ACCA Advanced Taxation (ATX) Practice Exam

What types of income are excluded from 'overseas income' under the corporation tax computation?

1. Rental income

2. Interest income

3. Overseas dividends

4. Branch profits

The correct answer is: Overseas dividends

In the context of corporation tax computation, overseas income typically includes any income that a corporation earns from sources outside the country in which it is resident. However, certain types of income, such as overseas dividends, are excluded from the definition of 'overseas income' for tax purposes. Overseas dividends, which are the dividends received from foreign investments, are treated differently because they may already be subject to tax in the country of origin or may be eligible for tax relief under double tax treaties. This distinction is important because it can prevent double taxation and ensure that corporations are not taxed excessively on income that has already been taxed. In contrast, rental income, interest income, and branch profits are generally considered overseas income as they represent income derived from foreign operations or investments and are included in the computation of corporation tax. These types of income are treated as part of the taxable income unless specific exemptions or deductions apply. Therefore, understanding how different income types are classified is crucial for accurate corporate tax calculations and compliance with tax regulations.