Yes, as a green card holder, you may claim residence in a foreign country under a tax treaty and obtain benefits under the tax treaty, but certain conditions must be met. According to the Internal Revenue Code and the provisions of various tax treaties, a green card holder is generally considered a U.S. resident for tax purposes. However, under specific circumstances, you can be treated as a resident of a foreign country for purposes of the tax treaty between the United States and that foreign country.
Conditions for Claiming Foreign Residence Under a Tax Treaty:
- Substantial Presence, Permanent Home, or Habitual Abode:
- You must have a substantial presence, permanent home, or habitual abode in the foreign country. This means you need to have a reasonably strong economic nexus with the foreign country.
- Non-Resident Status in the U.S. Under the Treaty:
- You must not be treated as a resident of the United States under the tax treaty. This typically involves meeting the "tie-breaker" rules in the treaty, which determine your residency based on factors such as the location of your permanent home, center of vital interests, habitual abode, and nationality.
- Notification to the IRS:
- You must notify the IRS of your claim to be treated as a resident of the foreign country under the tax treaty. This is often done by filing Form 8833, "Treaty-Based Return Position Disclosure Under Section 6114 or 7701(b)," with your U.S. tax return.
Example from the U.S.-Finland Tax Treaty:
Under the U.S.-Finland tax treaty, a green card holder who claims residence in Finland must meet the following conditions:
- Substantial Presence, Permanent Home, or Habitual Abode in Finland: You must have a substantial presence, permanent home, or habitual abode in Finland.
- Non-Resident Status in the U.S.: You must not be treated as a resident of the United States under the treaty's tie-breaker rules.
- Notification: You must notify the IRS by filing Form 8833.
Implications:
- Tax Obligations: If you are treated as a resident of the foreign country under the tax treaty, you may be subject to tax in that country on your worldwide income. However, you may still be subject to U.S. tax on certain types of income, such as U.S.-source income, unless the treaty provides otherwise.
- Foreign Tax Credits: You may be eligible to claim foreign tax credits to offset U.S. tax on income that is also taxed by the foreign country.
Conclusion:
As a green card holder, you can claim residence in a foreign country under a tax treaty and obtain benefits under the treaty, provided you meet the necessary conditions and properly notify the IRS. This allows you to potentially reduce your overall tax burden by taking advantage of the provisions of the tax treaty.
Sources:
Publication 519 (2023)
§ 7701. Definitions
United States - Canada Income Tax Treaty Technical Explanation
United States - Belgium Income Tax Treaty Technical Explanation
United States - Sweden Income Tax Treaty Technical Explanation
United States - United Kingdom Income Tax Treaty Technical Explanation
United States - Finland Income Tax Treaty Technical Explanation
