Definition
Tax Treaty
A bilateral agreement that can reduce the US withholding rate applied to a foreign investor's income.
A tax treaty is an agreement between the US and another country that allocates taxing rights and commonly reduces the statutory 30% withholding rate on dividends, interest and royalties, sometimes to 15%, 10% or zero depending on the article and the recipient. Claiming a treaty benefit is not automatic: the investor must be a resident of the treaty country, must satisfy any limitation-on-benefits article designed to stop treaty shopping, and must certify the claim on a W-8BEN or W-8BEN-E with a foreign TIN. Coverage is uneven in a way that matters for emerging-market LPs. The US has treaties with India, Mexico and Indonesia, for example, but none with Brazil, the UAE, Nigeria or Kenya, so two investors in the same SPV can face materially different withholding.