The most common instance that leads to double taxation is where both countries enforce resident-based taxation for residents and source-based taxation for non-residents.
Residence-based taxation doesn't consider the source of the income, but instead taxes the residents of a particular country, regardless of where they are in the world, including their own country.
Source-based taxation takes into account the source of the income, and not the residential status of the taxpayer.
If both countries use a source-based taxation system, but the laws governing it differs between the countries, it can lead to double taxation.
If a taxpayer is a resident of one country and that country enforces a resident-based taxation system, but the taxpayer gets income from another country that enforces a source-based taxation system. This will lead to the same amount of income being taxed twice.
When both countries enforce a residence-based taxation system and both of them recognise an individual as a resident. This can also lead to double taxation.
Remember that South Africa uses the residence-based system when charging tax
, and so you should know who is resident when considering international tax
Also, keep in mind that many taxpayers structure their businesses so that South Africa loses out on tax
. This is called 'Base erosion', a
practice which SARS is trying to prevent.
*So, those were four situations in which double taxation can occur. Take note of them and perform the necessary steps to ensure that you don't get taxed in both countries.
Do you want to know more? Then subscribe to the Practical Tax Loose Leaf Service
Every South African tax law explained by our experts
The Practical Tax Loose Leaf Service offers you:
· All the definitions and legal regulations, useful advice, exceptions to the rules that help you slip through the legislative jungle of taxes.
· Case studies and practical examples that show you what elements you should consider for your taxes to be perfect.
· Red flags you need to watch out for and the penalties you'll face if you don't respect them.
· Sample templates at your disposal, ready to be filled in, customised and printed.
Click here for more details