International Taxation (NR)
Dealing with non-resident (NR) taxation? Check out the guide below to learn how we can assist you with international taxation, ensuring compliance with tax laws for non-residents and optimising cross-border tax efficiencies.
For individuals and enterprises with cross-border financial interests, international taxation for non-residents (NR) is a complex but essential matter since it brings about the application of tax rules across several jurisdictions. To ensure compliance and reduce potential tax liabilities, Non-Resident Indians (NRIs) and international organisations with Indian income sources must comprehend their worldwide tax duties.
This involves following the guidelines set forth by the Foreign Exchange Management Act (FEMA) and the Income Tax Act, 1961, which controls how NRs are taxed. Gaining a comprehensive understanding of tax residency regulations and Double Taxation Avoidance Agreements (DTAAs) helps lower financial risks and avoid paying taxes twice on the same income.
Effective international tax planning also offers opportunities to optimise tax positions through the strategic use of foreign tax credits, exemptions, and deductions. Whether managing income from foreign assets, investments, or business operations, adhering to compliance standards like Transfer Pricing regulations and country-specific reporting requirements can prevent costly penalties and audits.
Our Services
At Benchmark, we offer a comprehensive range of international taxation services tailored to the unique needs of Non-Residents (NRs) and businesses engaged in cross-border transactions. Below is a detailed overview of our services:
| Services | Description |
|---|---|
International Tax Advisory |
Strategic tax planning and advisory services for Non-Residents, ensuring optimal tax structures that align with DTAAs, tax residency rules, and foreign tax obligations. |
Double Taxation Avoidance Agreements (DTAAs) |
Assistance in leveraging DTAAs for minimising double taxation, reducing withholding taxes, and maximising treaty benefits by obtaining and submitting necessary documentation like TRCs. |
Foreign Tax Credits (FTC) Optimisation |
Expert guidance on claiming Foreign Tax Credits under Section 90/91 of the Income Tax Act, including filing Form 67 and providing proof of foreign tax payments. |
Transfer Pricing Compliance |
Complete solutions for Transfer Pricing, including documentation, benchmarking, and reporting for intercompany transactions, ensuring adherence to OECD and local guidelines. |
Expatriate Taxation Solutions |
Tailored tax strategies for expatriates, covering tax equalisation, global income reporting, and compliance with both host and home country tax regulations. |
Tax Residency Certificate (TRC) Assistance |
Assistance with accurate reporting of foreign assets and income under Schedule FA of the Income Tax Act and compliance with the Black Money Act to avoid penalties. |
Capital Gains Tax Planning for NRs |
Expert advice on managing capital gains from foreign assets and investments, ensuring optimal tax treatment and compliance with domestic and international tax laws. |
Compliance with FATCA & CRS |
Assistance in meeting FATCA and Common Reporting Standard (CRS) requirements for reporting foreign accounts, ensuring full compliance with international tax reporting standards. |
Key Features of International Taxation Service
With the complexities of various tax regimes, engaging in strategic tax planning not only prevents financial penalties but also offers significant benefits in terms of optimising global income. Below are the key features of our international taxation services, outlining why they are essential for NRs:
Cross-Border Tax Compliance
Ensuring compliance with international tax regulations is essential for individuals and businesses operating in multiple jurisdictions. Proper cross-border tax planning helps avoid penalties, audits, and legal complications.
Double Taxation Relief
International tax systems often lead to the risk of paying taxes in two countries on the same income. Double Taxation Avoidance Agreements (DTAAs) offer significant relief by preventing this dual taxation.
Foreign Tax Credits
For those earning income in foreign countries, claiming foreign tax credits is crucial to avoid unnecessary tax liabilities. By offsetting taxes paid abroad against domestic tax obligations, NRs can minimise the risk of paying taxes twice on the same income, thus improving cash flow and financial efficiency.
Transfer Pricing Compliance
Transfer pricing regulations ensure that transactions between related entities across borders are conducted at arm's length. Complying with these regulations is critical for multinational businesses to avoid penalties and ensure that profits are taxed fairly in each country.
Repatriation of Profits
For businesses and individuals earning income abroad, recovering profits to their home country in a tax-efficient manner is essential. Strategic tax planning minimises tax liabilities associated with repatriation and ensures compliance with both domestic and foreign regulations, helping businesses maximise their earnings.
Global Investment Management
International taxation plays a key role in managing global investments. For NRs with diversified portfolios, effective tax planning ensures that investment income, such as dividends, interest, and capital gains, is taxed efficiently while maximising returns.
