Source principle of taxation

The source principle is a rule of international taxation under which a country asserts the right to tax income that originates within its territory, regardless of who earns it. Under this approach, both residents and non-residents are liable to tax when their income is connected to activities or assets located in that country. Governments rely on this principle so they can tax economic value created within their borders.

Example: Rental income Imagine an individual who resides in Dubai but owns residential property in the United Kingdom. Because the property is situated in the UK, any rent earned from it is treated as UK-source income. The UK therefore taxes the rental income even though the property owner is not a UK resident.