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Be aware of these four situations that can lead to double taxation

by , 14 December 2015
A double tax agreement is an understanding between two countries on how they will view taxable income earned by a person. This is when that person is earning remuneration in one country while being resident in another.

In other words, it can help you avoid paying tax in both countries, otherwise known as an international double taxation.

Having said that, here are four common situations in which a double taxation can occur:


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.

NOTE: 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.

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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.
NOTE: Remember that South Africa uses the residence-based system when charging tax, and so you should know who is resident when considering international tax implications.

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.

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