Media type · Double taxation
Tax credit
A credit for tax paid abroad, limited to the tax the home country would charge on that income.
Key facts
| Relieves | Double taxation |
|---|---|
| Limit | Home tax on the same income |
| Excess | May carry forward or be lost |
| Needs | Evidence of foreign tax paid |
| Basis | Residence, treaty or unilateral relief |
How the limit works
The credit is normally the lower of the foreign tax paid and the home tax on the same income. The limit prevents a foreign rate above the home rate from reducing tax on other income.
Where income is grouped into categories, a separate limit may apply to each group. That can strand a credit even when the total foreign tax looks modest.
Frequently asked questions
Is the credit refundable?
Usually not. It offsets home tax on the same income, and any excess is carried forward, carried back or lost under national rules.
What evidence is needed?
Proof of the foreign tax paid and of the income it relates to, usually a foreign return, assessment or withholding statement.