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Uruguay-US Social Security Agreement Sent to Congress | Tax Lawyer

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On March 19, 2018, President Trump sent the Uruguay-US Social Security Agreement to the US Senate. This is an important step toward the final ratification of the treaty that promises to benefit the citizens of both countries.

Uruguay-US Social Security Agreement: What is a Social Security Agreement?

A Social Security Agreement (also called a Totalization Agreement) is essentially a treaty between two countries that eliminates the burden of dual social security taxation for individuals and businesses who operate in both countries.

Typically, the potential for this type of double-taxation arises when a worker from country A works in Country B, but he is covered under the social security systems in both countries. In such situations, without a Social Security Agreement, the worker will have to pay social security taxes to both countries on the same earnings. A Social Security Agreement, on the other hand, allows the worker (and employers) to pay social security taxes only in one country identified in the treaty.

Social Security Agreements are authorized by Section 233 of the Social Security Act. Right now, only 26 Totalization Agreements are in force between the United States and another country: Australia, Austria, Belgium, Canada, Chile, the Czech Republic, Denmark, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Japan, Luxembourg, the Netherlands, Norway, Poland, Portugal, the Slovak Republic, South Korea, Spain, Sweden, Switzerland and the United Kingdom. Uruguay may become the 27th country to have a Social Security Agreement with the United States.

Uruguay-US Social Security Agreement: Recent History

The Uruguay-US Social Security Agreement has had a very favorable history so far. In fact, it may set the record for the fastest treaty ever negotiated by Uruguay. The countries first agreed to pursue a Social Security Agreement between them in May 2014, when the then Uruguayan president Jose Mujica was in Washington.

Amazingly, already in May of 2015, after just two rounds of talks held over a six-month period, the countries finished the negotiations of the Uruguay-US Social Security Agreement. Typically, it takes anywhere between two to three years to negotiate a Totalization Agreement.

On January 10, 2017, the Uruguay-US Social Security Agreement was signed in Montevideo. The United States was represented by its ambassador Mr. Kelly Kinderling. Uruguay was represented by its Foreign Minister Jose Luis Cancela and Labor and its Social Security Minister Ernesto Murro.

On October 3, 2017, the Uruguayan Senate approved the pending Uruguay-US Social Security Agreement, thereby completing the first part of the necessary ratification process. By sending the treaty to Congress for the required 60-day review period, President Trump started the US ratification process.

Uruguay-US Social Security Agreement: Benefits

According to Uruguay, the Uruguay-US Social Security Agreement will benefit some 60,000 Uruguayans working in the United States and up to 6,000 Americans living in Uruguay. The primary benefit is that the workers of both countries will be able to count the working years spent in both countries to be obtain eligibility for their home-country retirement, disability and survivor benefits.

Additionally, the Agreement will exempt US citizens sent by US-owned companies to work in Uruguay for five years or less from paying the Uruguayan social security taxes. Similarly, Uruguayan citizens sent to work temporarily in the United States by Uruguayan-owned companies will not need to pay social security taxes to the US government. Thus, employers in both countries will pay social security taxes only to their employees’ home countries.

Additionally, both countries hope that the Uruguay-US Social Security Agreement will boost trade between the countries. Currently, more than 200 American firms operate in Uruguay (mostly in the service sector).

Sherayzen Law Office will continue to monitor future developments with respect to this highly-beneficial treaty.

Importance of Pre-Immigration Tax Planning

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Pre-immigration tax planning is done by very few of the millions of immigrants who come to the United States. This is highly unfortunate because US tax laws are highly complex and it is very easy to get into trouble. The legal and emotional costs of bringing your tax affairs back into US tax compliance (after you violated any of these complex laws) are usually a lot higher than those of the pre-immigration tax planning. In this writing, I would like to discuss the concept and process of pre-immigration tax planning for persons who wish to immigrate and/or work in the United States.

The concept of pre-immigration tax planning is far more complex than what people generally believe. Most people simply focus on the actions required by local tax laws of their home country; very little attention is actually paid to the tax laws of the future host country – the United States. Perhaps, the only exception to this rule is avoidance of double-taxation; however, even this concept is approached narrowly to avoid only the taxation of US-source income by the home country.

