Last updated 2026-06-27

Foreign Tax Credit

A foreign tax credit is a credit claimed on your domestic tax return for taxes paid to a foreign government. Instead of filing a refund in the source country, investors can offset the foreign withholding tax against their home-country tax liability. Most countries permit this for taxes paid under applicable tax treaties.

Foreign tax credits and WHT refunds are two separate remedies for the same problem of double taxation. A credit on your annual tax return is typically simpler — no foreign-language forms required — but it only works if you have sufficient domestic tax liability. The credit cannot exceed the domestic tax owed on the same income. If the withholding rate (e.g. 30%) exceeds your marginal rate (e.g. 20%), the excess 10% can only be recovered via a direct refund from the source country.