Tax Treaty

If you invest in foreign assets, and are then taxed both at home and abroad, this will, um...make you sad. And governments don’t like sad investor-citizens.

A tax treaty is an agreement between two countries which resolves this potential double-taxation issue. Not only do countries want to make sure foreign investors feel welcome, but also that other types of wealth aren’t double-taxed: income taxes, estate taxes, capital taxes, and wealth taxes.

Tax treaties not only help little investor Joe, but also businesses—the big money movers. They help the countries involved, too, in the same way that free trade (with few tariffs and quotas and such) does.

The OECD, the Organization for Economic Co-operation and Development, developed a tax model for its almost three-dozen wealthy countries, which is referenced by other nations when writing up their tax treaties. In general, the OECD tax treaty model benefits the country with higher capital exports than the one with fewer benefits.