Yet, the pre-immigration tax planning should focus on both, US tax laws and the laws of the home country. It is even safe to argue that a much larger effort should be going into US tax planning due to the much farther reach and the higher level of complexity of the US tax system; in fact, the capacity of US tax laws to invade one’s life is not something for which the new US immigrants are likely to be prepared. Furthermore, once a person emigrates to the United States, he will likely lose his tax residency in his home country.

Once the correct focus on US tax laws is adopted, the pre-immigration tax planning process should begin by securing a consultation with an international tax lawyer in the United States. Beware of using local tax lawyers who are not licensed in the United States to do your pre-immigration tax planning – having an idea of US tax laws is not the same as practicing US tax law. A separate article can be written on how to find and secure the right international tax lawyer, but, if you are reading this article, you already know that you should call Sherayzen Law Office for help with your pre-immigration tax planning!

During the consultation, your international tax lawyer should carefully go over your existing asset structure, their acquisition history, any built-up appreciation and other relevant matters. Then, he should classify the assets according to their likely US tax treatment and identify the problematic assets or assets which need further research. The lawyer should also discuss with you some of the most common US tax compliance requirements.

After the initial consultation, your US international tax lawyer will engage in preliminary pre-immigration tax planning, creating the first draft of your plan solely from US tax perspective.

Then, he will contact a tax professional in your home country (preferably a tax professional that you supply and who is familiar with your asset structure). If you have assets in multiple jurisdictions, the US lawyer should also contact tax attorneys in these jurisdictions in order to find out the tax consequences of his plan in these jurisdictions. He will then modify his plan based on these discussions to create the second draft of your pre-immigration tax plan.

The next step of your pre-immigration tax planning should be the discussion of the relevant details of the modified plan with your immigration lawyer in order to make sure that the plan does not interfere with your immigration goals. Once the immigration lawyer’s approval is secured, you can proceed with the implementation of the tax plan.

Obviously, this discussion of your pre-immigration tax planning is somewhat simplified in some aspects and overly structured in others. Not all of the steps need to be always followed, especially followed in the same order; a lot will depend on your asset structure and how complex or simple it is.

Finally, it is important to emphasize that pre-immigration tax planning applies not only to persons who wish to obtain US permanent residence, but also to persons who just wish to work (either as employees, contractors or business owners) in the United States, because these persons are likely to become US tax residents even if they never become US permanent residents.

Contact Sherayzen Law Office for Experienced Help With Your Pre-Immigration Tax Planning

If you are thinking of immigrating to or working in the United States, contact a leading international tax law firm in this field, Sherayzen Law Office, for professional tax help. Our experienced legal team has helped foreign individuals and families around the world and we can help you!

Contact Us Today to Schedule Your Confidential Consultation!

Vadian Bank AG Signs Non-Prosecution Agreement with DOJ

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On May 8, 2015, Vadian Bank AG (Vadian) became the second bank to sign a Non-Prosecution Agreement with the US Department of Justice (DOJ) pursuant to the DOJ Program for Swiss Banks.

Program for Swiss Banks: Background Information

On August 29, 2013, the DOJ announced the creation of the “The Program for Non-Prosecution Agreements or Non-Target Letters for Swiss Banks (Program)”. The basic goal of the program was to allow Swiss banks to purge themselves of the prior US tax non-compliance (or complicity with such non-compliance) in exchange for providing DOJ with detailed description of their illegal activities, bank accounts owned by US persons and, in many cases, the payment of monetary penalties.

The Program is a really a version of the 2014 OVDP for foreign banks. However, it was not open to all banks. The banks already under criminal investigation related to their Swiss-banking activities and all individuals were expressly excluded from the program.

As of the time of this writing, the application process has already been completed for the great majority of the Swiss banks, and the Program has entered into the resolution phase (i.e. the review of the banks’ disclosure and penalty calculation).

Vadian bank’s case was the second such case that completed the resolution phase (BSI SA was the first bank to do so).

