US Citizen hired by French

My_question_is: Applicable to Another Jurisdiction or Multi-jurisdictions
Subject:        US Citizen hired by French Company to work in India
Expert:         taxman at centa.com
Date:           Tuesday October 31, 2006
Time:           11:05 AM -0500
QUESTION:
I am considering a 2 year contract job in India.  I am a US citizen. I would
be paid by a French firm.  The checks could come to the US, direct deposit
in my US account, or to India.  How do I structure my agreement with the
French firm regarding salary and tax handling.  Also how do I best mitigate
my US and Indian tax liability.
Thanks, your web site is great!
---------------------------------------
david ingram replies:
You should familiarize yourself with the terms of the US/India Income Tax
Convention.  Article IV, in particular describes where a person will pay tax
on their world wide income.  This does  not matter much to you because as a
US citizen, you are taxable on your world wide income anyway no matter where
you live or work.
Article X deals with taxation on Dividends and Article XI deals with tax on
interest between the two countries.
You can find the tax treaty at http://www.irs.gov/pub/irs-trty/india.pdf
You have no tax liability to France.  You will owe full tax to India on your
Indian Earnings whether paid to a US account, a French account or an Indian
account.
As a US citizen (or green card holder) you can earn up to $80,000 US in
another country and exempt it on form 2555 of your US Form 1040 provided
that you are either out of the US for 330 out of 365 days or resident in
another country for a full calendar year - i.e. Jan 1 to Dec 31st.
If you show up in India on Feb 1, it is obvious that you won't be there for
that calendar year and if you are back in the US for 36 days, you would not
qualify for the 330 out of 365 days.
However, if you know you are going to be in India for the next full calendar
year, you can qualify retroactively by filing form 2350 to extend the
deadline to file the 2007 return until Jan 15, 2009 to qualify under the
bone fide residence of one year.
You can find the forms mentioned at www.irs.gov.
Whatever you do - don't incorporate outside of the country.  That would
result in the necessity to file 5471 forms with your 1040. The penalty for
failing to file form 5471 is $10,000 for the first 90 days and $10,000 every
30 days thereafter to a maximum of $50,000.
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