The key thing to consider for businesses that earn income internationally is the threshold for income taxation in each nation that the business operates. Additionally, in order to minimize the chances of overtaxation, international tax treaties should be considered for any credits that may be available for individuals or businesses operating in multiple countries.

Typically, the nation in which a business resides is the primary nation that international tax law will be applied in. For this reason, many businesses that mainly operate in one country may officially be headquartered in a country with more favorable tax laws.

Some nations that require citizens living outside the country to still file income tax returns, such as the United States, have provisions that prevent the citizen from being taxed twice. In the U.S. the IRS has a Foreign Tax Credit that can be claimed by individuals living outside of the United States. The Foreign Tax Credit reduces the income tax owed by an individual by the amount paid in foreign taxes.

Tax treaties are the chief documents that control taxation between treaty nations. Tax treaties exist in order to determine where income taxes are owed, to whom, and close loopholes that prevent businesses from evading taxes in every country in which they operate.

Typically income must be reported in every country where enough income is generated to require income taxes to be paid. Failure to comply with a country’s income tax laws can result in fines or even potential imprisonment depending on the nature and the severity of the international tax infraction.