Vadian Bank Background

Vadian has one office and 26 employees. Prior to 2008, Vadian’s business predominantly consisted of savings accounts, residential mortgage lending and small business loans. In 2007, Vadian hired a marketing firm to assist with its planned growth into private banking, and focused its efforts on attracting external asset managers. In 2008, after it became publicly known that UBS was a target of a criminal investigation, Vadian accepted accounts from U.S. persons who were forced out of other Swiss banks. At this time, Vadian’s management was aware that the U.S. authorities were pursuing Swiss banks that facilitated tax evasion for U.S. accountholders in Switzerland, but was not deterred because Vadian had no U.S. presence. As a result of its efforts, after August 2008, Vadian attracted cross-border private banking business and increased its U.S. related accounts from two to more than 70, with $76 million in assets under management.

Through its managers, employees and/or other individuals, Vadian knew or believed that many of its U.S. accountholders were not complying with their U.S. tax obligations, and Vadian would and did assist those clients to conceal assets and income from the IRS. Vadian’s services included: “hold mail” services; numbered accounts, where the client was known to most bank employees only by a number or code name; opening and maintaining accounts for U.S. taxpayers through non-U.S. entities such as corporations, trusts or foundations; and accepting instructions from U.S.-based accountholders to prevent investments from being made in U.S.-based securities that would require disclosure to U.S. tax authorities.

Vadian Bank: Terms the DOJ Non-Prosecution Agreement

According to the terms of the non-prosecution agreement that was signed on May 20, 2015, Vadian agreed to cooperate in any related criminal or civil proceedings, demonstrate its implementation of controls to stop misconduct involving undeclared U.S. accounts and pay a $4.253 million penalty in return for the department’s agreement not to prosecute Vadian for tax-related criminal offenses.

In resolving its criminal liabilities under the program, Vadian also provided extensive cooperation and encouraged U.S. accountholders to come into compliance.

Consequences of Vadian Non-Prosecution Agreement for Vadian US Accountholders

If you have (or had at any point since the year 2008) undeclared foreign accounts at Vadian, you may still be eligible to participate in the OVDP (assuming that you can pass the IRS-CI Preclearance process). However, the price of participating in the OVDP has almost doubled from the pre-Agreement 27.5% to the current 50% of the highest value of your undisclosed foreign assets.

Of course, if the behavior was non-willful, Streamlined options remain available at the same penalty rates.

What Should Vadian US Accountholders Do?

If you are a US person and an accountholder at Vadian, please contact the experienced international tax law firm of Sherayzen Law Office to explore your voluntary disclosure options as soon as possible.

2014 Foreign Earned Income Exclusion

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On November 18, 2013, the IRS announced that the foreign earned income exclusion amount under §911(b)(2)(D)(i) is going to be $99,200 for tax year 2014. This up from $97,600 in 2013 and $95,100 in 2012.

Generally, if a qualified individual meets certain requirements of I.R.C. §911, he may exclude part or all of his foreign earned income from taxable gross income for the U.S. income tax purposes. This income may still be subject to U.S. Social Security taxes.

Remember, if your overseas earnings are above $99,200 for the tax year 2013, then you may be subject to U.S. income taxation on the excess amount (i.e. amount exceeding the 2014 foreign earned income exclusion).

It is also important to note, despite the income tax exclusion, your tax bracket will still be the same as if you were taxed on the whole amount (i.e. as if you had not claimed the foreign earned income exclusion). For most U.S. expatriates, this means that the tax bracket is likely to start at 25% or higher. If you are self-employed, however, your situation may differ from this description.

Furthermore, it is worth noting that additional amount of earnings may also be excluded under the foreign housing exclusion.

Contact Sherayzen Law Office For Foreign Earned Income Exclusion Legal Help

If you are a U.S. taxpayer living abroad or you are planning to accept a job overseas, contact us to discuss your tax situation. Our experienced tax law office will guide you through the complex maze of U.S. tax reporting requirements, help you make sure that you are in full compliance with U.S. tax laws, and help you take advantage of the relevant provisions of the Internal Revenue Code to make sure that you do not over-pay your taxes in the United States.