Double-Taxation Relief for Cross-Border Businesses
Written and reviewed by the International Tax Accountants editorial team. Last reviewed 29 July 2026.
When a business earns income abroad, that income can be taxed in the country where it arises and again in the United Kingdom. Double-taxation relief is the mechanism that stops the same profit bearing tax twice. It matters to any company with foreign branches, cross-border customers, or income that suffers tax at source in another country.
The relief sits in Part 2 of the Taxation (International and Other Provisions) Act 2010. It provides more than one route to relief, and the route that applies depends on whether a tax treaty covers the income and on the type of income concerned.
Relief comes in three forms, and what matters in practice is how the credit is limited and where to find the treaty that governs a particular payment. Where the foreign tax has been taken as withholding tax on a cross-border payment, the credit claimed here is what stops that deduction becoming a double charge.
Three Ways to Relieve Double Taxation
The Act provides three forms of relief. Treaty relief applies where a double taxation treaty between the United Kingdom and the other country covers the income, and each treaty is given legal effect in the United Kingdom by an Order in Council. Unilateral relief applies where there is no treaty, or where the treaty does not cover the particular income, so that the United Kingdom still gives relief on its own account.
Both treaty relief and unilateral relief work as credit relief, meaning the foreign tax is set against the United Kingdom tax on the same income. The third form, deduction relief under section 112, instead reduces the income itself by the amount of foreign tax before United Kingdom tax is calculated. Deduction relief usually gives less benefit than credit relief but can help where credit relief is restricted.
How Credit Relief Is Capped
Credit relief is not unlimited. The credit for foreign tax is capped at the lower of the foreign tax actually paid and the United Kingdom tax on that same item of income or gain. If the foreign tax is higher than the United Kingdom tax on the income, the excess is not repaid.
The cap sits at section 36 for income tax and section 42 for corporation tax. Because the limit is worked out item by item, the relief on one stream of foreign income cannot be used to shelter unrelated United Kingdom profit.
Finding the Relevant Tax Treaty
Whether treaty relief is available, and on what terms, depends on the specific treaty with the other country. HM Revenue and Customs publishes the United Kingdom network of agreements, and you can consult the list of United Kingdom tax treaties to find the one that applies.
Treaties differ in their detail, including the categories of income they cover and any reduced rates they set. Reading the correct treaty is the starting point for any cross-border relief claim, and it is also where reduced rates on interest and royalties are found.
Deduction Relief as a Fallback
Deduction relief matters most where credit relief is limited or unavailable, for example where there is little or no United Kingdom tax on the income to credit the foreign tax against. Treating the foreign tax as a deduction reduces the measure of income rather than the tax, which can still leave the business better off than claiming nothing.
Choosing between credit relief and deduction relief is a computational question that turns on the numbers in the particular year. It is worth modelling both before a return is filed, because the more valuable route is not always obvious in advance.