Every country has their own tax rules, but when a company is trading out of more than one country both countries may claim they have rights to tax the business.
This is known as Double Taxation and globally there are thousands of treaties to put an end to double taxation by offering various tax reliefs to businesses.
What is International Double Taxation?
In most cases International Double Taxation occurs when trading or business transactions involves two nations, the business transactions could be done by companies or individuals who render their services to another country.
You usually face double taxation when the overseas country where your income first shows taxes it first, but if you are a UK based company then the UK still expects you to pay Corporation Tax.
How do I manage International Double Taxation?
In order to manage International Double Taxation, there will need to be tax treaties between the countries that trade together.
These treaties exist so the two countries can share tax information, which helps maintain efficient trading and limit excessive taxation, while also removing the potential for tax evasion.
Here are a few example of existing tax treaties:
- Double Taxation Agreement (DTA) – A DTA allows two countries to come together and share their tax practices and payment principles to come up with rules and regulations that will guide how income earned from international trade is treated to avoid double taxation. This is done in order to promote international trade
- Double Taxation exemption relief – In this instance a company is prevented from paying tax in their home country. However, they have to pay tax in the country where their income is generated. For this method to work the resident country must be willing to encourage cross boarder investment by removing payments so an income is not double taxed.
You can find a list of countries that have existing tax treaties with the UK here.
Here at Reanda we have a team of professionals who are here to help you understand and plan for International Double Taxation.
For advice on international double taxation, get in contact today.