Nationality principle

The Nationality Principle in international taxation links a person’s tax obligations to their citizenship rather than where they live or earn income. Under this principle, a country can tax its citizens on worldwide income even if they reside abroad. The United States is a well-known example, as it taxes citizens regardless of their residence.

However, most modern tax treaties (DTAAs) include non-discrimination clauses, ensuring that foreign nationals are not taxed more heavily simply due to their nationality. This principle typically applies to individuals, not companies, and promotes fairness in cross-border taxation, encouraging international mobility and investment.

Example: If an Indian and a Japanese citizen earn the same income in India, India cannot tax the Japanese citizen more just because they are not Indian, as per the India–Japan tax treaty.