Important Changes

New tax treaties.    The United States has exchanged instruments of ratification for new income tax treaties with Denmark, Luxembourg, and Ukraine. The new treaties with Denmark and Luxembourg replace existing treaties. Both the old and new provisions are discussed for those countries. The effective dates of the new treaties are as follows.

Denmark. The provisions for taxes withheld at source are effective for amounts paid or credited on or after May 1, 2000. For other taxes, the provisions are effective for tax years beginning on or after January 1, 2001. If you were entitled to benefits under the previous treaty with Denmark, you can elect to apply the old treaty in its entirety for one year following the date the new treaty would otherwise apply.

Luxembourg. The provisions for taxes withheld at source are effective for amounts paid or credited on or after January 1, 2001. For other taxes, the provisions are effective for tax years beginning on or after January 1, 2001. You can elect to apply the old treaty in its entirety for one year following the date the new treaty would otherwise apply.

Ukraine. The provisions for taxes withheld on interest, dividends, and royalties are effective for amounts paid or credited on or after August 1, 2000. For other taxes, the provisions are effective for tax periods beginning on or after January 1, 2001.

Previously, residents of Ukraine were covered under the treaty between the United States and the former Soviet Union. You can elect to have that treaty apply in its entirety for the first tax year the new treaty would otherwise apply. A person claiming benefits under Article III(1)(d) of the U.S-Soviet Union treaty can elect to have the treaty apply in its entirety for the duration of the period of benefits provided by that subparagraph.

Important Reminders

Disclosure of a treaty-based position that reduces your tax.   If you take the position that any U.S. tax is overruled or otherwise reduced by a U.S. treaty (a treaty-based position), you generally must disclose that position on your affected return.

U.S.-U.S.S.R. income tax treaty.   The U.S.-U.S.S.R. income tax treaty remains in effect for the following members of the Commonwealth of Independent States: Armenia, Azerbaijan, Belarus, Georgia, Kyrgyzstan, Moldova, Tajikistan, Turkmenistan, and Uzbekistan. That treaty will remain in effect until new treaties with these individual countries are negotiated and ratified. Provisions of the U.S.-U.S.S.R. income tax treaty are discussed in this publication under Commonwealth of Independent States.

U.S.-China income tax treaty.   The U.S.- China income tax treaty does not apply to Hong Kong.

Introduction

This publication will tell you whether a tax treaty between the United States and a particular country offers a reduced rate of, or possibly a complete exemption from, U.S. income tax for residents of that particular country.

Tables in the back of this publication show the countries that have income tax treaties with the United States, the tax rates on different kinds of income, and the kinds of income that are exempt from tax.

You should use this publication only for quick reference. It is not a complete guide to all provisions of every income tax treaty.

Comments and suggestions.   We welcome your comments about this publication and your suggestions for future editions.

You can e-mail us while visiting our web site at www.irs.gov/help/email2.html.

You can write to us at the following address:

Internal Revenue Service
Technical Publications Branch
W:CAR:MP:FP:P
1111 Constitution Ave. NW
Washington, DC 20224

We respond to many letters by telephone. Therefore, it would be helpful if you would include your daytime phone number, including the area code, in your correspondence.

Useful Items You may want to see:

Publication

• 519   U.S. Tax Guide for Aliens
• 597   Information on the United States-Canada Income Tax Treaty
• 686   Certification for Reduced Tax Rates in Tax Treaty Countries

Form (and Instructions)

• 8833   Treaty-Based Return Position Disclosure Under Section 6114 or 7701(b)

See How To Get Tax Help near the end of this publication for information about getting these publications and forms.

Obtaining copies of treaties.   You can get complete information about treaty provisions from the taxing authority in the country from which you receive income or from the treaty itself.

You can obtain the text of most of the treaties at www.irs.gov/prod/ ind_info/ treaties.html. You can also obtain the text of most of the treaties at the following address:

Department of Treasury
Office of Public Liaison
1500 Pennsylvania Ave. NW - Rm. 4418
Washington, D.C. 20220

If you have specific questions about a treaty, you can get this information from most Internal Revenue Service offices or from:

Internal Revenue Service
International Returns Section
P.O. Box 920
Bensalem, PA 19020-8518

Application of Treaties

The United States has income tax treaties with a number of foreign countries. Under these treaties, residents (not necessarily citizens) of foreign countries are taxed at a reduced rate, or are exempt from U.S. income 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.

