Tax Treaty: A tax treaty is an agreement between two or more countries that aims to prevent double taxation and fiscal evasion regarding income and capital taxes. These treaties typically specify which country has taxing rights over various types of income, such as dividends, interest, and royalties, thereby providing clarity and protection for individuals and businesses operating in multiple jurisdictions.
Tax treaties generally include provisions for reduced tax rates or exemptions, allowing residents of one country to pay lower taxes on income earned in another country. For example, a U.S. citizen receiving dividends from a company in France may benefit from a reduced withholding tax rate due to the tax treaty between the U.S. and France, instead of facing the standard higher rate.
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