Taxation of Non-Residents and Double Tax Agreements


Over the years, governments of various countries have been charging taxes on both individuals and organizations. A tax is a levy on income earned by citizens and business organizations. Countries all over the world have had tax arrangements whereby income for an individual living in a country other than his or her home country is not taxed twice. This is to means, the income is not taxed by the country he or she is staying in as well as his or her mother country. These arrangements prevent double taxation which would otherwise be detrimental to citizens or firms based in foreign countries.

These arrangements are normally reciprocal as both countries stand to benefit. It is therefore very relieving for a firm or an individual since the tax paid in one country is offset or credited to the firm’s or individual’s home country. This results in what is commonly known as Double Tax relief. The United Kingdom and the United States concluded such a treaty in the year 1946; this treaty has served as a model for many other countries that are currently engaged in tax arrangements.

Australia has been engaged in various treaties involving tax with several countries in the world. Singapore is one of the countries that has entered into a tax treaty with Australia. This has strengthened the economic relationship between the two countries. The system of taxation in Australia has been very sound since the time in memorial. This is because there were a lot of tax evaders who would do everything within their reach to evade paying taxes or pay as little tax as possible. In this regard, Australia has continuously brought policies and legal provisions to curb malpractices, especially where foreign countries are involved. Full disclosure of the tax information must be done with the tax office of Australia. This information is screened against any other relevant information to confirm that the details provided are true (Barkoczy 2012, p.12).

In the bilateral tax treaty with Singapore, the two countries agreed that Singapore would be covering income tax while Australia would be covering petroleum, resource, and rent tax. The agreement covers many areas which include; Real Estate Income, business profits, airline or shipping profits, pension, and annuities. All these have proved to benefit not only individuals but also organizations (Barkoczy 2012, p.411).

Treatment of Various Income Types

The double tax agreement treats incomes differently depending on the source of these particular incomes. If a country disposes of real estate property the income will be taxed in the resident country then a credit exemption will be made to the second country. This is seen in the agreement between Hong Kong and Australia.

Dividends, interests, and royalties may be taxed by both countries with the source country tax rate being limited while the residence country providing double tax relief. Withholding tax is usually imposed when a dividend is paid to a non-resident. The rate is either spelled out in the applicable double taxation agreement or done at 30 percent in case the data taxation agreement does not exist. In the recent double taxation agreements, personal incomes are charged at the rate of 10 percent in the residence country, and an equal credit in the second country. In Hong Kong, if the taxpayer is a resident individual and there are excess franking credits then such credit is normally refunded. In the Australian agreement with Malaysia, business profits may be taxed in the case of business trusts where there exists a permanent establishment in either of the countries. Dividends are charged a withholding tax of up to a maximum of 15 percent in Malaysia and zero in Australia for franked non–portfolio dividends.

India is another example of a country that has agreed with Australia regarding double taxation. The provisions on this tax agreement are very clear and there have been recent revisions to the arrangements. One of the revised agreements is on how to tax private enterprises and government-owned enterprises. The new agreement clearly states that a privately owned enterprise will be taxed higher than a state-owned one (Lymmer & Hasseldine 2002, p. 9). Revenue generated from the ship and air transport by a resident of the contracting countries is liable to tax in the country of residence of the operator. Other provisions include taxing those incomes that are derived from the personal provision of services. These incomes are taxed depending on the countries where the service was offered. However this is always done at a reducing rate to reduce the high expenses brought about by the taxes and for the well-being of the foreign country (Lymmer & Hasseldine 2002, p. 7).


Double tax arrangements have brought a lot of value in the various countries where the arrangements are practiced. This is by promoting both political and economic cooperation among nations. These arrangements are essential not only for governments but also for people who reside in countries that are not their home countries. This peaceful coexistence among countries has improved the political environment and cooperation. Australia is currently getting involved in more arrangements with other countries as well as the revision of the existing ones for a better economic situation (Barkoczy 2012, p.410).


Barkoczy, S 2012, Foundation of Taxation Law 4th Ed, CCH Australia Ltd, Sydney Australia.

Lymmer, A & Hasseldine, J 2002, The International Taxation System, Kluwer Academic Publishers, Norwell Massachusetts.

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