If the treaty does not cover a particular kind of income, or if there is no treaty between your country and the United States, you must pay tax on the income in the same way and at the same rates shown in the instructions for Form 1040NR. Also see Publication 519.

Many of the individual states of the United States tax the income of their residents. Therefore, you should consult the tax authorities of the state in which you live to find out if that state taxes the income of individuals and, if so, whether the tax applies to any of your income.

Tax treaties reduce the U.S. taxes of residents of foreign countries. With certain exceptions, they do not reduce the U.S. taxes of U.S. citizens or residents. U.S. citizens and residents are subject to U.S. income tax on their worldwide income.

Treaty provisions generally are reciprocal (apply to both treaty countries); therefore, a U.S. citizen or resident who receives income from a treaty country may refer to the tables in this publication to see if a tax treaty might affect the tax to be paid to that foreign country. Foreign taxing authorities sometimes require certification from the U.S. Government that an applicant filed an income tax return as a U.S. citizen or resident, as part of the proof of entitlement to the treaty benefits. For information on this, see Publication 686.

Disclosure of a treaty-based position that reduces your tax.   If you take the position that any U.S. tax is overruled or otherwise reduced by a U.S. treaty (a treaty-based position), you generally must disclose that position on Form 8833 and attach it to your return. If you are not required to file a return because of your treaty-based position, you must file a return anyway to report your position. The filing of Form 8833 does not apply to a reduced rate of withholding tax on noneffectively connected income, such as dividends, interest, rents or royalties, or to a reduced rate of tax on pay received for services performed as an employee, including pensions, annuities, and social security. For more information, get Publication 519.

If you fail to file Form 8833, you may have to pay a $1,000 penalty. Corporations are subject to a $10,000 penalty for each failure.

Tax Exemptions Provided by Treaties

In addition to the tables in the back of this publication, this publication contains discussions of the exemptions from tax and certain other effects of the tax treaties on the following types of income.

1. Pay for certain personal services performed in the United States.
2. Pay of a professor, teacher, or researcher who teaches or performs research in the United States for a limited time.
3. Amounts received for maintenance and studies by a foreign student or apprentice who is here for study or experience.
4. Wages, salaries, and pensions paid by a foreign government.

Personal Services Income

Pay for certain personal services performed in the United States is exempt from U.S. income tax if you are a resident of one of the countries discussed below, if you are in the United States for a limited number of days and if you meet certain other conditions. For this purpose, the word day means a day during any part of which you are physically present in the United States.

Terms defined.   Several terms appear in many of the discussions that follow. The exact meanings of the terms are determined by the particular tax treaty under discussion; thus, the meanings vary among treaties. The definitions that follow are, therefore, general definitions that may not give the exact meaning intended by a particular treaty.

The terms fixed base and permanent establishment generally mean a fixed place of business, such as an office, a factory, a warehouse, or a mining site, through which an enterprise carries on its business.

The term borne by generally means having ultimate financial accounting responsibility for or providing the monetary resources for an expenditure or payment, even if another entity in another location actually made the expenditure or payment.

Australia

Income that residents of Australia receive for performing personal services as independent contractors or self-employed individuals (independent personal services) in the United States during the tax year is exempt from U.S. income tax if the residents:

1. Are in the United States for no more than 183 days during the tax year, and
2. Do not have a fixed base regularly available to them in the United States for the purpose of performing the services.

If they have a fixed base available in the United States, they are taxed on the income attributable to the fixed base.

Pay that residents of Australia receive for labor or personal services performed in the United States as employees (dependent personal services), including services as a director of a company, is exempt from U.S. income tax if:

1. The residents are in the United States for no more than 183 days during the tax year,
2. The pay is paid by, or on behalf of, an employer or company that is not a resident of the United States, and
3. The pay is not deductible in determining the taxable income of the trade or business of the employer (or company) in the United States.

These exemptions do not apply to public entertainers (such as theater, motion picture, radio, or television entertainers, musicians and athletes) from Australia who earn more than $10,000 in gross receipts, including reimbursed expenses, from their entertainment activities in the United States during the tax year.

