Tax Treaties Between the U.S. and Luxembourg

Tax Treaties Between the U.S. and Luxembourg

The United States has income tax treaties with many 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 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 in the United States have a tax in addition to the federal taxes. 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.  Once you have determined the state’s general taxation, you should decide if 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. See Form 8802, Application for United States Residency Certification, to re­quest a certification.

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 status. The filing of Form 8833 does not apply to a reduced rate of withholding tax on non-effectively 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, see Publication 519 and the Form 8833 instructions.

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

Tax Exemptions Provided by Treaties

This publication contains discussions of the ex­emptions from tax and specific other effects of the tax treaties on the following types of in­come.

• Pay for certain personal services per­ formed in the United States.
• Pay a professor, teacher, or researcher who teaches or performs research in the United States for a limited time.
• Amounts received for maintenance and studies by an international student or apprentice here for study or experience.
• A foreign government pays Wages, salaries, and pensions.
  
  

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 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 particu­lar tax treaty determines the exact mean­ings of the terms under discussion; thus, the mean­ings vary among treaties. Therefore, the following definitions are general definitions that may not give the precise meaning intended by a particular treaty.

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

The term borne 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 made the expenditure or payment.

Professors, Teachers, and Researchers

Pay of professors and teachers who are resi­dents of the following countries is generally ex­empt from U.S. income tax for 2 or 3 years if they temporarily visit the United States to teach or do research. The exemption applies to pay earned by the visiting professor or teacher dur­ing the applicable period. For most of the following countries, the relevant period begins on the date of arrival in the United States to teach or engage in research.  Furthermore, this applies to the exemption for most countries even if they stay in the United States extends beyond the applicable period.

The exemption generally applies to pay re­ceived during a second teaching assignment if both are completed within the specified time, even if the second assignment was not arranged until after arrival in the United States on the first assignment. Below, the conditions are stated under which the payment of a professor or teacher from that country is exempt from U.S. income tax.

If you do not meet the requirements for ex­emption as a teacher or if you are a resident of a treaty country that does not have a special provision for teachers, you may qualify under a personal services income provision discussed earlier.

Students and Apprentices

Residents of specific countries who are in the United States to study or acquire technical experience are exempt from U.S. income tax, under certain conditions, on amounts received from abroad for their maintenance and studies.

This exemption does not apply to the salary paid by a foreign corporation to one of its exec­utives, a citizen and resident of a foreign coun­try who is temporarily in the United States to study a particular industry for an employer. That amount is a continuation of salary and is not re­ceived to learn or acquire experience.

There is a statement of the conditions under which the exemption applies to students and apprentices from that country for each country listed.

Amounts received from the National Insti­tutes of Health (N.I.H.) under provisions of the Visiting Fellows Program are generally treated as a grant, allowance, or award for purposes of whether the treaty provides an exemption.  Amounts received from N.I.H. under the Visiting Associate Program and Visiting Scientist Pro­gram are not exempt from U.S. tax as a grant, allowance, or award.

Wages and Pensions Paid by a Foreign Government

Wages, salaries, pensions, and annuities paid by the governments of the following countries to their residents who are present in the United States as nonresident aliens generally are ex­empt from U.S. income tax. The conditions un­der which the income is exempt are stated for each of the countries listed.

Exemption under U.S. tax law. Employees of foreign countries who do not qualify under a tax treaty provision and employees of international organizations should see if they can qualify for exemption under U.S. tax law.

Suppose you work for a foreign government in the United States. In that case, your foreign government salary is exempt from U.S. tax if you perform services similar to those performed by U.S. government employees in that foreign country and that for­eign government grants an equivalent exemp­tion. If you work for an international organization in the United States, your salary from that source is exempt from U.S. tax. See Chapter 10 of Publication 519 for more information.

Overview of the Treaties Between the U.S. and Luxembourg

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

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

The exemption does not apply to pay re­ceived for employment exercised continuously or predominantly aboard a ship or aircraft oper­ated in international traffic by a U.S. enterprise.

The exemptions do not apply to directors’ fees and similar payments received by a resi­dent of Luxembourg for services performed in the United States as a member of the board of directors of a company that is a resident of the United States.

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

Professors, Teachers, and Researchers

A resident of Luxembourg who is temporarily in the United States at the invitation of a U.S. uni­versity, college, school, or other recognized ed­ucational institution only to teach or engage in research, or both, at that educational institution, is exempt from U.S. income tax on income for the teaching or research for not more than two years from the date of arrival in the United States.

Suppose the individual’s visit to the United States is longer than two years. In that case, the exemption is lost for the entire visit unless the competent authorities of Luxembourg and the United States agree other­wise.

This exemption does not apply to pay for re­search carried on for the benefit of any person

Students and Apprentices

A student, apprentice, or business trainee who is a resident of Luxembourg immediately before visiting the United States and is in the United States for the purpose of full­time education at a recognized educational institution or full­time training is exempt from U.S. income tax on amounts received for the individual’s mainte­nance, education, or training.

Apprentices and business trainees are enti­tled to the benefit of this exemption for a maxi­mum period of 2 years.

Wages and Pensions Paid by a Foreign Government

Income, other than a pension, paid by Luxem­bourg, its political subdivisions, or local authori­ties to an individual for services performed for the paying governmental body is exempt from U.S. income tax. However, the exemption does not apply if the services are performed in the United States by a resident of the United States who either:

• Is a U.S. citizen, or
• Did not become a U.S. resident only to perform the services.
  
  

Pensions paid by Luxembourg, its political subdivisions, or local authorities for services performed for Luxembourg are exempt from U.S. income tax unless the recipient is both a resident and citizen of the United States.