Tax Treaty
Category: tax
A bilateral agreement between countries to prevent double taxation on cross-border income.
A tax treaty (also called a double taxation agreement or DTA) is a bilateral agreement between two countries that allocates taxing rights and prevents the same income from being taxed in both jurisdictions. Tax treaties typically reduce withholding tax rates on dividends, royalties, and interest, and provide mechanisms for tax credits or exemptions. Cross-border e-commerce sellers benefit from treaties by reducing tax leakage on intercompany payments.
Examples
- • The US-China tax treaty reduces the withholding tax rate on royalties from 30% (domestic rate) to 10%.
- • A UK company paying dividends to a US parent can benefit from the UK-US tax treaty's reduced 0%-5% dividend withholding rate.
- • Without a tax treaty, a seller might face double taxation on the same income in both their home country and the market country.