Tax Treaties Between the U.S. and Cyprus
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.
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 Cyprus
Income that residents of Cyprus receive for performing personal services as independent contractors or self-employed individuals (independent personal services) in the United States during the tax year is exempt from U.S. income
tax if the residents:
- Are present in the United States for less than 183 days in the tax year, and
- 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 taxable on the income attributable to the fixed base.
Pay received by residents of Cyprus from services performed as employees (dependent personal services), including services as an officer of a corporation, is exempt from U.S. income tax if:
- The residents are in the United States for less than 183 days during the tax year,
- The pay is paid by or for an employer who is not a U.S. resident, and
- The pay is not borne by a permanent establishment, fixed base, or trade or business that the employer has in the United States.
Pay received by a Cyprus resident for performing personal services as an employee and member of the regular complement of a ship or aircraft operated in international traffic by a resident of Cyprus is exempt from U.S. tax.
These exemptions do not apply to Cyprus resident public entertainers (theater, motion picture, radio, or television artists, musicians, or athletes) who receive gross receipts of more than $500 per day or $5,000 for the tax year, not including reimbursed expenses, from their entertainment activities in the United States.
Directors’ fees received by residents of Cyprus for service on the board of directors of a U.S. corporation are exempt from U.S. income tax to the extent of a reasonable fixed amount payable to all directors for each day of attendance at directors’ meetings held in the United States.
Wages and Pensions Paid by a Foreign Government
Wages, salaries, and similar income, including pensions, annuities, and similar benefits, paid from public funds of Cyprus to a citizen of Cyprus for labor or personal services performed as an employee of Cyprus in the discharge of governmental functions are exempt from U.S. income tax.