Each country will have its own tax rules and the way in which they are applied may be impacted by the kind of business being operated as well as the main region in which it trades.
For businesses that operate across international lines, there is a risk that multiple countries may be able to claim tax on the business.
Double Taxation can result in your business taking more of a financial hit than needed, so it is worth understanding what can be done to manage your exposure.
What is international double taxation?
As the name would suggest, international double taxation occurs when business transactions or trading span two nations.
This often includes business transactions done by companies or individuals rendering their services to another country.
It may not be surprising that the overseas country where your income first shows will likely tax you first, but it can catch businesses off guard to discover that UK-based companies must still pay Corporation Tax to HMRC.
How do I manage international double taxation?
International double taxation is not necessarily an inevitable part of trading across countries.
To empower businesses and improve international cooperation, many countries will establish treaties to address issues concerning tax.
This will often see tax information shared freely between regions, allowing for efficient trading through a reduction in excessive taxation, but can also serve to reduce the potential for tax evasion.
The two most common forms of treaties are the Double Taxation Agreement (DTA) and a double taxation exemption relief.
Being a formal agreement, a DTA features dedicated rules and regulations that have been designed by the two countries with the express intent of unifying tax practices and payment principles.
It should serve to guide how income earned from international trade is treated to avoid double taxation and such agreements are a core part of promoting international trade.
Double taxation exemption relief serves to exclude a business from paying tax in its native country, though it will still be necessary to follow the full spectrum of tax rules in the country where income was generated.
The business’s resident country must be willing to encourage cross-border investment by removing payments so an income is not double taxed.
How should my business manage double taxation?
Seeking professional financial advice is the most effective way of managing your tax exposure when operating across multiple territories.
Our team can help you to understand what tax rules are likely to apply to the business you operate so that a tax bill does not come as an unpleasant surprise.
To better prepare, you can determine which countries have existing tax treaties with the UK by consulting the Government’s website.
If you have a specific country in mind that you would like to operate in or have recently expanded into somewhere new, we can help you keep on top of your obligations.
For advice on international double taxation, get in contact with our team today.
