Taxpayers who have paid or accrued foreign taxes to a foreign country or U.S. possession and are liable for U.S. tax on the same income have the option to claim either a credit or an itemized deduction for those taxes. What’s more, the foreign tax credit can be applied specifically to foreign taxes related to income, war profits, excess profits, or taxes that serve as substitutes for these types of taxes.

1. What is Foreign Tax Credit?
   
   The Foreign Tax Credit serves as a key strategy for alleviating the issue of double taxation within a global tax framework. Its purpose is to minimize the potential burden of being taxed twice on income sourced from foreign entities, by either the United States or the foreign jurisdiction where the income originates. The primary aim is to assist taxpayers in avoiding the scenario of being taxed twice on their foreign earnings. Individuals have the option to either deduct the foreign income tax they have paid or utilize it as a credit against their foreign tax liability.
   
   Furthermore, there exists a restriction on the maximum credit that can be obtained. The foreign tax credit is determined by the foreign tax amount paid or accrued, or the foreign tax credit limit, whichever is lower.  The calculation of the foreign tax credit and its limit is conducted through the completion of Form 1116, specifically designed for the Foreign Tax Credit. It is essential to note that the initial stage in this process involves the computation of creditable foreign income taxes.
   
   
2. Compute Creditable Foreign Income Taxes
   
   The first step, computing creditable foreign income taxes begins with recognizing what is "foreign" source income and what is "creditable" tax
   
   

   (1)

   What is “Foreign” Source Income? The source of one's earned income is determined by the location where the services are rendered in exchange for the income received. Foreign earned income pertains to the compensation acquired for providing personal services in a foreign nation. The method or location of payment does not alter the source of the income. For instance, income obtained for services performed in France is sourced from a foreign country, irrespective of whether the payment is deposited directly into a U.S. bank account and the employer is based in New York City. (a) Income earned outside U.S. borders is generally considered foreign-source income. (b) Dividends—Earnings distributed by a foreign corporation in the form of dividends are considered income from foreign sources (look to the factor being the location of the paying entity's residency). (c) Interest—Income generated from interest payments made by a foreign corporation or foreign government is considered foreign-source income (look to the residency of the entity making the payment). (d) Royalties—Foreign-source royalty payments would be generated by licensing intangible assets such as patents and copyrights in a different jurisdiction.

   (2)

   What is “Creditable” Taxes? Generally, the foreign tax credit is applicable only to income taxes that have been paid or accrued to a foreign country or a U.S. territory, or taxes paid or accrued to a foreign country or U.S. territory in place of income tax. Additionally, it is essential that the primary nature of the tax in question is that of an income tax. (a) A foreign levy can be defined as a tax that necessitates a mandatory payment under the jurisdiction of a foreign nation for the purpose of imposing taxes. (b) A tax imposed "in lieu of an income tax," will qualify (e.g., withholding taxes). (c) Penalties, fines, interest, and customs duties do not qualify. (d) Sales and property taxes are not creditable, but are deductible

Reference:
https://www.irs.gov/individuals/international-taxpayers/foreign-taxes-that-qualify-for-the-foreign-tax-credit
https://www.irs.gov/individuals/international-taxpayers/foreign-tax-credit-how-to-figure-the-credit
https://www.irs.gov/individuals/international-taxpayers/foreign-tax-credit
https://www.irs.gov/taxtopics/tc856
https://www.irs.gov/individuals/international-taxpayers/foreign-earned-income-exclusion-what-is-foreign-earned-income