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. IRS Publication 901

    A document published by the Internal Revenue Service (IRS) that ...
  2. Income Tax

    A tax that governments impose on financial income generated by ...
  3. Tax Haven

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

    Earnings an individual derives from a rental property, limited ...
  5. Dividend

    1. A distribution of a portion of a company's earnings, decided ...
  6. Double Taxing

    A tax law that causes the same earnings to be subjected to taxation ...
Related Articles
  1. Pros And Cons Of Offshore Investing
    Personal Finance

    Pros And Cons Of Offshore Investing

  2. 3 Common Tax Questions Answered
    Taxes

    3 Common Tax Questions Answered

  3. Changes In Tax Legislation And Regulation
    Taxes

    Changes In Tax Legislation And Regulation

  4. Money And Politics
    Economics

    Money And Politics

comments powered by Disqus
Hot Definitions
  1. Market Segmentation

    A marketing term referring to the aggregating of prospective buyers into groups (segments) that have common needs and will ...
  2. Effective Annual Interest Rate

    An investment's annual rate of interest when compounding occurs more often than once a year. Calculated as the following: ...
  3. Debit Spread

    Two options with different market prices that an investor trades on the same underlying security. The higher priced option ...
  4. Odious Debt

    Money borrowed by one country from another country and then misappropriated by national rulers. A nation's debt becomes odious ...
  5. Takeover

    A corporate action where an acquiring company makes a bid for an acquiree. If the target company is publicly traded, the ...
  6. Harvest Strategy

    A strategy in which investment in a particular line of business is reduced or eliminated because the revenue brought in by ...
Trading Center