Austria

Income that residents of Austria receive for personal services as independent contractors or self-employed individuals (independent personal services) in the United States is exempt from U.S. income tax if they do not have a fixed base regularly available to them in the United States for performing the services. If they have a fixed base available in the United States, they are taxed on the income attributable to the fixed base.

Income that residents of Austria receive for services performed in the United States as employees (dependent personal services) is exempt from U.S. income tax if the residents meet the following requirements.

1. They are in the United States for no more than 183 days in any 12-month period beginning or ending in the tax year.
2. Their income is paid by, or on behalf of, an employer who is not a U.S. resident.
3. Their income is not borne by a permanent establishment or a fixed base that the employer has in the United States.

These exemptions do not apply to public entertainers (such as theater, motion picture, radio, or television entertainers, musicians and athletes) from Austria who earn more than $20,000 in gross receipts, including reimbursed expenses, from their entertainment activities in the United States during the tax year.

Income received by a resident of Austria for services performed as an employee and member of the regular complement of a ship or aircraft operated in international traffic is exempt from U.S. income tax.

Barbados

Income that residents of Barbados receive for performing personal services as independent contractors or self-employed individuals (independent personal services) in the United States during the tax year is exempt from U.S. income tax if the residents:

1. Are in the United States for no more than 89 days during the tax year,
2. Earn net income for independent services provided to U.S. residents that is not more than $5,000 (there is no dollar limit if the contractors are not U.S. residents), and
3. Do not have a regular base available in the United States for performing the services.

If they have a regular base available in the United States but otherwise meet the conditions for exemption, they are taxed only on the income attributable to the regular base.

Income that residents of Barbados receive for personal services performed in the United States as employees (dependent personal services) is exempt from U.S. tax if the residents meet four requirements.

1. They are in the United States for no more than 183 days during the calendar year.
2. The income earned in the calendar year in the United States is not more than $5,000.
3. Their income is paid by or for an employer who is not a U.S. resident.
4. The income is not borne by a permanent establishment or regular base of the employer in the United States.

Income of a Barbadian resident from employment as a member of the regular complement of a ship or aircraft operated in international traffic is exempt from U.S. tax.

These exemptions do not apply to Barbadian resident public entertainers (such as theater, motion picture, radio, or television artists, musicians, or athletes) who receive gross receipts of more than $250 per day or $4,000 in the tax year, not including reimbursed expenses, from their entertainment activities in the United States. However, the exemptions do apply regardless of these limits on gross receipts if the entertainer's visit to the United States is substantially supported by Barbadian public funds or if the entertainer's services are provided to a nonprofit organization.

Belgium

Income that residents of Belgium receive for performing personal services as independent contractors or self-employed individuals (independent personal services) in the United States during the tax year is exempt from U.S. income tax if the residents:

1. Are present in the United States less than 183 days during the tax year, and
2. Do not maintain a fixed base in the United States for a period or periods that total more than 182 days during the tax year.

If they do not meet condition (2), they are taxed on the income attributed to the fixed base.

The exemption for independent personal services does not apply to individuals who are public entertainers (theater, motion picture, or television artists, musicians, or athletes), if they are in the United States for more than 90 days during the tax year or if their pay for services as public entertainers is more than $3,000.

Income that residents of Belgium receive for labor or personal services performed in the United States as employees (dependent personal services), including services as an officer of a corporation, is exempt from U.S. income tax if the residents meet three requirements.

1. They are present in the United States less than 183 days during the tax year.
2. They are employees of a resident of Belgium or of a permanent establishment in Belgium.
3. Their income is not borne by a permanent establishment that the employer has in the United States.

Income for services performed by an individual as an employee aboard a ship or an aircraft registered in Belgium and operated by a resident of Belgium in international traffic is exempt from U.S. tax if the individual is a member of the regular complement of the ship or aircraft.

These exemptions do not apply to fees received by a resident of Belgium for services performed as a director of a U.S. corporation if the fees are treated as a distribution of profits and cannot be taken as a deduction by the corporation.

