# US Expat without dual-taxation treaty?



## islome (Oct 28, 2014)

I'm a self-employed US expat, bona fide resident as of recently, in a country without a dual-taxation treaty with the US.

I understand I'm out of luck here, and required to pay social security to the US and the local pension and local taxes (I'm still under the $97k for the US).

My question: Is there any way to (very) legally reduce my exposure to my resident country's pension plan at least? I won't be here long enough to see any of it back.

For the record, I make all of my income in the US and elsewhere -none of it locally. 

My first thoughts were to set up an LLC in the US for at least all my business expenses and a private pension, and then just pay twice on what's left.

Does anyone have any ideas? Anyone living somewhere without a dual-taxation treaty?


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## Bevdeforges (Nov 16, 2007)

The matter of having to pay social security (or not) isn't usually part of the "dual taxation" treaty - but rather of a separate "social security treaty" between the US and wherever else.

General principle is that you don't get to choose where you pay your taxes (or your social insurances/social security). In your case, it depends on the laws in the country in which you are resident, not the US tax laws - which are what they are. And actually, even if you were in a country with a social security treaty with the US, the best that will do for you is to allow you NOT to pay US social security tax as long as you were properly enrolled in your local social insurance system.

In a few countries there is an option to opt out of the local retirement and/or health care system for the first few years you are resident - usually on the assumption that you are only "temporarily" resident and will be returning home within 3 to 5 years. But that's all a function of local tax and labor law.
Cheers,
Bev


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## islome (Oct 28, 2014)

Bevdeforges said:


> And actually, even if you were in a country with a social security treaty with the US, the best that will do for you is to allow you NOT to pay US social security tax as long as you were properly enrolled in your local social insurance system.


Really? The last country I lived in did have a social security treaty and it allowed me to pay into social security and not the local one. Which actually worked out great, since I left after 15 years and wouldn't have seen a dime, whereas I've kept my SS payments up.

I'm thankful for the US taxing its expats in my personal situation (though the paperwork is annoying).



Bevdeforges said:


> General principle is that you don't get to choose where you pay your taxes


I'm trying to figure out if I can minimize them after business expenses and paying a private pension through a company. Is that dodgy? I need an LLC somewhere as I'm concerned about liability for my business. Setting one up here seems like a hassle if I plan on moving soon.



Bevdeforges said:


> In a few countries there is an option to opt out of the local retirement and/or health care system for the first few years you are resident - usually on the assumption that you are only "temporarily" resident and will be returning home within 3 to 5 years. But that's all a function of local tax and labor law.


Thanks, I'll look into that.


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## DavidMcKeegan (Aug 27, 2012)

Unfortunately if you are self employed in a country without a totalization agreement with the US, you could end up paying SE taxes twice. This is unfortunately one of the most common instances of dual taxation for expats, and one that is very difficult to avoid.


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## BBCWatcher (Dec 28, 2012)

....Though, often, it's dual payroll taxation with dual benefits...if you stay long enough.

One possible approach is to switch from self-employment to employment in the foreign country. Then you'd likely be exempt from the U.S. self-employment tax, and you'd (of course) continue paying social insurance contributions in the foreign country. The major disadvantage is that you won't be increasing your future U.S. Social Security retirement benefits (because you won't be contributing there), and eventually (in about 4 years) you'll probably roll off U.S. Social Security disability insurance since you won't have enough recent credits to qualify.(*) However, if you're "vested" into U.S. Social Security you may have already qualified for the lion's share of your future possible Social Security retirement benefits depending on your contribution history.

(*) Tip: If you do switch, do it after you've accumulated your 4 credits for the year. In tax year 2014 if you have at least US$4,800 in earned income (and pay the SE tax on that income) then you would get your full 4 credits for the year. (This amount is increased for inflation.) To keep the math simple, let's suppose you earn $5000 per month ($60000 per year). In that case if you "bank" January and pay SE tax on $5000 you should earn your full 4 credits for the year. Then you can switch to an employer starting on February 1. That way you'd put 2015 into the books as a full year for purposes of disability insurance coverage, pushing out your expiration of those benefits as far into the future as you can.

Another way to do this, though you have to be _very_ careful to follow the rules precisely, is to earn the majority of your income through a foreign employer but to also receive some self-employment income and/or a small amount of U.S. source earned income. If you have roughly $2500 of earned income on which you pay U.S. payroll tax (any mix of SE tax and/or U.S. employer-deducted payroll tax), then that'd earn you 2 U.S. Social Security work credits. If you're always earning at least 2 U.S. credits, every year, then your U.S. Social Security disability insurance coverage is continued indefinitely.


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## Bevdeforges (Nov 16, 2007)

If you're going to attempt to go for "double dipping" (as it is called), be sure to also look into the WEP (Windfall Elimination Provision). This is a scheme whereby your US social security will be reduced, sometimes by a rather significant amount, if you are eligible for a foreign retirement benefit. 
Cheers,
Bev


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## BBCWatcher (Dec 28, 2012)

I factored the WEP into my generalized statement.


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## islome (Oct 28, 2014)

BBCWatcher said:


> ....Though, often, it's dual payroll taxation with dual benefits...if you stay long enough.


Unfortunately, it is impossible for me to be here long enough to ever see a pension.



BBCWatcher said:


> However, if you're "vested" into U.S. Social Security you may have already qualified for the lion's share of your future possible Social Security retirement benefits depending on your contribution history.


Also a problem. I am vested, but haven't qualified for the lions share of SS. I'm wonderfully middle-aged so I'm too old to start a new pension and too young to get my old one.

The country where I'm currently living also requires its residents to continue paying taxes for a couple of years after they emigrate (that's what my lawyer told me, I can't find anything online). So I might be expected to pay taxes three times, depending on where I move to next. Oh joy.

Anyways, thanks for all the suggestions. It's better than the paid half hour expat-tax consultant came up with. I'll look into everything.


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