What to Know About International Taxation

What is International Taxation?

International taxation is the formal study or evaluation of tax and the effects that a levy poses on a person or business entity that is subject to the tax laws of various countries. Additionally, International taxation will evaluate the international aspects of an individual country’s specific laws towards taxation.

There are three fundamental forms of taxation throughout the world—a territorial taxation system, a residency tax or exclusionary tax. As a result of the different models present, International Taxation will evaluate the benefits and costs associated with these levies based on the locations in which they are instituted. The study of International taxation will evaluate the levy in regards to the tax payer’s disposable income and the effects (in a percentage aspect) of the different forms of taxation.

In most cases, a governing body will limit the scope of their income taxation levy in some manner that is derived territorially; the manner of limitation typically will take the form a residency or exclusionary system. Some governments have attempted to mitigate the effects of differentiating limitations of each taxation system by enacting a hybrid system with characteristics of two or more.

The majority of governing systems, tax their citizens based on the income they generate. These taxation systems vary, and there are no broad general rules attached. As a result, these variations can create the potential for a double taxation model, where the same income is taxed by different countries an no taxation is levied on incomes in other areas.

NEXT: Luxury Tax at a Glance