Audit & Assurance

International Taxation

Businesses of all sizes continue to face new opportunities and challenges as the global economy expands. Meanwhile, taxing jurisdictions around the world are implementing novel and complex taxing regimes as a result of globalization, technology, and new business models/platforms.

International Taxation

International taxation is a tax levied on a person who obtains income from another country in the form of capital gains from business, dividends, rendering services, goods, and so on while residing in the home country. The income is taxed by both nations, the source country, and the resident country, resulting in Dual Taxation. To prevent the massive strain of dual taxes on the tax resident, a DTAA is established between the source country and the taxpayer’s resident country.

What is DTAA?

A Double Taxation Avoidance Agreement is an arrangement between two or more countries to protect income holders from double taxation and tax evasion by increasing transparency.

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Tax liability of a person not ordinarily resident in India

Income accruing or arising to a person resident but not usually resident, in any fiscal year is not chargeable to income tax in India. If the given conditions are followed-

  • it is not sourced from an enterprise controlled in or a profession established in India; 
  • it is not acquired or deemed to be received in the financial year
  • it does not accrue or arise to him in India during that calendar year.

What kind of entity structure should I use / tax liability will I have?

A resident’s whole worldwide income is subject to income tax in India. Foreign income, defined as income derived or generated outside India in any financial year, is taxable in that year even if it isn’t received or carried into India. Even if the foreign government restricts income transmission, there is no exemption from income tax liability.

However, in the case of income earned in a foreign nation whose laws forbid or limit remittances to India, action cannot be taken against the taxpayer to recover the tax assessed and owed on such foreign income until the ban or restriction is lifted.

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Do I receive a foreign tax credit if I pay taxes in a foreign country?

No, but Foreign Tax Credits are given by the Resident country (not the foreign country) for the taxes paid in the foreign country. It implies that the taxpayer will be taxed on the source income but will pay lower taxes to the amount of credit available as compared to other taxpayers. This is also known as ordinary credit.

When dividends are paid from one state to another, a credit for corporate tax is provided. This is in addition to the dividend tax. It is also known as the Underlying tax.

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