Announcement 2009-5

Announcement 2009-5Announcement 2009-5

Announcement 2009-5

Supplemental Tables of Income Tax Rates Under New Income Tax Conventions

The United States recently exchanged instruments of ratification for new income tax treaties with Bulgaria and Iceland and a new protocol to the income tax treaty with Canada. The effective dates are as follows:

Bulgaria. The provisions for withholding tax at source are effective for amounts paid or credited on or after January 1, 2009. For other taxes, the treaty is effective for tax periods beginning on or after January 1, 2009.

Canada. The provisions for withholding tax at source are generally effective for amounts paid or credited on or after February 1, 2009. For other taxes, the protocol is effective for tax periods beginning on or after January 1, 2009. Certain provisions, none of which are discussed in this announcement, have different effective dates.

Iceland. The provisions for withholding tax at source are effective for amounts derived on or after January 1, 2009. For other taxes, the new treaty is effective for tax years beginning on or after January 1, 2009.

An individual who was otherwise entitled to benefits under Article 21 (Teachers) of the former treaty can continue to apply those provisions. A person entitled to benefits under the former treaty can elect to have that treaty apply in its entirety for a twelve-month period following the date the new treaty would otherwise apply.

Tables 1 and 2. The following tables can be used to supplement Tables 1 and 2 in Publication 515, Withholding of Tax on Nonresident Aliens and Foreign Entities (For Withholding in 2008), and Publication 901_, U.S. Tax Treaties._ The footnotes in those publications that relate to the column headings in these tables generally apply to these entries. These tables are intended only as a summary, and the full text of the relevant income tax treaty and protocol should be consulted.

The complete texts of the Bulgaria and Iceland treaties and the Canada protocol are available on the IRS website at www.irs.gov.

Table 1. Withholding Tax Rates on Income Other Than Personal Service Income
Income code number		1	2	3	6	7	9	10	11	12	13	14	21
Country/Code
Bulgaria	BU	5 a,b,c	5 a,b,c,d	5 a,b,c	10 a,c,e	5 a,c,e	0 a	5 a	5 a	5 a	30	0 f,g	30
Canada	CA	0 a,b,k	0 a,b,d,k	0 a,b,k	15 a,e,	5 a,e	0 i	0 a	10 a	0 a	30	15	0
Iceland	IC	0 a,j	0 a,d,j	0 a,j	15 a,c,e	5 a,c,e	0 a	0 a,h	5 a	0 a	30	0 g	30

Income Codes
1 Interest paid by U.S. obligors — General	10 Industrial royalties
2 Interest on real property mortgages	11 Copyright royalties — Motion pictures and Television
3 Interest paid to controlling foreign corporations	12 Copyright royalties — Other
6 Dividends paid by U.S. corporations — General	13 Real property income and Natural resources royalties
7 Dividends qualifying for direct dividend rate	14 Pensions and annuities
9 Capital gains	21 Social security payments

Footnotes
a	The exemption or reduction in rate does not apply if the recipient has a permanent establishment in the United States and the income paid is attributable to this permanent establishment.
b	The rate is 10% (15% for Canada) for contingent interest that does not qualify as portfolio interest. Generally, this is interest based on receipts, sales, income, or changes in the value of property.
c	Amounts paid to a pension fund that are not derived from the carrying on of a business by the pension fund are exempt. For Bulgaria, interest paid to a financial institution is exempt.
d	The exemption or reduced rate does not apply to an excess inclusion for a residual interest in a real estate mortgage investment conduit (REMIC).
e	The rate in column 6 applies to dividends paid by a regulated investment company (RIC) or real estate investment trust (REIT). However, that rate applies to dividends paid by a REIT only if the beneficial owner of the dividends is (a) an individual (and for Bulgaria, a pension fund) holding not more than a 10% interest in the REIT, (b) a person holding not more than 5% of any class of the REIT’s stock and the dividends are paid on stock that is publicly traded, or (c) a person holding not more than a 10% interest in the REIT and the REIT is diversified. For Bulgaria, dividends paid to pension fund from a RIC, or a REIT that meets the above conditions, are exempt.
f	Includes alimony.
g	A 30% rate applies to U.S. government pensions (federal, state, or local); however, pensions paid to an individual who is both a resident and national of the treaty country are exempt from U.S. tax.
h	The rate is 5% for trademarks and any information for rentals of industrial, commercial, or scientific equipment.
i	Generally, if the property was owned by the Canadian resident on September 26, 1980, not as part of the business property of a permanent establishment in the U.S., the taxable gain is limited to the appreciation after 1984. Capital gains on personal property not belonging to a permanent establishment of the taxpayer in the U.S. are exempt.
j	The rate is 15% for interest determined with reference to (a) receipts, sales, income, profits or other cash flow of the debtor or a related person, (b) any change in the value of any property of the debtor or a related person, or (c) any dividend, partnership distribution, or similar payment made by the debtor or related person.
k	If the payor and the beneficial owner are related, the rate for interest paid or credited in 2009 is 4%.

