US tax treaties: which countries get lower US withholding

What a US tax treaty does for a non-resident

A US income tax treaty lowers or removes the US tax on certain US-source income paid to residents of the other country. In the IRS’s words, residents (“not necessarily citizens”) of treaty 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,” and the rates and exemptions “vary among countries and specific items of income.”

Without a treaty, the default is steep. Passive US income such as dividends, rents and royalties, which the IRS calls FDAP income, is taxed at a flat 30% of the gross amount when it’s paid to a nonresident, usually by the payer withholding it. A treaty can cut that rate for your country and that type of income. Many treaties also exempt some pay for personal services, the pay of visiting teachers and researchers, and money students receive for their studies.

A treaty has limits, too:

• It follows tax residence, not citizenship. The IRS says residency for treaty purposes is determined by the treaty itself.
• It doesn’t help US residents. Most treaties have a “saving clause” that lets the US tax its own citizens and residents as if the treaty didn’t exist, with some exceptions.
• It doesn’t bind every US state. The IRS notes that “some states of the United States do not honor the provisions of tax treaties.”
• It covers only what it lists. If the treaty doesn’t cover a kind of income, the IRS says you pay tax on it at the normal rates.
• You have to claim it. A payer won’t apply a treaty rate unless you give it the right form, usually with a tax number.

Does your country have a treaty with the US?

These are the countries on the IRS’s A to Z list of US income tax treaties, grouped by region. Check the IRS page before relying on it: treaties are added and ended, and the Treasury Department publishes new treaties when they’re signed, often long before they take effect.

Recent changes the IRS flags:

• Chile. The newest treaty. Publication 901 says it applies to withholding on payments made on or after February 1, 2024.
• Hungary. The US ended the treaty, effective for withholding on payments made on or after January 1, 2024, so Hungary is no longer a treaty country.
• Russia. Since August 16, 2024, most of the treaty, including Articles 5 to 21, has been suspended, for tax withheld at source and for other taxes.
• Belarus. One provision of the old US–USSR treaty is suspended for Belarus from December 17, 2024 until December 31, 2026, unless the two governments end it sooner.
• Hong Kong. Publication 901 says the US-China treaty doesn’t apply to Hong Kong.

Several large markets have no US income tax treaty. None of these is on the IRS list: Argentina, Brazil, Colombia, Ghana, Hong Kong, Kenya, Malaysia, Nigeria, Saudi Arabia, Singapore, Taiwan, the United Arab Emirates and Vietnam. Residents pay US tax on US income at the normal nonresident rates.

Treaty rates by income type

The IRS publishes the rates in its tax treaty tables. Table 1 covers income other than pay for services, and its income codes are the same ones that appear on Form 1042-S. Here are the general rates for two common kinds of income, for a selection of countries.

Source: IRS Table 1, Rev. May 2023.

• Dividends. The general rate is the one individual investors get. The lower “direct dividend” rates in Table 1 are for companies that own a large share, generally 10%, of the company paying the dividend.
• Copyright royalties. This is income code 12 on Form 1042-S. Google classes YouTube Partner Program earnings as copyright royalties, and Kindle Direct Publishing tells authors to check the copyrights column. Other royalties, such as film and television or industrial royalties, have their own columns and can have different rates: Canada’s is 10% for film and TV royalties, for example.

Table 1 is a summary. The IRS says it doesn’t cover every eligibility requirement for each rate, so read the treaty itself for the conditions, such as the limitation on benefits article that stops residents of third countries using a treaty.

Pay for services works differently. Pay for work you do outside the US isn’t US-source income at all, so no treaty is needed. For work done in the US, Publication 519 says most treaties exempt an employee’s pay if they’re in the US for no more than 183 days in a 12-month period, are paid by a foreign employer, and the pay isn’t borne by a US permanent establishment of that employer. Some treaties exempt a self-employed person’s income if they’re in the US for no more than a set number of days and have no fixed base here; others treat it under the business profits article. Table 2 and Publication 901 have the country-by-country rules.

