In today’s interconnected world, it’s common for entrepreneurs and professionals To generate income from various countries. However, this can lead to a tricky situation: double taxation. This happens when the same income gets taxed both in the country where it’s earned and in the one where you’re a tax resident. Such a scenario can seriously cut into your profits. Thankfully, Double Taxation Agreements (DTAs) are here to help, providing a way to reduce or completely eliminate this extra tax burden.
In this article, we will discuss how DTAs work, their advantages, and how they can be used to optimize tax expenses. We’ll also look at specific examples of agreements between Ukraine, Portugal, and Cyprus to show how these mechanisms work in practice.
What’s the deal with Double Taxation Agreements (DTAs)?
These are international pacts between two nations aimed at sorting out who gets to tax your income, So you don’t get taxed twice on the same income. They lay down clear rules about which country has the taxing rights over stuff like salaries, dividends, interest, or income from property. Thanks to DTAs, you can dodge double taxation altogether or at least score a tax break with reduced rates.
How to Make the Most of DTAs and Skip Double Taxation?
First things first, figure out where you’re considered a tax resident under both countries’ rules. For instance, if you live in Ukraine but work in Portugal, it’s key to know which country claims you as a resident for tax purposes.
Each DTA has its own quirks and benefits. Some agreements might let certain income types—like dividends—be taxed only in your home country or at a lower rate elsewhere. For example, DTAs between Ukraine, Portugal, and Cyprus often state that Dividend income is taxed solely in the country of residence of the asset holder.
To unlock these perks, you’ll need to file the right paperwork proving your tax residency. This usually involves submitting a tax residency certificate or similar official documents.
DTAs help cut down double taxation with tools like tax credits (where taxes paid in one country are deducted from what’s owed in the other) or exemptions for specific income streams. With the right strategy, you can keep more of your hard-earned money.
Example of How DTAs Work Between Ukraine, Portugal, and Cyprus
Ukraine – Portugal
According to the DTA between Ukraine and Portugal, if you’re working in one of these countries, your income will be taxed only there, as long as you spend more than 183 days in that country within the year. So, if you’re working in Portugal and meet this condition, your salary will be taxed solely in Portugal, even if you maintain your tax residency in Ukraine.
For entrepreneurs with businesses that pay out dividends, Portugal has one of the best setups, offering a 0% tax rate on dividends for non-residents. Thanks to the DTA, you won’t have to worry about paying extra taxes on those dividends in Ukraine, either.
Ukraine – Cyprus
Cyprus is a go-to destination for many Ukrainian business owners because of its attractive tax rates and solid DTA benefits. The DTA between Ukraine and Cyprus helps keep taxes low by slashing the dividend tax rate to just 5%—or in some cases, you can avoid it altogether. This is a game-changer for keeping more of your profits from international ventures.
On top of that, Cyprus doesn’t tax capital gains on selling shares in foreign companies, making it a perfect spot for holding assets and growing your wealth without the extra tax hit.
Portugal – Cyprus
The DTA between Cyprus and Portugal offers some serious perks for entrepreneurs and investors who are operating between these two countries.
Dividend Tax
If you’re based in Portugal and receiving dividends from companies in Cyprus, this agreement can give you a major tax break. Depending on the specifics, you might pay just a small fraction in taxes—or potentially none at all in Cyprus. This means you can cash in on those dividend payments while keeping the tax load light in Portugal.
Income Tax on Employment
For anyone living in Cyprus and working in Portugal (or the other way around), the DTA ensures you’re not taxed twice on your earnings. Normally, your income is taxed where you work, but with this agreement, you could see your tax burden reduced or even wiped out thanks to mutual tax credits.
Capital Gains Tax
If you’re a Cyprus resident and decide to sell assets in Portugal, you can enjoy a significant reduction or possibly even a full exemption from capital gains tax. This is a huge advantage for anyone trading stocks or dealing in real estate, helping you keep more of your profits.
Key perks of using DTAs
- You’re only taxed in one country, or you can enjoy a lower tax rate?
- DTAs help you dodge those extra penalties and annoying costs that come with being double-taxed.
- No need to waste time or energy filing taxes in multiple countries. Just handle it in one spot.
Double Taxation Agreements are a game-changer for entrepreneurs and investors who want to keep their taxes simple and efficient. When you use them right, you can save a lot on taxes and make sure your business stays legally sound.
At LFT Advisors, we’re here to help you cut through the red tape of international taxes and show you how to make DTAs work for you. Let us handle the tricky stuff so you can focus on what matters—growing your business without the headache of excess taxes.
Reach out today, and let’s talk about how you can start saving on taxes!
