How to Read Tax Treaties

How to Read Tax Treaties – Example IRA distribution for U.S. expat in the U.K. The United States has tax treaties with a number of foreign countries (link). Under these treaties, residents of foreign countries are taxed at a reduced rate, or are exempt from U.S. taxes on certain items of income they receive from sources within the United States. While they can seem extremely convoluted initially, they’re easier to decipher once you understand how they work. Example: Bob is a U.S. citizen residing in the U.K. and has a traditional IRA in the U.S.  He receives a distribution from the IRA while residing in the U.K. Is he subject to tax on it in the U.K. or the U.S., or both? Step 1: Determine residency After locating the applicable treaty (link), Bob would read Article 4 to see if he qualifies as a “resident” of either the U.S. or the U.K. (or both) under the U.S.-U.K. treaty. Generally, an individual is a U.S. resident under U.S. domestic law and for…

Read more detail on Recent Tax Law posts –

This entry was posted in Tax Law and tagged , . Bookmark the permalink.

Leave a Reply