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Over 60 per cent of reporting jurisdictions provide for net basis taxation of income from most categories of services under domestic law. Net basis taxation aims to ensure that only the profits of the non-resident SP are taxed in the source jurisdiction by making appropriate allowance (such as deductions or depreciation allowances) for outgoings or other direct or indirect expenses incurred by the SP in deriving the services income.

Some jurisdictions collect withholding tax on income from certain categories of services, but provide an option for the SP to file a tax return and be taxed on a net basis, with the withholding tax credited against the final tax liability.

Even where jurisdictions have a general approach of taxing income from services on a net basis, some exceptions are fairly commonly found, for example with respect to payments for entertainment, international transport and insurance. Such income may be taxed on a gross basis, usually on the whole payment in the case of entertainment, and often at a low rate or on a presumed profit basis in the case of international transport and insurance.

Professional services or independent personal services are distinguished from business profits in a number of countries. These are generally services provided by skilled individuals. Definitions of such services vary, but in Austria, for example, “income from professional activities” includes inter alia the activities of self- employed doctors, dentists, architects, engineers, consultants, attorneys, arbitrators, interpreters, journalists, caretakers and members of a supervisory board or employees who hold a substantial interest in a corporation. Germany has a similar category of income.

Notwithstanding other differences in tax treatment (e.g. with respect to the threshold for taxation or the source of the income), the majority of jurisdictions tax both business profits and professional services income on a net basis. In Japan, however, while most services income of a non-resident SP is taxed on a net basis, professional services income of a non-resident SP who does not have a PE in Japan is taxed on a gross basis.


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Ottawa, ON  K1G 0Z1

Phone: (613) 831‑2552
Fax: (613) 831‑1565

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