How to claim a treaty rate

You usually claim a treaty rate with the payer before you’re paid, so the right amount is withheld from the start. Which form you use depends on the income.

On a W-8BEN, you name your treaty country on line 9. Line 10 is for claims that need more detail, such as royalties under a treaty with different rates for different kinds of royalty, or a student’s scholarship. The IRS applies a treaty rate on a W-8BEN only if you give a US or foreign TIN (with the listed-securities exception) and certify that you’re a resident of the treaty country and the beneficial owner of the income.

Form 8833. Some treaty claims also have to be disclosed on Form 8833, attached to a return. Publication 519 and the IRS say you don’t need it for a reduced rate of withholding on dividends, interest, rents, royalties or other FDAP income, for treaty benefits on pay as an employee, pensions, or the income of students, trainees and teachers, or if the amounts involved total $10,000 or less. You do need it for cases such as a treaty claim on the sale of US real property, or if you receive more than $100,000 and use the treaty to decide where you’re resident. The W-8BEN instructions add one more: if you’re related to the payer and receive more than $500,000 in a year, you’re generally required to file it. Leaving out a required Form 8833 carries a $1,000 penalty.

One more rule: if you’ve chosen to be treated as a US resident so you can file jointly with a US citizen or resident spouse, the IRS says you can’t then claim to be a foreign resident to get treaty benefits.

Students, teachers and researchers

Many treaties have separate articles for students and visiting academics.

• Teachers and researchers. Publication 901 says the pay of professors and teachers from the countries it lists is generally exempt for 2 or 3 years if they temporarily visit the US to teach or do research. Each treaty sets its own conditions. Under the US-India treaty, for example, the visit must be to an accredited university or recognized educational institution for no more than 2 years, and if it lasts longer, the exemption is lost for the whole visit.
• Students and apprentices. Under some treaties, students are exempt on money they receive from abroad for their maintenance and studies. Some also exempt scholarships and fellowships, and a limited amount of pay.
• Time limits. Publication 519 says the limit is usually 4 to 5 years for students and 2 to 3 years for teachers and researchers.
• Residence before arrival. Some of these articles only require you to have been a resident of the treaty country immediately before coming to the US.

Students and academics claim treaty benefits on pay with Form 8233, attaching the statement for their treaty from the appendices to Publication 519. Scholarship income that isn’t pay for services is claimed on a W-8BEN. Some treaties let these benefits continue after you become a US resident for tax purposes, through exceptions to the saving clause. Our international student guide covers the ITIN side.

Do you need an ITIN to claim a treaty rate?

Usually not, if you have a tax number from your own country. On a W-8BEN, the IRS accepts a US or a foreign TIN, and for dividends and interest on actively traded securities and dividends from US mutual funds, the instructions don’t require an ITIN at all. Our foreign TIN guide lists what the number is called in 20 countries.

You do need an SSN or ITIN when:

• your country doesn’t issue tax numbers, or you don’t have one, and you want a treaty rate on royalties or other income outside the securities exceptions
• you’re claiming a treaty exemption on pay for work in the US on Form 8233, which the IRS says must show your SSN or ITIN
• you file a US tax return, for example to claim back tax withheld at 30% when your treaty rate was lower

If you need an ITIN only to claim a treaty rate and don’t have to file a return, you apply on Form W-7 with reason box a (treaty benefits), plus box h, the treaty country and article, and the documents for W-7 Exception 1 or 2, such as a letter from the payer confirming it needs your ITIN. The IRS says to allow 7 weeks, or 9 to 11 weeks if you apply from outside the US or between January 15 and April 30.

The IRS doesn’t charge for an ITIN. TheITINapp prepares and submits Form W-7 applications; we don’t prepare treaty claims, Form 8833 or tax returns.

Country guides

All five of these countries have a treaty with the US. Our country guides cover applying for an ITIN from each of them:

• Canada
• India
• United Kingdom
• Germany
• Philippines

For other countries, start with the ITIN guide for non-residents.