Canada

Income that residents of Canada receive for personal services as independent contractors or self-employed individuals (independent personal services) that they perform during the tax year in the United States (except as public entertainers) is exempt from U.S. tax if they do not have a fixed base regularly available to them in the United States for performing the services. If they have a fixed base available in the United States, they are taxed on the income attributable to the fixed base.

Income that residents of Canada receive for personal services performed as employees (dependent personal services) in the United States (except as public entertainers) is exempt from U.S. tax if it is not more than $10,000 for the year. If the income is more than $10,000 for the year, it is exempt only if:

1. The residents are present in the United States for no more than 183 days during the calendar year, and
2. The income is not borne by a U.S. resident employer or by a permanent establishment or fixed base of an employer in the United States.

These exemptions do not apply to public entertainers (such as theater, motion picture, radio, or television artists, musicians, or athletes) from Canada who derive more than $15,000 in gross receipts, including reimbursed expenses, from their entertainment activities in the United States during the calendar year. However, the exemptions do apply, regardless of this $15,000 limit, to athletes participating in team sports in leagues with regularly scheduled games in both Canada and the United States.

Pay received by a resident of Canada for employment regularly done in more than one country on a ship, aircraft, motor vehicle, or train operated by a Canadian resident is exempt from U.S. tax.

China, People's Republic of

Income that residents of the People's Republic of China receive for personal services as independent contractors or self-employed individuals (independent personal services) that they perform during the tax year in the United States (except as athletes or public entertainers) is exempt from U.S. income tax if the residents:

1. Are present in the United States for no more than 183 days in the calendar year, and
2. Do not have a fixed base regularly available in the United States for performing the services.

If they have a fixed base available in the United States, they are taxable on the income attributable to the fixed base.

Pay received by residents of the People's Republic of China for services performed as employees (dependent personal services) in the United States (except as athletes or public entertainers) is exempt from U.S. tax if:

1. The residents are present in the United States for no more than 183 days in the calendar year,
2. The pay is paid by or for an employer who is not a U.S. resident, and
3. The pay is not borne by a permanent establishment or fixed base that the employer has in the United States.

These exemptions do not apply to directors' fees for service on the board of directors of a U.S. corporation.

These exemptions generally do not apply to income received as a public entertainer (such as a theater, motion picture, radio, or television artist, musician, or athlete). However, income of athletes or public entertainers from China participating in a cultural exchange program agreed upon by the U.S. and Chinese governments is exempt from U.S. tax.

Commonwealth of Independent States

Income that residents of a C.I.S. member receive for performing personal services in the United States is exempt from U.S. income tax if those residents are in the United States for no more than 183 days during the tax year.

Pay received by an employee who is a member of the regular complement of a ship or aircraft operated in international traffic by a C.I.S. member or a resident of a C.I.S. member is exempt from U.S. tax.

Cyprus

Income that residents of Cyprus receive for performing personal services as independent contractors or self-employed individuals (independent personal services) in the United States during the tax year is exempt from U.S. income tax if the residents:

1. Are present in the United States for less than 183 days in the tax year, and
2. Do not have a fixed base regularly available to them in the United States for performing the services.

If they have a fixed base available in the United States, they are taxable on the income attributable to the fixed base.

Pay received by residents of Cyprus from services performed as employees (dependent personal services), including services as an officer of a corporation, is exempt from U.S. income tax if:

1. The residents are in the United States for less than 183 days during the tax year,
2. The pay is paid by or for an employer who is not a U.S. resident, and
3. The pay is not borne by a permanent establishment, fixed base, or trade or business that the employer has in the United States.

Pay received by a Cyprus resident for performing personal services as an employee and member of the regular complement of a ship or aircraft operated in international traffic by a resident of Cyprus is exempt from U.S. tax.

These exemptions do not apply to Cyprus resident public entertainers (theater, motion picture, radio, or television artists, musicians, or athletes) who receive gross receipts of more than $500 per day or $5,000 for the tax year, not including reimbursed expenses, from their entertainment activities in the United States.

Directors' fees received by residents of Cyprus for service on the board of directors of a U.S. corporation are exempt from U.S. income tax to the extent of a reasonable fixed amount payable to all directors for each day of attendance at directors' meetings held in the United States.

