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What is Double Taxation?

Nicole Madison
By
Updated May 16, 2024
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Double taxation occurs when a taxpayer is taxed twice for the same asset or income. This happens when taxing jurisdictions overlap and a transaction, asset, or income amount is subject to taxation in both jurisdictions. When an individual faces this situation, he or she may lose a significant portion of income, and in some cases, this may cause the person to experience a lowered standard of living. Corporations deal with double taxation too, as a corporation pays taxes on its earnings only to have its shareholders taxed once more.

Opponents of double taxation assert that it is damaging to the economy, as it imposes unfortunate consequences for those who choose to save and invest. They often argue that eliminating double taxes, in all its forms, will spur the economy on, leading to an increase in jobs, improved salaries, and much better living standards.

Some people argue that double taxation of corporations isn’t really a problem at all. They hold that a corporation is a legally separate entity from its shareholders, citing the fact that shareholders are afforded certain levels of protection from liability in terms of damages caused by a corporation. Since a corporation is an entirely separate taxpayer from its shareholders, the argue, the same taxpayer is not taxed twice on the same asset or earnings.

Sometimes double taxation occurs as the result of international activities. An individual may have business dealings in one country while residing in another, for example. In such a situation, the individual may be required to pay taxes on her business gains in her country of residence as well as in the country in which the business operates. As this can require taxpayers to give up a significant portion of their incomes, some countries have tax agreements to prevent it. These agreements allow taxpayers to pay taxes in their country of residence, enjoying exemption from taxation in the other country.

In other cases of international double taxation, a business or individual is taxed in the country in which a gain arises. The taxpayer then enjoys a tax credit in his country of residence, eliminating the issue. This situation does not offer taxpayers an easy way to avoid paying taxes, however, and the taxing authorities in each country communicate to discover and investigate taxpayers who try to use these laws to avoid paying.

SmartCapitalMind is dedicated to providing accurate and trustworthy information. We carefully select reputable sources and employ a rigorous fact-checking process to maintain the highest standards. To learn more about our commitment to accuracy, read our editorial process.
Nicole Madison
By Nicole Madison
Nicole Madison's love for learning inspires her work as a SmartCapitalMind writer, where she focuses on topics like homeschooling, parenting, health, science, and business. Her passion for knowledge is evident in the well-researched and informative articles she authors. As a mother of four, Nicole balances work with quality family time activities such as reading, camping, and beach trips.
Discussion Comments
By anon40407 — On Aug 08, 2009

how to mitigate really is a good question.

By gth1987 — On Dec 01, 2008

first one is contract payment

By coorie — On Dec 01, 2008

This agreement is between ABC and XYZ in respect of XYZ project in PJ.

you noted the following:

ABC is a non tax resident company in m'sia

ABC will pay XYZ a gross contract fee of RM14million

service portion of the contract project is not segregated.

the payment will be settled over $ installments.

the due dates for installments are to be made by the 10 of the first month of the calendar year.

comment on the withholding tax implications and to make recommendations to restructure the agreements to mitigate the exposure to malaysian withholding tax.

By coorie — On Dec 01, 2008

Below is my question:

This agreement is between ABC and XYZ,a japanese company.

you noted the following:

.this is in respect of training and seminar

services provided in Malaysia and in Japan.

.The total payment for the services rendered is

RM650000.

.ABC will bear the traveling and accommodation

costs of two staff of XYZ who will conduct a week

seminar Malaysia.

.ABC will also bear whatever income tax of XYZ

under this contract.

comment on the withholding tax implications and to make recommendations to restructure the agreements to mitigate the exposure to malaysian withholding tax.

Nicole Madison
Nicole Madison
Nicole Madison's love for learning inspires her work as a SmartCapitalMind writer, where she focuses on topics like...
Learn more
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