Under double taxation arrangements, the following provisions apply:

i. Business Profits Not Arising Through a Permanent Establishment

According to the provisions of most double taxation agreements, business profits of a company are not taxable in the other country unless the company has a permanent establishment (PE) in that country. If the business profits are derived from activities not carried out through a permanent establishment, those profits will generally only be taxed in the country of residence of the company.

ii. Dividend Derived by One Company Resident in One Country from Another Company Resident in Another Country

Typically, dividends paid by a company that is a resident of one country to a company resident in another country may be subject to a reduced rate of tax in the source country under a double taxation agreement (DTA). The tax on dividends is often limited to a specific percentage (usually 5% or 10%) of the gross dividend amount, depending on the ownership structure between the two companies. The exact rate is determined by the DTA between the two countries.

iii. Directors’ Fees and Other Similar Payments Derived by a Resident of One Country in His Capacity as a Director of a Company Which Is a Resident of Another Country

Directors’ fees and similar payments derived by a resident of one country in their capacity as a director of a company resident in another country are typically taxed in the country where the company paying the fees is located. However, the country of residence of the director may also impose tax on this income, but a tax credit or exemption may be available to avoid double taxation, depending on the terms of the DTA.

These provisions are designed to mitigate the risk of double taxation in cross-border transactions involving business profits, dividends, and directors’ fees.