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What are double taxation agreements?

These are international agreements signed between two governments that are incorporated into each country’s internal legal structure for the purpose of eliminating or decreasing double international taxation affecting or hindering the exchange of goods and services and the movement of capital, technologies and people. Double taxation agreements benefit Individuals or other entities residing or domiciled in either of the countries that are a party to the agreement. In general, these agreements apply to taxes on income and equity as follows:

  1. Exclusive tax jurisdiction is conferred upon only one of the two countries that is party to the agreement, for income or equity, being either the country where the entity is located or residing, or the county where income is originated or has its source;
  2. Taxing power is conferred upon both countries, but establishing a maximum rate that the country of the source of income may apply on certain kinds of income (interest, royalties); and
  3. The two countries agree to avoid double taxation by granting credit or exemptions on taxes paid in the other country in the agreement.
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