Tax Treaty

AAA

DEFINITION of 'Tax Treaty'

A bilateral agreement made by two countries to resolve issues involving double taxation of passive and active income. Tax treaties generally determine the amount of tax that a country can apply to a taxpayer's income and wealth. Tax haven countries are the only countries that typically do not enter into tax treaties.

INVESTOPEDIA EXPLAINS 'Tax Treaty'

One of the most important aspects of a tax treaty is the policy on withholding taxes, which determines how much tax is levied on income (interest and dividends) from securities owned by a non-resident. For example, if a tax treaty between country A and country B determined that their bilateral withholding tax on dividends is 10%, then country A will tax dividend payments that are going to country B at a rate of 10% and vice versa.

RELATED TERMS
  1. Dividend

    A distribution of a portion of a company's earnings, decided ...
  2. IRS Publication 901

    A document published by the Internal Revenue Service (IRS) that ...
  3. Tax Haven

    A country that offers foreign individuals and businesses little ...
  4. Income Tax

    A tax that governments impose on financial income generated by ...
  5. Passive Income

    Earnings an individual derives from a rental property, limited ...
  6. Withholding Tax

    1. Income tax withheld from employees' wages and paid directly ...
RELATED FAQS
  1. Can the government tax your capital gains from other countries?

    Income earned by U.S. citizens is subject to taxation by the IRS regardless of where it was generated. The government of ... Read Full Answer >>
  2. In what types of economies are regressive taxes common?

    Regressive taxation systems are more likely to be found in developing countries or emerging market economies than in the ... Read Full Answer >>
  3. What's the difference between regressive and progressive taxes?

    The U.S. federal tax system and local and state tax systems are complex in that they combine progressive, regressive and ... Read Full Answer >>
  4. What are the differences between regressive, proportional and progressive taxes?

    Tax systems fall into three main categories within the tax code: regressive, proportional and progressive taxes. Regressive ... Read Full Answer >>
  5. What is the difference between an operating expense and a capital expense?

    An operating expense (OPEX) is an expense required for the day-to-day functioning of a business. In contrast, a capital expense ... Read Full Answer >>
  6. What causes politicians or governments to begin "pork barrel" spending?

    Pork barrel spending occurs when the government taxes the general population to hand out concentrated benefits to special ... Read Full Answer >>
Related Articles
  1. Taxes

    Changes In Tax Legislation And Regulation

    Keeping on top of these amendments can help you avoid penalties and take advantage of benefits.
  2. Personal Finance

    Pros And Cons Of Offshore Investing

    Tax loopholes are shrinking, but there are still plenty of viable prospects. Get the big picture.
  3. Taxes

    3 Common Tax Questions Answered

    We clarify some rules that often puzzle taxpayers.
  4. Economics

    How The GDP Of The US Is Calculated

    The US GDP may not be a perfect economic measure, but the ability to compare it to prior periods and other countries makes it the most applicable.
  5. Taxes

    Are Taxes the Solution for Income Inequality?

    Income inequality continues to increase. Why? And are taxes the solution?
  6. Taxes

    Presidential Candidates And Wall Street In 2016

    Wall Street's influence will play a large role in the 2016 presidential race. As election season begins, candidates are showing their true colors.
  7. Economics

    Presidential Candidates For Students In 2016

    Early 2016 Presidential candidates are already making clear their intended strategies for solving the country's growing student loan debt issues.
  8. Economics

    China And The Maritime Silk Road

    We provide an overview of China's planned Maritime Silk Road.
  9. Forex Education

    What Is A Currency War And How Does It Work?

    We look at what a currency war is, what factors may lead to it, the impacts of such a strategy, and whether there is a currency war currently.
  10. Retirement

    Some Tax Considerations For Your Retirement Income

    Even if you don’t plan to retire, it’s still a good idea to think ahead about where to live, your income and how it all interacts with Social Security.

You May Also Like

Hot Definitions
  1. Expected Return

    The amount one would anticipate receiving on an investment that has various known or expected rates of return. For example, ...
  2. Carrying Value

    An accounting measure of value, where the value of an asset or a company is based on the figures in the company's balance ...
  3. Capital Account

    A national account that shows the net change in asset ownership for a nation. The capital account is the net result of public ...
  4. Brand Equity

    The value premium that a company realizes from a product with a recognizable name as compared to its generic equivalent. ...
  5. Adverse Selection

    1. The tendency of those in dangerous jobs or high risk lifestyles to get life insurance. 2. A situation where sellers have ...
Trading Center