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Solve double taxation problems in two easy steps

by , 25 April 2013
The world is a much smaller place today than it was 50 years ago. International investments are now common. Double tax agreements and different tax laws play a more significant role. Read on to discover how you can solve double taxation complications to maximise your savings, while staying compliant with international and local tax requirements.

International double taxation is the 'taxation of the same profits, in the same taxpayer's hands, in the same period, by two or more countries,' explains The Practical Tax Loose Leaf Service. This is also known as juridical double taxation.

But through unilateral relief and international tax treaty relief, you can avoid double taxation and maximise your savings.

Unilateral relief exists where no tax treaties are concluded. Countries use the unilateral relief method to 'avoid double taxation where that country can't conclude any double tax treaties with certain host countries,' says the Loose Leaf.

International treaty relief happens when countries enter into agreements with each other to eliminate or alleviate double taxation suffered by their residents in other countries.

Here's how to determine how you'll be taxed.

The two step solution to solving a double taxation problem

Step #1: Determine if you're a South African resident or not. If you are, then you'll be taxed in South Africa on your worldwide income, irrespective of its source. If you're a non-resident, you'll be taxed on your income or capital gain derived from a South African source or deemed source only.

Step #2: Consider if there's a problem of international double taxation. If you're subjected to taxation on the same profits, during the same period, in two or more countries, determine which country is afforded taxing rights.

'Where both countries have taxing rights, claim the foreign tax paid as a credit against your tax liability in the country where you are a resident,' says the Loose Leaf.

Using this two steps approach ensure you save and don't pay tax twice.

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