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What you NEED to know about DTAs

by , 27 January 2014
If you're a taxpayer, chances are you've heard of this term 'Double Taxation Agreements' (DTAs). But, what does this term really mean? And how does it affect your tax affairs? Read on to find out as we tell you everything you need to know about DTAs.

Don't know what DTAs are? If so, don't fret, the Practical Tax Loose Leaf Service has an explanation for you.

Double Taxation Agreements explained

DTAs are agreements that two jurisdictions enter into to prevent the same income from being taxed twice. It also prevents fiscal evasion.

Essentially, the purpose of DTAs is to eliminate double taxation.

These agreements help address issues of different tax systems and stipulates which jurisdiction has the primary right to the taxation. The agreement lays down specific rules which one jurisdiction must follow in taxing the residents of other jurisdictions.

The four taxes that form part of the agreements are:

  1. Income and corporate tax;
  2. Secondary tax on companies (STC) and Dividends Withholding Tax;
  3. Withholding tax on royalties; and
  4. In some cases, Capital Gains Tax (CGT).

Important: You must review the agreement relating to each country that you deal with in trade. Know the terms and provisions of that DTA, as one agreement may differ from the next. The starting point is to determine your residence so you can apply the agreement.

Remember that South Africa has a resident-based tax system, so you'll pay tax in South Africa on your worldwide income if you're a resident of South Africa.

The Practical Tax Loose Leaf Service explains that if the source State taxes you (for example, the UK) because of a permanent establishment (known as PE), that's in the source state, you can claim a credit for the tax that you pay in the UK against your South African tax liability. If you do this, you won't pay tax twice on the same income.

If you want to know more about DTAs, for example, whether they're still under negotiation, already signed, but not ratified in one of the member states, or whether they're in force, click here.

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