Income Tax TreatiesPosted on March 9 2010 by admin
The United States has entered into income tax treaties over fifty countries. Treaties serve to bolster trade and foreign investment. On certain types of income, treaties will reduce the rate of withholding tax that would have been applied to payments between taxpayers of two countries.
Absent a treaty, the US will generally impose a 30 percent withholding tax on items of U.S.-source fixed or determinable annual or periodical gains, profits, and income that are not effectively connected with the conduct of a U.S. trade or business, and paid to a non US person. Fortunately treaties will reduce the rate from 30% to 15%, 10%, 5%, and in certain cases zero withholding will be applied.
For example, the US and Canada recently updated their income tax treaty and reduced the withholding rate on interest payments between both related and unrelated taxpayers to zero.
Whilst the treaty provide for such reductions, the US payers must obtain certain signed document from the foreign person before allowing for a reduction of withholding in an amount less than 30%. Without such support in place at time of payment, the IRS could impose the shortfall in withholding on the US payer. Such forms include but are not limited to:
When filing the US return or US nonresident return, be sure to include Form 8833 to disclose to the IRS the treaty position that you have taken. The IRS website has much more detailed information should you like to learn more about the US treaties that exist. The above information is only general in nature and should not be relied upon for withholding or filing positions.
By Debra Callicutt, CPA
There is nothing more complex than the world of taxes. We know this and yet we chose careers where we face these issues everyday. We get questions day in and day out about new tax laws, forms and news items and how they affect everyday people and businesses. Well, here at Henry & Horne, LLP we have set out to do what we do best; help everyday people understand what is going on in the world of state, local, federal, estate and international taxation. We will provide these weekly posts and we encourage you to give us feedback on those posts as well as letting us know what else you would like to know more about. Welcome to "Tax Insights." We hope you find this blog informative and worthy of your time.
Before posting a comment on a blog post please be aware that we do not give free tax advice to non-clients by email, comment response, or phone. Thank you!
- A Choice for Taxpayers: The State and Local Tax Deduction
- Kiddie Tax
- Revised Arizona Form 5005
- Supreme Court Says No to Double Taxation!
- New AZ Law Establishes Tax Recovery Program in 2015
- No Longer Tax Free – Nevada Enacts Commerce Tax
- The Benefits of Cost Segregation Studies
- The Importance of Adequate Tax Records
- Is your small business impacted by the Affordable Care Act?
- Pushing Tax Reform – TPR De Minimis Safe Harbor Threshold