How do tax treaties between countries work?

Tax treaties between countries work by reducing or eliminating taxes that would otherwise be paid on income earned in one country by the citizens of another. Each country involved in a tax treaty negotiates the terms of the treaty. Generally, they will agree on rules for how they will tax income earned in either country, and on any other financial matters related to the activities of citizens and companies in both countries. Under a tax treaty, a person may be exempt from taxes in one or both countries, or the taxes they would have to pay on their income may be reduced. The exact terms of the treaty will depend on the types of taxes being discussed, the individuals and companies involved, and any other relevant factors. Tax treaties are beneficial to both countries involved because they provide a framework for managing foreign income in a way that is fair to the citizens of both nations. For example, a tax treaty can encourage foreign investment by making it more attractive for companies to set up operations in either country. This is because the taxes paid to each country are reduced, so the companies can make more profit and reinvest that money. Additionally, citizens of either country can benefit from lower taxes when they earn income in the other country. This is an attractive option for those who live and work across borders.

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