Tax treaties are agreements between two or more countries that set out the rules for how taxes will be imposed on individuals and businesses that operate across borders. The purpose of tax treaties is to avoid double taxation, where the same income or asset is taxed by both the home country and the foreign country.
Tax treaties typically cover several key areas, such as the types of income that are subject to taxation, the rules for determining which country has the primary right to tax a particular type of income, and the mechanisms for reducing or eliminating double taxation. They also provide for procedures to resolve disputes between tax authorities from different countries.
In addition to avoiding double taxation, tax treaties can also provide other benefits for individuals and businesses, such as reduced withholding taxes on cross-border payments and the ability to claim tax credits for foreign taxes paid.
To be eligible for the benefits of a tax treaty, individuals and businesses must generally meet certain requirements, such as being a resident of one of the treaty countries or having a permanent establishment in one of the treaty countries.
Overall, tax treaties play an important role in facilitating international trade and investment by providing greater certainty and predictability in tax matters for businesses and individuals operating across borders.« Back to Glossary Index