What is the concept of double taxation?

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by mandy , in category: Taxation and Accounting , 9 months ago

What is the concept of double taxation?

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1 answer

by garret_hahn , 9 months ago

@mandy 

The concept of double taxation refers to the situation where an individual or entity is taxed twice on the same income, asset, or transaction by two different taxing authorities. Typically, this occurs when a taxpayer's income is subject to taxation both in the country or state where it was earned and in another jurisdiction where it is received or remitted.


Double taxation can take different forms, such as:

  1. Double taxation of corporate profits: In this scenario, a company's earnings are subject to income tax at the corporate level, and then when those profits are distributed to shareholders as dividends, the shareholders are taxed again on their individual tax returns.
  2. Double taxation of foreign income: When an individual or business operates in multiple countries, they may be subject to taxation on their income both in the country where it was earned, as well as in their home country when it is remitted or brought back.
  3. Double taxation of estate and inheritance: If an individual inherits assets or wealth, it may be subject to estate or inheritance taxes at the time of the donor's death, and then subject to further taxation when the assets are transferred or distributed to the beneficiary.


To avoid or mitigate double taxation, countries often have tax treaties or agreements in place with other nations to provide relief from the burden of paying taxes twice on the same income. Additionally, some countries provide tax credits or exemptions for foreign income earned or taxes paid in another jurisdiction to avoid or reduce double taxation.