Why Choose Benchmark
At Benchmark, we specialise in providing comprehensive international taxation services tailored to Non-Residents (NRs) and businesses with cross-border operations. Our team of tax professionals brings deep expertise in global tax regulations, ensuring that our clients remain compliant while optimising their tax liabilities. Here's what we can do for you:
Tailored Tax Planning and Advisory
We offer strategic tax planning that takes into account your residency status, global income sources, and applicable Double Taxation Avoidance Agreements (DTAAs). Our personalised advisory services help NRs navigate complex international tax laws, ensuring that you benefit from exemptions, deductions, and foreign tax credits (FTCs), minimising your tax burden.
Compliance with Cross-Border Tax Regulations
We ensures full compliance with both domestic and international tax regulations, including the provisions of the Income Tax Act, 1961, and the Foreign Exchange Management Act (FEMA). Our hands-on experience in handling cross-border tax compliance will make sure that your international operations follow regulatory standards.
Expert Handling of DTAAs and Tax Residency Certificates (TRC)
Our team ensures you receive the full benefits available under DTAAs by handling all the necessary documentation, including obtaining Tax Residency Certificates (TRCs). This allows you to claim relief from double taxation and reduces withholding tax rates on foreign income, ensuring efficient cross-border tax management.
Optimising Foreign Tax Credits (FTC)
We help our clients maximise the benefits of Foreign Tax Credits, ensuring they offset taxes paid in foreign jurisdictions against their domestic tax liabilities. We assist with the filing of Form 67 and guide you through the entire process of claiming FTCs under Section 90/91 of the Income Tax Act, ensuring that you only pay the minimum tax required.
Documents Required
Below is a table listing the essential documents required for Non-Residents (NRs) to comply with international taxation. These documents ensure accurate reporting and proper tax compliance across jurisdictions.
| Document | Description |
|---|---|
| Tax Residency Certificate | Issued by the tax authorities of a country to certify that an individual/entity is a tax resident of that country. Required to claim benefits under DTAAs. |
| Foreign Income Statements | Documentation of income earned abroad, including salary slips, dividend receipts, interest, or rental income. |
| Foreign Assets Disclosure | Detailed report of foreign assets such as bank accounts, properties, investments, or shares held abroad, required for compliance with domestic laws like the Black Money Act in India. |
| DTAAs Documentation | Documents supporting claims for relief under applicable Double Taxation Avoidance Agreements (DTAAs), including proof of taxes paid abroad and eligibility for exemptions or credits. |
| Transfer Pricing Documentation | Detailed reports on intercompany transactions, including pricing methodologies, agreements, and benchmarks, required to comply with Transfer Pricing regulations under OECD and domestic guidelines. |
| Form 67 (Foreign Tax Credit) | Mandatory form in India for claiming foreign tax credits. It requires information about the foreign income, taxes paid, and credit claimed under Section 90/91 of the Income Tax Act. |
| Proof of foreign investment | Contracts, certificates, or purchase agreements for investments in foreign businesses, stocks, or properties. |
| Bank statements for Foreign Accounts | Statements showing details of transactions and balance in foreign bank accounts, required under FEMA and domestic reporting regulations. |
| Capital Gains Statement | Documentation of capital gains arising from the sale of foreign properties, investments, or other assets, is necessary for tax calculations. |
| Annual Financial Statements | For businesses, annual statements including profit and loss, balance sheets, and tax returns filed in foreign jurisdictions. |
International Taxation Process
Managing international taxation requires a systematic approach to ensure full compliance with local and international tax regulations. Here's a breakdown international taxation for NRs process:
Step 1: Initial Assessment and Tax Residency Determination
The process begins with a thorough review of your tax residency status under both the domestic Income Tax Act and international tax treaties. Determining whether you qualify as a Non-Resident, Resident but Not Ordinarily Resident (RNOR), or Resident is critical for identifying your global tax obligations. This step also involves analysing your financial footprint across jurisdictions and understanding any relevant tax residency rules in the countries involved.
Step 2: Double Taxation Avoidance Agreement (DTAA) Application
Once tax residency is determined, we assess the applicability of any Double Taxation Avoidance Agreements (DTAAs) between your home country and the foreign country where income is earned. We ensure you benefit from the treaty provisions, minimising the risk of double taxation. This step includes obtaining the necessary Tax Residency Certificate (TRC) and providing documentation to claim relief under the DTAA, such as reduced withholding tax rates or tax exemptions.
Step 3: Transfer Pricing Compliance and Documentation
For clients engaged in cross-border business transactions, ensuring compliance with Transfer Pricing regulations is essential. We prepare detailed Transfer Pricing documentation in line with OECD guidelines and domestic laws to ensure that all intercompany transactions are conducted at arm's length. This step includes benchmarking, preparing master files, and filing country-by-country reports to avoid potential disputes and penalties.
Step 4: Foreign Tax Credit (FTC) Optimisation
Foreign tax credits are a key tool to offset taxes paid abroad. We assist in calculating and claiming credits for taxes paid in foreign jurisdictions under Section 90/91 of the Income Tax Act. This involves completing Form 67, providing proof of foreign tax payments, and ensuring the correct credit is claimed to avoid double taxation.
