Double Taxation Agreement between Portugal and Luxembourg: What You Need to Know
If you are a resident or have business interests in both Portugal and Luxembourg, then understanding the double taxation agreement between these two countries is crucial. Double taxation can occur when the same income is taxed twice in two different countries, leading to an unfair financial burden. To avoid this, Portugal and Luxembourg signed a double taxation agreement in 2012, which came into effect on January 1, 2013.
What is a Double Taxation Agreement?
A double taxation agreement, also known as a tax treaty, is an agreement between two countries that govern how income will be taxed. The purpose of these agreements is to avoid double taxation of the same income in both countries. Double taxation can occur when a person or company earns income in one country and is taxed on that income, but later that income is also taxed in another country. Double taxation agreements aim to ensure that taxpayers are not unfairly burdened with taxes.
Who is Covered by the Double Taxation Agreement?
The double taxation agreement between Portugal and Luxembourg covers individuals and businesses who are residents or have business interests in both countries. This means that if you are a resident of Portugal but have business interests in Luxembourg, or vice versa, you could be subject to double taxation. The agreement ensures that you will only be taxed once on the same income in one of the countries.
Which Income is Covered by the Double Taxation Agreement?
The double taxation agreement between Portugal and Luxembourg covers various types of income, including:
– Income from employment
– Income from self-employment
– Income from pensions
– Income from rental property
– Capital gains from the sale of assets
The agreement also covers taxes on dividends, interest, and royalties.
How Does the Double Taxation Agreement Work?
Under the double taxation agreement, if you are a resident of one country but earn income from the other country, you will only be taxed in one of the countries on that income. This means that if you are a resident of Portugal but earn income from Luxembourg, you will only be taxed in Portugal on that income.
To avoid double taxation, you will need to claim a tax credit for any taxes paid in the other country. This ensures that you are not taxed twice on the same income. The amount of tax credit that you can claim will depend on the tax laws in each country.
Conclusion
The double taxation agreement between Portugal and Luxembourg aims to ensure that individuals and businesses are not unfairly taxed twice on the same income. If you are a resident or have business interests in both countries, understanding this agreement is crucial to ensure that you are not subject to double taxation. It is important to consult with a tax professional to understand the specifics of the agreement and how it applies to your individual situation.
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