The United States of America has tax treaties with a number of foreign countries.
Such treaties exist with many European countries, namely Austria, Belgium, Bulgaria, Czech Republic, Cyprus, Denmark, Estonia, Finland, France, Greece, Hungary, Iceland, Republic of Ireland, Italy, Latvia, Luxemburg, Moldova, Netherlands, Norway, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Switzerland , Ukraine and the United Kingdom.
Other notable countries include Australia, Canada, China, India, Japan, Mexico, Pakistan, Russia, South Africa, and Turkey.
Major economies, in particular in South and Central America, do not have such treaties with the US. Notably, Argentina, Brazil, Chile and Columbia are absent. With the exception of Mexico and Venezuela, and in the Caribbean, Trinidad and Jamaica, the entire southern part of the Americas are without such a treaty with the United States.
Under these treaties, residents (not necessarily citizens) of foreign countries are taxed at a reduced rate, or are exempt from U.S. taxes on certain items of income they receive from sources within the United States. These reduced rates and exemptions vary among countries and specific items of income. Under these same treaties, residents or citizens of the United States are taxed at a reduced rate, or are exempt from foreign taxes, on certain items of income they receive from sources within foreign countries. Most income tax treaties contain what is known as a “saving clause” which prevents a citizen or resident of the United States from using the provisions of a tax treaty in order to avoid taxation of U.S. source income and vice versa.
If the treaty does not cover a particular kind of income, or if there is no treaty between a specific country and the United States, a person must pay tax on the income in the same way and at the same rates shown in the instructions for the applicable U.S. tax return.
Many of the individual states of the United States also tax income, which is sourced in their states. Some states of the United States do not honor the provisions of international tax treaties, in as far as state tax is concerned.
The attorneys of Urban Thier & Federer have many years of experience in assisting clients with regards to international taxation and the corporate structuring of their international and US enterprises. If you wish to receive additional information regarding this topic or would like to discuss legal representation, please contact us or in our New York office at (646) 530-8782, or 001 646 530-8782 if calling from abroad.