International Taxation

The growing technological advancement has made the world small. The world seems to have become a global village where business has become possible not only in once own country but highly possible outside our country to earn better capital.

Our team of expert tax professionals at I Masters  are a call away to help you solve the complex concepts of International taxation procedures.

International taxes are levied on cross border transactions. It is imposed when a person is in once country with property and income flow in another.

International taxation is the outcome of the major globalization all around the world. Everyone needs to pay tax and what happens when a person goes and settles in another county to make money; to who does he needs to pay the tax. Defining and deciding as to who is liable to pay tax in which territory is the whole concept of International taxation.

Sourcing and investing on raw material where it is cheapest. Sourcing on people where it is best available and producing it where it is most cost effective and selling it in the right market is the phenomenon of globalization and its trends.

Types of International Taxation:

  • Residence based taxation.
  • Source Based Taxation.

Residence Based Taxation:

It is a tax levied upon people who are residing in a foreign country and are making profit. Income earned by international activated such as cross border transactions is called Residence based taxation.
It is on the principles that the people and firm should contribute by paying tax towards public services provided for them where they live and through whom they generate the income.

Source Based Taxation:

It happens when a person earns his income through some other country but is living in some other country. In such circumstance they are not entitled to pay tax, since he is not the resident on that place. The non residents are taxed only based on their local income.

Doulble Taxation Avoidance Agreement:

When it comes to International Taxation there may arise many confusions based on territory paying taxes pertaining to tax rules and regulations.

The concept of Double Taxation is nothing but the transactions taking place between one or more country, the transaction can be subject to more than one tax authorities. The risk of paying the tax twice arises which can affect the economical development of any business organisation.  To avoid such mistakes DTAA comes in process which is Double Taxation Avoidance Agreement.

The Government signs a treaty on model developed and drafted such as by OECD (Organisation for Economic Cooperation and Development) and UN Model.

India has signed DTAA with 88 countries out of which 85 is entered into a deal that specifies the agreed rates of tax and jurisdiction on specific types of income.

The Double Tax Methodology is Broadly Divided in Two.

  • Taxation of Resident Individuals.
  • Taxation of non residents.

Resident Individuals earning their income in foreign country are levied taxation of foreign income.

Non residents pay tax domestically on income earned domestically.

Relief to Tax Payer under DTAA.

Bilateral Relief:

The Tax payer gets bilateral relief under section 90 & 90A of income tax act for taxpayer who have paid tax to a country with which India has signed an agreement.

Unilateral Relief:

The payer gets unilateral relief under section 91 of income tax act when it pays tax to a county with which India has not signed DTAA.

Foriegn Entities and Taxes:

The foreign entities are liable to pay tax depending upon their residential status.

  • If the control and management of the business is rooted in Indian territory completely than the foreign resident is entitled to pay tax.
  • If the control and management is not rooted in Indian territory, but is managed outside India then they are considered as non resident and are not entitled to pay tax.

If the control and management of a foreign company is happening partly outside and partly in India the company is regarded as non resident and hence not entitled to pay tax.

A foreign collaboration is liable to tax in the following conditions.

  • When a foreign company generates income from business connected in India and is a result of its operations in India.
  • When the foreign company generates income from any property in India.
  • A foreign resident is liable to tax when he generates income through any asset or income generated is source of income from India.
  • Royalty payable from India.

Therefore the growing importance and emphasis on International taxation raises the demand of expert tax professionals to provide expert advices that can clear off all the complexities of such cross border transactions to entrepreneurs to carry on their business smoothly without letting a chance for mistakes to happen when it comes to addressing the tax rituals.  

We at IMasters are right here to help you at every step to give you a clear and strategic view on different tax system.

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