Tax Treaties Between the U.S. and the Czech Republic

Tax Treaties Between the U.S. and the Czech Republic

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 the Czech Republic

Income that residents of the Czech Republic re­ceive for performing personal services as inde­pendent contractors or self­-employed individuals (independent personal services) in the United States is exempt from U.S. income tax if the residents:

• Are present in the United States for no more than 183 days in any 12­month pe­riod, 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, they are taxed only on income attributable to the fixed base.

Income that residents of the Czech Republic receive for employment in the United States (dependent personal services) is exempt from U.S. income tax if the following three require­ments are met.

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

These exemptions do not apply to income residents of the Czech Republic receive as pub­lic entertainers (such as theater, motion picture, radio, or television artists, or musicians) or sportspeople if their gross receipts, including re­imbursed expenses, are more than $20,000 during the tax year. Regardless of these limits, the income of Czech entertainers and sportspeople is exempt from U.S. income tax if pub­lic funds of the Czech Republic substantially support their visit to the United States, its political sub­divisions, or local authorities, or the visit is made according to a specific arrangement be­tween the United States and the Czech Repub­lic.

These exemptions do not apply to directors’ fees and similar payments received by a resi­dent of the Czech Republic as a member of the board of directors of a company that is a resi­dent of the United States.

Professors, Teachers, and Researchers

An individual is exempt from U.S. income tax on income for teaching or research for up to 2 years if he or she:

• Is a resident of the Czech Republic imme­diately before visiting the United States, and
• Is in the United States primarily to teach or conduct research at a university, college, school, or other accredited educational or research institution.
  
  

A Czech resident is entitled to these benefits only once. However, the exemption does not apply if:

• The resident claimed during the immediate preceding period the benefits described later under Students and Apprentices, or
• The income is from research undertaken primarily for the private benefit of a specific person or persons.

Income from employment as a member of the regular complement of a ship or aircraft op­erated by a Czech enterprise in international traffic is exempt from U.S. income tax. If a U.S. enterprise operates the vessel or aircraft, the income is subject to U.S. tax

Students and Apprentices

An individual who is a resident of the Czech Re­public at the beginning of their visit to the United States and who is temporarily present in the United States is exempt from U.S. income tax on specific amounts for a period of up to 5 years. To be entitled to the exemption, the individual must be in the United States for the primary purpose of:

• Studying at a university or other accredited educational institution in the United States,
• Obtaining training is required to qualify them to practice a profession or professional specialty, or
• Studying or doing research as a recipient of a grant, allowance, or award from a gov­ernmental, religious, charitable, scientific, literary, or educational organization.
  
  

If the individual meets any of these requirements, the following amounts are exempt from U.S. tax.

• The payments from abroad, other than compensation for personal services, for the purpose of maintenance, education, study, research, or training.
• The grant, allowance, or award.
• The income from personal services per­formed in the United States of up to $5,000 for the tax year.
  
  

An individual who is a Czech resident at the beginning of the visit to the United States and who is temporarily present in the United States as an employee of, or under contract with, a Czech resident is exempt from U.S. income tax for a period of 12 consecutive months on up to $8,000 received for personal services if the individual is in the United States primarily to:

Acquire technical, professional, or busi­ness experience from a person other than
the Czech resident, or
Study at a university or other accredited educational institution in the United States.

An individual who is a Czech resident at the time they become temporarily present in the United States and who is temporarily present in the United States for a period not lon­ger than one year as a participant in a program sponsored by the U.S. Government for the pri­mary purpose of training, research, or study is exempt from U.S. income tax on up to $10,000 of income from personal services for that training, research, or study.

These exemptions do not apply to income from research undertaken primarily for the pri­vate benefit of a specific person or persons.

Wages and Pensions Paid by a Foreign Government

Income, including a pension, paid from the pub­lic funds of the Czech Republic, its political sub­divisions, or local authorities to a Czech citizen for services performed in the discharge of gov­ernmental functions is exempt from U.S. in­come tax. This exemption does not apply to in­come paid for services performed in connection
with a business carried on by the Czech Repub­lic, its political subdivisions, or local authorities.