The Double Tax Avoidance Agreement (DTAA) is a bilateral treaty established between two countries to promote economic trade and investment by mitigating the issue of double taxation.

Double taxation occurs when the same income is taxed by more than one country, imposing an undue burden on taxpayers and potentially hindering trade, services, and the movement of capital and individuals. While many countries have domestic laws that offer unilateral relief from double taxation, these measures often fall short due to varying rules on income source determination and tax residency. Tax treaties, such as the DTAA, aim to alleviate these obstacles by harmonizing tax rules and reducing barriers to cross-border economic activity.

The necessity for a DTAA arises from differences in how countries tax income, whether on a receipt or accrual basis, and varying rules on residency. Without a universally accepted definition of taxable income, a salary or other income could be subject to tax in multiple countries. This overlap in tax laws and regulations can result in an individual being taxed multiple times on the same income, asset, or transaction.

To address double taxation, DTAAs generally provide one of the following solutions:

       1. Tax is levied only in one country,

       2. Income is exempt from tax in both countries

       3. Tax paid in one country can be credited against tax payable in the other country.