Information provided on this site is for general
guidance only and is often simplified. Actual
IRS procedures are complex, and taxpayers should
obtain professional assistance or use IRS sources
for complete information.
Tax
Treaties
A
nonresident alien from a country with which the
United States has an income tax treaty may qualify
for certain benefits. The US has income tax treaties
with a number of foreign countries. Under these
treaties, residents of foreign countries are taxed
at a reduced rate, or are exempt from US income
taxes on certain items of income they receive
from sources within the US. These reduced rates
and exemptions vary among countries and specific
items of income.
If
a treaty does not cover a particular kind of income
, or if there is no treaty between the alien non-resident's
home country and the US, he or she must pay tax
on the income in the same way as a US national.
Many of the individual states of the US tax the
income of their residents, thus an individual
should consult the tax authorities of the relevant
state to find out if that state taxes the income
of individuals and, if so, whether the tax applies
to any of his or her income.
Tax
treaties effectively reduce the US taxes of residents
of foreign countries. They give substantial benefits
to non-residents over US citizens or residents,
who are subject to US income tax on their worldwide
income.
Most
treaties require that the alien be a resident
of the treaty country to qualify. However, some
treaties require that the alien be a national
or a citizen of the treaty country. An individual
can generally arrange to have withholding tax
reduced or eliminated on wages and other income
that is eligible for tax treaty benefits.
Tax
treaties are very important as regards withholding
tax; if an individual's home country has a double
tax treaty with the US (most high-tax countries
do) then the rates of withholding tax payable
may well be less than 30%.
Generally,
to prove entitlement to the benefits of a tax
treaty to a foreign country, the applicant must
provide a US Government certification that a US
tax return was filed.
The
taxing authorities of Italy and Spain however
do not accept the certification of filing a tax
return as valid proof of a US residence. If a
certification for Spain or Italy is needed, the
applicant must submit with the request for a certification
a signed statement to the IRS under penalties
of perjury that states the following:
-
The applicant is a US resident individual or
corporation,
- The
applicant does not have a permanent establishment
in Italy or Spain (specify the country),
-
The applicant's permanent street address, and
-
The applicant's state of incorporation (for
corporations only).
If
a taxpayer takes the position that any US tax
is reduced or potentially reduced by a US treaty
(a treaty-based position), the taxpayer generally
must disclose that position on a US tax return.
If the taxpayer is otherwise not required to file
a tax return because no tax is owed, a return
still has to be filed reporting the taxpayer's
treaty-based position. This disclosure requirement
does not apply to a reduced rate of withholding
tax on income that is not connected with a US
trade or business, such as dividends, interest,
rents, or royalties. It also does not apply to
a reduced rate of tax on pay received for services
performed as an employee, including pensions,
annuities, and social security.
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