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U.S. Tax Treaties with Bangladesh and Pakistan: Understanding Personal Services Income Exemptions

If you are a citizen of Bangladesh or Pakistan, both of which have tax treaties with the United States, you might qualify for an exemption from U.S. income tax on certain personal services performed in the U.S. This exemption applies if you are in the U.S. for a limited period.

Tax Treaty Benefits for Bangladesh

Residents of Bangladesh who work as independent contractors or are self-employed in the United States may be exempt from U.S. income tax, provided these conditions are met:

•They must be present in the U.S. for no more than 183 days within any 12-month period during the tax year.

•They should not have a regular fixed base available in the U.S. to conduct their services.

For residents of Bangladesh receiving income as employees (dependent personal services), they can also be exempt if:

•They stay in the U.S. for no more than 183 days within a 12-month period during the tax year.

•Their compensation is paid by, or on behalf of, an employer who is not a U.S. resident.

•The income does not come from a permanent establishment or fixed base of the employer in the U.S.

Exceptions to the Exemption

Certain situations do not qualify for these tax exemptions:

•Public entertainers, such as theater, radio, or television artists, musicians, or athletes from Bangladesh, earning more than $10,000 from U.S. activities are not exempt unless their activities are substantially funded by the Bangladesh government or local authorities.

•Income from operating aircraft or ships in international traffic by a Bangladesh enterprise is exempt from U.S. tax, unless operated by a U.S. enterprise.

•Bangladesh residents who are shareholders of a U.S. company are not exempt from taxes on director fees if they serve as board members, with such fees being taxed at a 15% rate if they exceed payments made to non-shareholders.

Tax Treaty Benefits for Pakistan

Residents of Pakistan who are liable to Pakistani tax and perform personal or professional services for a Pakistani resident in the U.S. are exempt from U.S. income tax if:

•They are present in the U.S. for no more than 183 days during the tax year.

Understanding these tax treaty provisions can help citizens of Bangladesh and Pakistan navigate their tax obligations while working in the United States.

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