Double taxation

Double taxation may be payable if you live abroad but work in Britain or if you live in Britain, but work abroad. Her Majesty’s Revenue and Customs have agreements or treaties with most countries, which mean that an individual or company does not have to pay tax twice on the same money earned, or gained in profits. If you fall into one of these categories, it would be worth checking out HMRCs web site to find out what agreement has been reached with the country you are living and working in. Agreements are updated regularly, so you really should check to see if anything has changed in the tax agreements or treaties as they are also called.

What you don’t want is to be taxed twice on the amount you earn. For example, if you are a UK national and working in Saudi Arabia as a teacher, trainer, instructor, lecturer or professor, or working in an educational establishment, then you are exempt from tax in Saudi for two years. If a Saudi Arabian national works in an educational institution in Britain, then he/she is also exempt from tax for two years under the terms of the reciprocal agreement between the two countries. If you live and work in Saudi Arabia for longer than two years, then the reciprocal double taxation agreement or treaty will come into play.

Recent updates to the double tax treaties between the UK and Japan and the Faroe islands came into force in August 2010, so if you are a Japanese citizen working in Britain or a Briton working in Japan, you should check out what the differences may be for your particular situation. Also if you work in the Faroes but are a UK citizen, check out the updates to the double tax agreement.

There are admissible and inadmissible taxes within the regulations for double taxation. Inadmissible taxes are the ones that you can’t get out of paying despite the double taxation agreement or treaty between the UK and the other country. For example, if you are a UK citizen working in Cameroon, and are not registered as a resident of Cameroon, you are liable to pay a fifteen per cent ‘special tax’ on income earned or gained from Cameroon. Any other income you have cannot be taxed in that country, of course, only money or profits made there.

However, there are usually exceptions to a rule and this one in Cameroon is for air transport businesses. There is a tax exemption from any Cameroonian tax on profits, distributed profits, income or capital gains on all profits which are derived form a UK business.

At the moment there is some concern about dividends paid to share holders; if a company has already paid tax on its profits, the argument goes, then share holders should not have to pay tax on that same money. However as the company and the share holders are not a single entity, the double taxation agreements do not apply.