As announced by the Foreign Secretary, James Cleverly, at a recent event to celebrate the 200th anniversary of Brazil's independence, the UK and Brazilian Governments have agreed (and now signed) a double taxation agreement/treaty (DTA). This has now been published and will come into force shortly.
What are DTAs?
Different countries have their own tax laws. The fact that one pays tax in one country does not mean they do not need to pay tax in another.
You may be liable to tax on the same profits in both countries if you are resident in:
- two countries at the same time; or
- a country that taxes worldwide profits, but have income and gains from another country that charges tax on such income or gains as the source country.
This is known as 'double taxation'. For example, an individual who is UK resident with rental income from a property in another country may have to pay tax on the income in both the UK and that other country.
Where two countries try to tax the same income and gains, there are often mechanisms to give tax relief so that you do not end up paying tax twice. The first thing to consider is whether a DTA between the UK and the other country limits one of those countries' right to tax that income.
Double taxation can discourage international trade. For example, a business selling goods may consider it is better off trading within its country of tax residence, than selling internationally and suffering tax in its and other countries. However, it is a widely accepted commercial reality that international trade is economically beneficial, and that international trade should be encouraged. Accordingly, it makes sense for two nations, both believing in the benefits of international trade, to provide a more conducive environment for cross-border trade by putting down rules to avoid or minimise double taxation.
The DTA between Brazil and the UK is a recent example of that commercial acceptance.
All individuals and corporations with financial and commercial interests in both the UK and Brazil should have a working knowledge of the UK/Brazil DTA.
If you need help in relation to UK/Brazil personal and business taxation and wealth structuring, Mishcon de Reya's Latin America Group has experience in advising on treaty residence, claiming treaty reliefs, and dealing with opposition to such claims by HMRC and other revenue authorities.