Tag: tax treaty

By Anthony Diosdi The major purpose of an income tax treaty is to mitigate international double taxation through tax reduction or exemptions on certain types of income derived by residents of one treaty country from sources within the other treaty country. Because tax treaties often substantially modify U.S. and foreign tax consequences, the relevant treaty must be considered in order to fully analyze the income tax consequences of any outbound or inbound transaction. The U.S. currently has income tax treaties with approximately 58 countries. This article discusses the implications of the United States.-Canada Income Tax Treaty. There are several basic treaty provisions, such as permanent establishment provisions and reduced withholding tax rates, that are common to most of the income tax treaties to which the U.S. is a party. In…

By Anthony Diosdi The major purpose of an income tax treaty is to mitigate international double taxation through tax reduction or exemptions on certain types of income derived by residents of one treaty country from sources within the other treaty country. Because tax treaties often substantially modify U.S. and foreign tax consequences, the relevant treaty must be considered in order to fully analyze the income tax consequences of any outbound or inbound transaction. The U.S. currently has income tax treaties with approximately 58 countries. This article discusses the implications of the United States.-People’s Republic of China Income Tax Treaty. There are several basic treaty provisions, such as permanent establishment provisions and reduced withholding tax rates, that are common to most of the income tax treaties to which the U.S. is…

By Anthony Diosdi Two different U.S. federal tax methods apply to foreign investors. First, foreign investors engaged in a trade or business in the United States are taxed on income that is effectively connected with a trade or business. Such income is taxed at applicable graduated U.S. federal individual income tax rates. Foreign investors are subject to a different set of rules for income that is not effectively connected with a trade or business in the U.S. Under this method, a flat 30 percent tax is imposed on U.S. source fixed or determinable annual or periodic income such as (interest, dividend, rents, annuities, and other types of “fixed or determinable annual or periodic income,” which is also known as “FDAP.”). Under FDAP, tax is imposed on gross income and no…

By Anthony Diosdi Generally, a non-U.S. taxpayer that is not engaged in a U.S. trade or business is taxable in the United States only on U.S. source “fixed determinable, annual or periodical” income (“FDAP”). Unless an applicable income tax treaty applies to reduce the rate of tax, FDAP income typically will be subject to a 30 percent gross basis withholding tax.While most income tax treaties entered into by the United States with foreign countries reduce or eliminate the 30 percent withholding tax on FDAP, not all foreign jurisdictions have comprehensive income tax treaties with the United States. This article analyzes whether a resident of a country that has not entered into a bilateral tax treaty with the United States can utilize the U.S.-Cyprus tax treaty to reduce the 30 percent…

By Anthony Diosdi The United States has income tax treaties with approximately 58 countries. These treaties allow for various forms of tax relief. In order for a U.S. corporation or U.S. individual to obtain a tax treaty benefit in a foreign country that has a tax treaty with the United States, many U.S. treaty partners require that the Internal Revenue Service (“IRS”) certify that the entity or individual claiming treaty benefits is a resident of the United States for federal tax purposes. The IRS provides this residency certification on Form 6166, a Letter of U.S. Residency Certification. A Form 6166 may also be used as a proof of U.S. residency for purposes of obtaining an exemption from a value added tax (“VAT”) imposed by a foreign country.Below, please find two…

By Anthony Diosdi We often receive inquiries from non-U.S. citizens that are concerned with the U.S. tax implications of withdrawing money from an Individual Retirement Accounts (“IRA”) or 401(k) plan. Often these individuals are in the U.S. for a temporary work assignment and they are concerned with the U.S. withholding tax of 20% or 30%. They are also concerned about the 10% early withdrawal penalty. This article discusses how non-U.S. citizens may use a tax treaty to eliminate the U.S. tax associated with the withdrawal of funds from an IRA or 401(k) plan.Taxation of Distributions from IRAs and 401(k) Plans Under U.S. Federal Tax LawUnder the Internal Revenue, any distribution from a qualified plan such as an IRA or 401(k) plan that does not qualify as an eligible rollover-distribution is…