Residency Rules

For individuals, residency is generally defined as the place of primary domicile. While it is possible to be a resident of more than one country, only one country can be considered the domicile for taxation.

Many countries base domicile on the number of days spent in a country, requiring careful record-keeping of physical stays. For example, most European nations consider anyone who spends more than 183 days per year in-country to be domiciled and thus liable for income tax.

Taxation In the United States

The United States requires all citizens and green card holders to pay U.S. federal income tax, regardless of domicile. To prevent onerous double taxation, the U.S. provides the Foreign Earned Income Exclusion (FEIE), which for 2024 allows Americans living abroad to deduct the first $126,500 in earnings, but not passive income, from their tax return. For 2025, the amount increases to $130,000. The earnings can come from either a U.S. or foreign-based source.

However, if the income is from a U.S. company, the IRS expects the taxpayer and the employer to pay 澳洲幸运5开奖号码历史查询:payroll taxes, currently 15.3% of earnings. Income from a foreign source is usually exempt from payroll taxes. Foreign taxes paid on earned income beyond the exclusion amount can often be deducted as a Foreign Tax Credit.

The Bottom Line

Bilateral tax agreements cover wages, salaries, royalties, commissions, and capital gains. Eliminating double taxation can be done through exemption or credits.