Step 5: Global Tax Planning and Structuring
Our global tax planning services focus on optimising your income and asset structure across jurisdictions. This includes developing strategies for efficient repatriation of profits, ensuring compliance with the Foreign Exchange Management Act (FEMA), and planning for the tax implications of holding foreign assets.
Step 6: Filing and Compliance
Finally, we handle the preparation and filing of all necessary tax returns and disclosures for foreign income, assets, and investments. This includes filing required forms such as Form 67 for FTC, Schedule FA (Foreign Assets) under the Indian Income Tax Act, and relevant declarations under FEMA.
Non-Compliance Issues in International Taxation (NR)
Non-compliance with international taxation laws can lead to severe financial and legal consequences for both businesses and individuals. Below are some of the key non-compliance issues that NRs must be aware of to avoid penalties, interest charges, or even criminal prosecution:
- Non-residents who fail to declare foreign income or assets as required under the Income Tax Act, 1961, or the Black Money Act, 2015, may face significant fines, interest, and scrutiny.
- Failure to disclose international income can trigger audits or investigations, leading to penalties as high as 300% of the undisclosed income.
- Under FEMA regulations and Schedule FA of the Indian Income Tax Act, failure to disclose or incorrect reporting can result in heavy penalties and legal action, including prosecution.
- Improper claims under DTAAs may also invite penalties, especially if tax authorities view it as an intentional attempt to evade taxes.
- Non-compliance with these rules can result in tax adjustments, additional tax liabilities, penalties, and interest.
- Failure to file Form 67, which is required to claim Foreign Tax Credits (FTC), can result in the denial of credit for taxes paid abroad.
Common Tax Mistakes NRs Make
Understanding international taxation can be complex, and many Non-Residents (NRs) unknowingly make mistakes that lead to financial penalties, interest charges, or compliance issues. Below are some of the most common tax mistakes NRs make and how to avoid them:
- Failing to report foreign assets under the Black Money Act.
- Not claiming foreign tax credits properly.
- Misinterpreting RNOR vs. NR status.
- Incorrectly applying Double Taxation Avoidance Agreements (DTAAs).
- Not filing Form 67 for Foreign Tax Credit (FTC) claims.
- Underreporting or misreporting global income.
- Non-compliance with FEMA regulations on foreign bank accounts and remittances.
- Failure to maintain proper documentation for international transactions.
- Ignoring tax implications on foreign investments and capital gains.
Conclusion
A thorough understanding of both national and international tax laws is necessary to successfully understand the complexity of international taxation for non-residents. Maintaining financial stability and growth requires maximising your tax obligations, protecting your international assets, and ensuring compliance with numerous governments. NRs can take advantage of major chances to optimise their tax efficiency in addition to avoiding the risks of non-compliance by utilising professional assistance and customised tax solutions.
Get in Touch
Ready to simplify your international tax obligations and protect your global financial interests? Contact us today for a personalised consultation, and let our team of professionals guide you through every step of the process.
FAQs
What is the difference between a Non-Resident (NR) and a Resident but Not Ordinarily Resident (RNOR)?
An NR is an individual who does not meet the conditions for tax residency as outlined in the Income Tax Act, 1961. On the other hand, an RNOR is a transitional residency status where the individual qualifies as a resident but has not been a resident for a specified period in the preceding financial years. RNORs enjoy certain tax benefits, such as being taxed only on Indian income, not on global income, unlike residents.
How does the Foreign Account Tax Compliance Act (FATCA) impact Non-Residents?
FATCA is a U.S. law aimed at preventing tax evasion by U.S. persons holding accounts and assets outside the United States. Non-Residents with U.S. income sources or accounts in the U.S. may be required to comply with FATCA regulations, including disclosing information about their foreign financial accounts.
How is the tax on repatriation of foreign income calculated?
The tax on repatriation depends on the nature of the income being repatriated, such as dividends, royalties, or business profits, and the provisions of the applicable DTAA. Under FEMA guidelines, there may also be limits and reporting requirements for repatriating foreign income.
Can Non-Residents avail themselves of exemptions on capital gains tax from foreign investments?
Non-Residents can claim exemptions on capital gains from foreign investments based on specific provisions under the Income Tax Act and applicable DTAA. For instance, long-term capital gains on certain securities may be taxed at a reduced rate, or exempt under a treaty, provided proper documentation like investment records and tax residency certificates are submitted.
What is the procedure for claiming Foreign Tax Credits (FTC) for taxes paid abroad?
To claim FTC, you must submit Form 67 along with your income tax return. The FTC amount is determined based on the taxes paid in the foreign country and the relief provisions under Section 90/91 of the Income Tax Act. You will also need proof of taxes paid abroad, such as tax receipts or returns filed in the foreign jurisdiction, and ensure compliance with DTAA provisions.