What Is Double Taxation?
Double Taxation refers to the international tax situation in which several jurisdictions levy comparable taxes on the same income, gains or capital.
Also known as: International Double Taxation, Juridical Double Taxation.
How Double Taxation works
Double Taxation arises when a residence country taxes a person on worldwide income while a source country also taxes income arising within its borders, or when two countries each treat the same individual or company as resident, so the same item of income bears tax in both places before any relief. Relief generally comes from double tax treaties, which allocate taxing rights and cap source-country tax, from domestic credits or exemptions such as the United States foreign tax credit, and from regional rules like the European Union Parent-Subsidiary Directive. Relief is often partial, because credits are generally capped at the domestic tax on the same income, and outcomes vary with the countries, the income category and any treaty in force.
Double Taxation vs Economic Double Taxation
Unlike Economic Double Taxation, under which the same profits are taxed in the hands of different persons such as a company and its shareholder, Double Taxation in the juridical sense taxes the same person twice on the same income.
Example
Illustrative example: A designer resident in Country A invoices a client in Country B, which withholds tax on the fee. Country A also taxes the fee as part of worldwide income. Absent relief, the fee is taxed twice; with relief, Country A may credit the Country B tax, generally up to Country A's tax on the fee.
Common misconception
Myth: Paying tax where income was earned removes any duty to report the income at home.
Reality: A residence country taxing worldwide income generally still requires the income to be declared and then relieves Double Taxation by credit or exemption, subject to local rules.
Frequently asked questions
What is double taxation?
Double Taxation is the levy of comparable taxes by several jurisdictions on the same income, gains or capital of one taxpayer, typically caused by overlapping residence and source rules.
How is double taxation relieved?
Double Taxation is generally relieved through double tax treaties, domestic foreign tax credits or exemptions, and regional rules such as the EU Parent-Subsidiary Directive, subject to caps and local rules.
Related terms
- Economic Double Taxation — Same profits taxed in different hands
- Double Taxation Relief — Mechanisms which remove or reduce double taxation
- Double Tax Treaty (DTT) — Bilateral instrument allocating taxing rights
- Foreign Tax Credit (FTC) — Common domestic credit for foreign tax paid
- Dual Resident — Overlapping residence claims causing double taxation
Related guides
- Tax treaties and international taxation — Treaty role in preventing double taxation
- Digital nomad tax setups guide — Where double taxation risk appears in nomad setups
Sources
- IRS: Foreign tax credit
- gov.uk: Tax on foreign income, if you're taxed twice
- EUR-Lex: Council Directive 2011/96/EU (Parent-Subsidiary Directive)
Last verified: 2026-10-08. This entry is general information, not tax or legal advice; rules vary by country and change over time.
