Tax Treaties and Tax Free Salaries

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Fast
Posts: 8
Joined: Tue Jul 19, 2011 11:09 pm

Tax Treaties and Tax Free Salaries

Post by Fast »

I was under the impression that a tax free salary was available for international school teachers in a country if the US has a tax treaty with that country.

Germany and France both have tax treaties with the US that cover teachers, but from what I've heard, American teachers do not get two years tax free in these countries.

Can someone correct me or clarify what exactly a tax treaty means, and what exactly dictates whether or not one will receive a tax-free salary?

The list of countries with tax treaties with the US can be found here:

http://www.irs.gov/businesses/internati ... 39,00.html
Fast
Posts: 8
Joined: Tue Jul 19, 2011 11:09 pm

Post by Fast »

That's in regards to US taxes. I'm referring to local taxes. For example teachers I've talked to who have worked in Italy have reported that they have had two years, and only two years, free of Italian taxes because of the tax treaty (and US taxes because of the foreign income exemption).

The language in the tax treaty with France Article 20, states that teachers will be exempt from French taxes for two years in, but as far as I know, in practice, this is not the case.


The language from Article 20 of the US/France tax treaty is here:

"An individual who is a resident of a Contracting State immediately before his visit to the other Contracting State and who, at the invitation of the Government of that other State or of a university or other recognized educational or research institution situated in that other State, visits that other State for the primary purpose of teaching or engaging in research, or both, at a university or other recognized educational or research institution shall be taxable only in the first mentioned State on his income from personal services for such teaching or research for a period not exceeding 2 years from the date of his arrival in the other State. An individual shall be entitled to the benefits of this paragraph only once."

Source: http://www.irs.gov/pub/irs-trty/france.pdf
Fast
Posts: 8
Joined: Tue Jul 19, 2011 11:09 pm

Post by Fast »

OK. That seems to explain it. Thanks for the reply. I naturally interpret the language to apply to teachers, but I guess that doesn't matter.

I suppose the Middle Eastern schools that advertise tax free salaries are just paying the employees' domestic taxes for them or taking advantage of some other domestic law.

Any idea why the tax situation works the way it does in Italy?
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