Table 2. Compensation for Personal Services Performed in United States Exempt from Withholding and U.S. Income Tax Under Income Tax Treaties
		Category of personal services	Maximum presence in U.S.	Required Employer or Payer	Maximum Amount of Compensation	Article No.
---	---	---	---	---	---	---
Country	Code	Purpose
---	---	---	---	---	---	---
Bulgaria	16	Independent personal services 1	No limit	Any contractor	No limit	7
	17	Dependent personal services 4,5	183 days	Any foreign resident	No limit	14
	20	Public entertainment	No limit	Any U.S. or foreign resident	$15,000 p.a. 6	16
	18	Teaching 2	2 years	U.S. educational or research institution	No limit	19(2)
	19	Studying and training: 8 Remittances or allowances	No limit 3	Any foreign resident	No limit	19(1)(a)
		Compensation during study or training	No limit 3	Any U.S. or foreign resident 9	$9,000 p.a.	19(1)(b)
Canada	16	Independent personal services 1	No limit	Any contractor	No limit	VII
	20	Public entertainment	No limit	Any contractor	$15,000 p.a. 6	XVI
	17	Dependent personal services	No limit	Any U.S. or foreign resident	$10,000	XV
			183 days	Any foreign resident 5	No limit 7	XV
	20	Public entertainment	No limit	Any U.S. or foreign resident	$15,000 p.a. 6	XVI
	19	Studying and training: Remittances or allowances 8	No limit 3	Any foreign resident	No limit	XX
Iceland	15	Scholarship or fellowship grant	5 years	Any U.S. or foreign resident 10	No limit	19(1)
	16	Independent personal services 1	No limit	Any contractor	No limit	7
	17	Dependent personal services 4,5	183 days	Any foreign resident	No limit	14
	20	Public entertainment	No limit	Any U.S. or foreign resident	$20,000 p.a. 6	16
	19	Studying and training: Remittances or allowances	5 years	Any foreign resident	No limit	19(1)
		Compensation during study or training	5 years	Any U.S. or foreign resident	$9,000 p.a.	19(1)
		Compensation while gaining experience	12 consec. mo.	Any U.S. or foreign resident 9	$9,000	19(2)
		Compensation under U.S. Government program	1 year	U.S. Government or its contractor	$9,000	19(3)

Footnotes
1	The exemption does not apply to any amounts attributable to a permanent establishment in the United States.
2	Does not apply to income from research work primarily for private benefit.
3	Exemption applies to a business apprentice (trainee) only for a period not exceeding 2 years (1 year for Canada) from the date of arrival in the United States.
4	The exemption does not apply to fees paid to a director of a U.S. corporation.
5	The exemption does not apply if the employee’s compensation is borne by a permanent establishment that the employer has in the United States.
6	The exemption does not apply if gross receipts (including reimbursements) exceed this amount during the year.
7	Does not apply to compensation paid to public entertainers.
8	Applies only to full-time student or trainee.
9	Applies only if training or experience is received from a person other than the alien’s employer.
10	Grant must be from nonprofit organization.

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