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Apparently if one is a sole proprietor in a country that does not have the respective tax treaty with the US, one can be obliged to pay US Social Security and M

Apparently if one is a sole proprietor in a country that does not have the respective tax treaty with the US, one can be obliged to pay US Social Security and Medicare out of foreign income. I lack any expertise in this domain, but friends of mine who have returned to Romania (which lacks a treaty) after living in the US long enough for citizenship, have complained about having to set up a corporate structure and pay themselves via annual dividends in order to avoid this taxation.

seanmcdirmid 3y ago
> Apparently if one is a sole proprietor in a country that does not have the respective tax treaty with the US, one can be obliged to pay US Social Security and Medicare out of foreign income. China lacks a treaty with the USA, which means Americans working in China pay to Chinese social security/medical and they are not transferred to the American equivalents. But ya, you pay SS/medicare on your stock dividends and even your sales to pay taxes (consequently, which you might also pay Chinese payroll taxes on).
junar 3y ago
Just clearing up some terminology: You're talking about Social Security "Totalization Agreements" [1], which are separate from tax treaties. Romania, for example, does have a tax treaty with the US [2] but not a totalization agreement. Setting up a corporation suggests that the business should pay the worker "wages" or a "salary". [3] One key difference is that wages are considered earned income, allowing the taxpayer to use the foreign earned income exclusion, while dividends are not. [1] https://www.irs.gov/government-entities/federal-state-local-governments/totalization-agreements https://www.irs.gov/government-entities/federal-state-local-... [2] https://www.irs.gov/businesses/international-businesses/romania-tax-treaty-documents https://www.irs.gov/businesses/international-businesses/roma... [3] https://ustax.bz/how-to-structure-your-non-u-s-business-or-profession/ https://ustax.bz/how-to-structure-your-non-u-s-business-or-p...

seanmcdirmid 3y ago

> Apparently if one is a sole proprietor in a country that does not have the respective tax treaty with the US, one can be obliged to pay US Social Security and Medicare out of foreign income. China lacks a treaty with the USA, which means Americans working in China pay to Chinese social security/medical and they are not transferred to the American equivalents. But ya, you pay SS/medicare on your stock dividends and even your sales to pay taxes (consequently, which you might also pay Chinese payroll taxes on).

junar 3y ago

Just clearing up some terminology: You're talking about Social Security "Totalization Agreements" [1], which are separate from tax treaties. Romania, for example, does have a tax treaty with the US [2] but not a totalization agreement. Setting up a corporation suggests that the business should pay the worker "wages" or a "salary". [3] One key difference is that wages are considered earned income, allowing the taxpayer to use the foreign earned income exclusion, while dividends are not. [1] https://www.irs.gov/government-entities/federal-state-local-governments/totalization-agreements https://www.irs.gov/government-entities/federal-state-local-... [2] https://www.irs.gov/businesses/international-businesses/romania-tax-treaty-documents https://www.irs.gov/businesses/international-businesses/roma... [3] https://ustax.bz/how-to-structure-your-non-u-s-business-or-profession/ https://ustax.bz/how-to-structure-your-non-u-s-business-or-p...