Definition
An agreement between the U.S. and another country that can lower or remove U.S. tax on some income of residents of that country.
What it means
The United States has income tax treaties with a number of foreign countries. Under them, residents of a treaty country may be taxed at a reduced rate, or be exempt, on certain income they receive from U.S. sources, such as dividends, interest, royalties or some pay for services. Each treaty has its own rates, articles and conditions, and some include limits on who can claim the benefits. The IRS publishes summary tables of treaty rates. A nonresident usually claims a treaty benefit in advance by giving the payer a Form W-8BEN with the country of residence and, when required, the treaty article and a tax ID number. Treaties also contain rules to help avoid double taxation of the same income.
Example
If a treaty sets a 10% rate on royalties, a writer resident in that country with $1,000 of U.S. royalties would have $100 withheld instead of $300 at the standard 30% rate.
Illustrative numbers only. Your situation will differ.
Related terms
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