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Avoid double taxation! Use the unilateral relief system

by , 10 March 2015
The only way to avoid being forced to pay taxes twice is knowing and implementing the unilateral relief, as stated by the current law.

Note that each country has different rules when it comes to their finances and taxation system.

Read on to find out more about unilateral relief:

Unilateral relief is given on an individual or aggregate basis, and a country will grant this relief without any link to the other country.

If you use this method to solve the problem of double taxation, you have to follow these four rules:

1. A double tax must be present – a foreign tax must have been paid.

2. Two or more different countries need to be involved.

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3. Relief by means of a tax credit will be limited to an amount that does not exceed the taxation that would be paid domestically on the foreign amount.

4. The type of taxation must be identified. Relief is generally granted when dealing with income and capital. There is no relief on taxes such as stamp duties, Vat and custom duties.

South Africa uses the following methods for unilateral relief, according to the Income Tax Act:

1. A taxation rate reduction for foreign income.

2. Foreign income being exempt from domestic taxation
(Sections 9D and 10).

3. A deduction for the taxation paid on foreign income
(Section 11C(4)-(5)).

4. A tax credit for taxes imposed in another country (Section 6quat).

Here's an example of how the unilateral relief system works

SARS allows you a rebate on foreign tax you pay on foreign income that is included in your South African taxable income (Section 6quat).

The rebate is limited to the foreign income that you received or that accrued to you. Any excess can be carried forward to subsequent tax years to be offset against foreign income you may receive or that may accrue in the future. It's limited to a period of seven years from the first year of carrying it forward.

You calculate the rebate by converting the foreign currency into South African Rand by applying the average rate of exchange for the year of assessment on the last day of that year.

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