Czech Republic

Income that residents of the Czech Republic receive for performing personal services as independent contractors or self-employed individuals (independent personal services) in the United States is exempt from U.S. income tax if the residents:

1. Are present in the United States for no more than 183 days in any 12-month period, and
2. Do not have a fixed base regularly available to them in the United States for performing the services.

If they have a fixed base available, they are taxed only on income attributable to the fixed base.

Income that residents of the Czech Republic receive for employment in the United States (dependent personal services) is exempt from U.S. income tax if the following three requirements are met.

1. The resident is present in the United States for no more than 183 days in any 12-month period.
2. The income is paid by, or on behalf of, an employer who is not a U.S. resident.
3. The income is not borne by a permanent establishment or a fixed base that the employer has in the United States.

These exemptions do not apply to income residents of the Czech Republic receive as public entertainers (such as theater, motion picture, radio, or television artists, or musicians) or sportsmen if their gross receipts, including reimbursed expenses, are more than $20,000 during the tax year. Regardless of these limits, income of Czech entertainers and sportsmen is exempt from U.S. income tax if their visit to the United States is substantially supported by public funds of the Czech Republic, its political subdivisions, or local authorities, or the visit is made pursuant to a specific arrangement between the United States and the Czech Republic.

These exemptions do not apply to directors' fees and similar payments received by a resident of the Czech Republic as a member of the board of directors of a company that is a resident of the United States.

Income from employment as a member of the regular complement of a ship or aircraft operated by a Czech enterprise in international traffic is exempt from U.S. income tax.

Denmark

Note:    See the effective dates of the new treaty under Important Changes at the beginning of this publication.

New treaty.    Income that residents of Den- mark receive for personal services as independent contractors or self-employed individuals (independent personal services) in the United States is exempt from U.S. income tax if they do not have a fixed base regularly available to them in the United States for performing the services. If they have a fixed base available in the United States, they are taxed on the income attributable to the fixed base.

Income that residents of Denmark receive for services performed in the United States as employees (dependent personal services) is exempt from U.S. income tax if the residents meet the following requirements.

1. They are in the United States for no more than 183 days in any 12-month period beginning or ending in the tax year.
2. Their income is paid by, or on behalf of, an employer who is not a U.S. resident.
3. Their income is not borne by a permanent establishment or a fixed base that the employer has in the United States.

These exemptions do not apply to directors' fees and similar payments received by a resident of Denmark as a member of the board of directors of a company that is a resident of the United States.

These exemptions do not apply to public entertainers (such as theater, motion picture, radio, or television artists, musicians, and athletes) from Denmark who earn more than $20,000 in gross receipts, including reimbursed expenses, from their entertainment activities in the United States during the tax year.

Income received by a resident of Denmark for services performed as an employee and member of the regular complement of a ship or aircraft operated in international traffic is exempt from U.S. income tax.

Former treaty.   Income that residents of Denmark receive for labor or personal services (including practicing liberal professions) performed in the United States is exempt from U.S. income tax if they are temporarily in the United States for no more than 90 days during the tax year and their pay is not more than $3,000.

All income for labor or personal services that residents of Denmark perform as employees of, or under contract with, a resident, corporation, or other entity of Denmark is exempt from U.S. income tax if they are in the United States for no more than 180 days during the tax year.

Egypt

Income that residents of Egypt receive for performing personal services as independent contractors or as self-employed individuals (independent personal services) in the United States during the tax year is exempt from U.S. income tax if they are in the United States for no more than 89 days during the tax year.

Income that residents of Egypt receive for labor or personal services performed in the United States as employees (dependent personal services), including income for services performed by an officer of a corporation or company, is exempt from U.S. income tax if the residents meet four requirements.

1. They are in the United States for no more than 89 days during the tax year.
2. They are employees of a resident of, or a permanent establishment in, Egypt.
3. Their income is not borne by a permanent establishment that the employer has in the United States.
4. Their income is subject to Egyptian tax.

Pay received by a resident of Egypt who is an employee and member of the regular complement of a ship or an aircraft operated in international traffic by a resident of Egypt is exempt.

These exemptions do not apply to Egyptian resident public entertainers (theater, motion picture, radio, or television artists, musicians, or athletes), who earn income for services as public entertainers (both independent and dependent personal services) if the gross amount of the income is more than $400 for each day they are in the United States performing the services.

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