In an attempt to ensure that individuals and companies are not taxed twice simply by accident of the location of the income, governments have set up a series of what are called DTR agreements of treaties. What happens is that the bill of any overseas income is set against the bill which is due on the total income in the resident's (whether an individual or a corporation) country. Only the balance is paid.
In a case, however where the tax bill in the residence country is lower than that paid on overseas earnings there is no rebale. There is simply no tax to pay in the home country. This is the normal type of DTR agreement, though some are more comprehensive than others. DTR agreements have the additional benefit of helping to prevent tax evasion.
Under some DTR agreements certain types of income are taxable only in one of the countries who have signed the agreement. This is the case, for instance, in the agreement between Malaysia and Singapore, where income taxed in one country is completely tax-free in the other. The reason is the fhistorical link between the two countries. Companies have Shareholders in both countries and the tax is payable in the country in which the company is resident. Individuals living |n one country may work in the other, and in such cases will pay the tax in the country in which they work. In cases where income is taxable in both countries the overseas tax is nor-allowed as a credit against the domestic tax due. In cases where no DTR agreement exists between countries, raising the unpleasant prospect of double taxation, I there may be what is called "unilateral relief". Under it, over-peas paid may be deducted in computing the overseas income taxable in the resident's country This is not always the case, however.
