The following paragraphs briefly explain the exemptions that are
available under tax treaties for personal services income,
remittances, scholarships, fellowships, and capital gain income. The
conditions for claiming the exemptions vary under each tax treaty. For
more information about the conditions under a particular tax treaty,
see Publication 901.
Tax treaty benefits also cover income such as dividends, interest,
rentals, royalties, pensions, and annuities. These types of income may
be exempt from U.S. tax or may be subject to a reduced rate of tax.
For more information, see Publication 901.
Personal Services
Nonresident aliens from treaty countries who are in the United
States for a short stay and also meet certain other requirements may
be exempt from tax on their compensation received for personal
services performed in the United States. Many tax treaties require
that the nonresident alien claiming this exemption be present in the
United States for a total of not more than 183 days during the tax
year. Other tax treaties specify different periods of maximum presence
in the United States, such as 180 days or 90 days. Spending part of a
day in the United States counts as a day of presence.
Tax treaties may also require that:
- The compensation cannot be more than a specific amount
(frequently $3,000), and
- The individual have a foreign employer; that is, an
individual, corporation, or entity of a foreign country.
Teachers
and Professors
Nonresident alien teachers or professors who are residents of
certain treaty countries and who temporarily visit the United States
for the primary purpose of teaching at a university or other
accredited educational institution are not subject to U.S. income tax
on compensation received for teaching for the first 2 or 3 years after
their arrival in the United States. Many treaties also provide
exemption for engaging in research.
Generally, the teacher or professor must be in the United States
primarily to teach, lecture, instruct, or engage in research. A
substantial part of that person's time must be devoted to those
duties. The normal duties of a teacher or professor include not only
formal classroom work involving regularly scheduled lectures,
demonstrations, or other student-participation activities, but also
the less formal method of presenting ideas in seminars or other
informal groups and in joint efforts in the laboratory.
Table of Tax Treaties
Employees of
Foreign Governments
All treaties have provisions for the exemption of income earned by
certain employees of foreign governments. However, a difference exists
among treaties as to who qualifies for this benefit. Under many
treaties, aliens admitted to the United States for permanent residence
do not qualify. Under most treaties, aliens who are not nationals or
subjects of the foreign country do not qualify. Employees of foreign
governments should read the pertinent treaty carefully to determine
whether they qualify for benefits. Chapter 10 of this publication also
has information for employees of foreign governments.
Students, Apprentices,
and Trainees
Students, apprentices, and trainees generally are exempt from tax
on remittances (including scholarship and fellowship grants) received
from abroad for study and maintenance. Also, under certain
circumstances, a limited amount of compensation received by students,
apprentices, and trainees may be exempt from tax.
Nonresident aliens who became resident aliens.
Generally, you must be a nonresident alien student, apprentice, or
trainee in order to claim a tax treaty exemption for remittances from
abroad (including scholarship and fellowship grants) for study and
maintenance in the United States. However, if you entered the United
States as a nonresident alien, but you are now a resident alien for
U.S. tax purposes, the treaty exemption will continue to apply if the
tax treaty has an exception to the treaty's saving clause. If you
qualify under an exception to the treaty's saving clause and the payor
intends to withhold U.S. income tax on the scholarship, fellowship, or
other remittance, you can avoid income tax withholding by giving the
payor a Form W-9 with an attachment that includes the following
information.
- Your name and U.S. identification number.
- A statement that you are a resident alien and whether you
are a resident alien under the green card test, the substantial
presence test, or a tax treaty provision.
- Tax treaty and article number under which you are claiming a
tax treaty exemption, and description of the article.
- A statement that you are relying on an exception to the
saving clause of the tax treaty under which you are claiming the tax
treaty exemption.
Example.
Mr. Yu, a citizen of the People's Republic of China, entered the
United States as a nonresident alien student on January 1, 1996. He
remained a nonresident alien through 2000 and was able to exclude his
scholarship from U.S. tax in those years under Article 20 of the
U.S.-China income tax treaty. On January 1, 2001, he became a
resident alien under the substantial presence test because his stay in
the United States exceeded 5 years. Even though Mr. Yu is now a
resident alien, the provisions of Article 20 still apply because of
the exception to the saving clause in paragraph 2 of the Protocol to
the U.S.-China treaty dated April 30, 1984. If the payor of the
scholarship intends to withhold U.S. income tax, Mr. Yu should submit
Form W-9 and the required attachment to the payor.
Capital Gains
Most treaties provide for the exemption of gains from the sale or
exchange of personal property. Generally, gains from the sale or
exchange of real property located in the United States are taxable.
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