Treaty-Based Exemptions refer to provisions in international tax treaties that allow individuals or entities to be exempt from certain taxes in one country based on their tax residency in another country.
These exemptions are designed to prevent double taxation, which occurs when a taxpayer is subject to tax in both their resident country and the country where they earn income. Treaty-based exemptions typically involve various types of income, such as dividends, interest, and royalties, and must be claimed in accordance with the specific treaty provisions.
For example, if a resident of Country A earns interest income from a source in Country B, and the tax treaty between Country A and Country B provides for a reduced withholding tax rate or an exemption, the taxpayer can benefit from this treaty to lower their tax burden.
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