Tax treaty relief is the reduction or removal of tax on cross-border income that a resident of one country can claim under a double taxation treaty with the country where the income arises. Treaties divide taxing rights between the two states and commonly cap the withholding tax that the source country may charge on dividends, interest and royalties. The OECD model treaty, on which many treaties are based, limits tax on ordinary portfolio dividends to 15% and on interest to 10%, although individual treaties vary.
Relief is not automatic. The recipient must show that it is resident in the treaty partner, usually with a tax residency certificate, and that it meets the test of beneficial ownership for tax purposes and any anti-abuse conditions. Relief is given either at source, when the payment is made, or later through tax reclaim processing. It works alongside double taxation relief granted by the investor's home country.