Tax Implications of Working Abroad
Are you a resident of the United States hired to perform in a production being shot in a foreign country and you are uncertain as to the tax implications of this type of work? If so, you are not alone.
As more film productions and locations go global, many U.S. resident actors are faced with tax issues they would not face while working domestically. If you are one of them or are considering accepting work that will take you outside of the United States, keep reading for basic information that may be useful as you navigate your way through various international tax structures.
Foreign withholding taxes and the effects on non-resident performers
Many countries have implemented a withholding tax on income derived from non-resident actors for activities within their respective territories. In general, the term “non-resident” applies when a an actor normally lives and works in one country but travels temporarily to another country to work for a short period of time.
In most instances, foreign withholding tax rules will apply regardless of whether the actor provides services independently or through a loan-out corporation.
What is considered “taxable income”? Some countries impose a tax on all income derived from work within their respective territories, including such direct expenses as travel, lodging and per diems, while others allow for deductions of such expenses.
Following are a few specific examples of the various foreign taxes imposed on non-resident performers:
- 23 percent tax must be withheld on the gross income earned from acting in a film or video production, including residuals and contingent compensation (e.g. participations), with no deductions permitted.
- Non-resident actors can satisfy this in one of two ways: 1) have 23 percent of their gross acting income withheld and not have to file a return; or 2) have 23 percent of their gross acting income withheld, file an elective return, and pay tax at marginal rates on their net income instead of 23 percent on the gross amount.
- When the performer provides services through a corporation, the 23 percent tax is applied on payment from the payer to the corporation. For the subsequent payment from the corporation to the individual performer, the 23 percent tax applies only to the amount that exceeds the payment from the payer to the corporation.
- For additional information, visit www.cra-arc.gc.ca/tx/nnrsdnts/flm/ctrs/wthhld-eng.....
United Kingdom (UK)
- For work performed on or after April 6, 2008, the rate of withholding tax is 20 percent for anyone who does work in the UK “in front of the camera” (including as a voice-over artist, stand-in, stunt person, etc.).
- The withholding tax applies to work performed through a loan-out corporation.
- The withholding tax is imposed on all gross income, including related expenses. However, an arrangement may be made in writing between the Foreign Entertainers Unit of the HM Revenue & Customs (UK tax agency), the payer and the performer to allow the payer to deduct related expenses. The purpose of this agreement is to deduct an amount that corresponds as closely as possible to the performer’s final liability on the payment.
- The withholding tax does not apply if the total payment to a performer is ₤1000 (British Pounds) (at this writing, approximately $1,500 U.S.) or less during the tax year. The tax year runs from April 6 in one year to April 5 in the following year. The total payment for this purpose includes such expenses paid on the performer’s behalf as travel, lodging and per diems.
- For additional information, visit www.hmrc.gov.uk/feu/feu.htm.
- The withholding tax is 21.1 percent.
- The withholding tax applies to gross income and no deductions are permitted for such related expenses as travel, lodging and per diems. Unlike the UK, no applications can be made to reduce the withholding requirement of such expenses.
- For additional information, visit www.on-the-move.org/documents/TaxandSocialsecurity.pdf.
Avoiding Double Taxation
When a performer is subject to foreign withholding taxes, it sometimes can result in the performer being taxed twice, particularly in instances in which a performer is hired as an individual. The end result is that the performer will be taxed once in their home country and once in the foreign country where the work was performed.
To avoid double taxation, U.S. resident performers may take the amount of any qualified foreign taxes withheld during the year as either a foreign tax credit or as an itemized deduction. If you intend to claim the foreign tax credit or deduction, you should make it a practice to request a tax certificate, in your own name, from the payer (employer), which states your earnings and the taxes withheld in the foreign country. If a tax certificate is not available, try to obtain another form of documentation that will verify this information. You then can use either the certificate or document to support any claim for a foreign tax credit and/or deduction in the United States.
To claim the foreign tax credit or deduction, you will need to complete IRS Form 1116 and attach it to your Form 1040 or Form 1040NR; you must itemize deductions on Form 1040, Schedule A, to choose the deduction. More information regarding the foreign tax credit can be found at the Internal Revenue Service website at www.irs.gov/taxtopics/tc856.html.
For More Information
This article is designed to introduce you to the various foreign entertainer taxes and the effect such taxes may have on your work; it is by no means the final word on the issue. See also:
- Australia: www.afc.gov.au/filminginaustralia/taxfins/other/fiapage_59.aspx
- Belgium: www.allarts.nl/en.html
- New Zealand: www.filmnz.com/production-guide/taxation.html#compliance
- Singapore: www.iras.gov.sg/irasHome/page.aspx?id=1204
As always, you should consult with your tax adviser or accountant with questions specific to your circumstances.