Double-Taxation of Royalties paid for in Korea to a US Company

Question

A Korean-based company is paying royalties to my company base in the US. The US-Korea Tax Treaty has set the Korean income tax rate at 15% for these. In addition, I pay a 10% local income Korean tax on that (so 16.5% total). According to the treaty there is a "relief from double-taxation". I am unsure however if this means I only do not pay US income taxes on 16.5% of the value or I do not pay taxes on the entire value already taxed.

Example (note currencies are all the same for clarity, doesn't matter if they are USD or KRW)

They pay me $100 in royalties. I pay the Korean income tax of $16.50. Do I pay US income (+FICA/Medicare) on the remaining $83.50 or do I pay no US income taxes on this?

Reference

US-Korea Tax Treaty: http://www.irs.gov/Businesses/International-Businesses/Korea---Tax-Treaty-Documents

Answer 1

If treaties are involved for something other than exempting student wages on campus, you shouldn't do it yourself but talk to a licensed US tax adviser (EA/CPA licensed in your state) who's well-versed in the specific treaty.

Double taxation provisions generally mean that you can credit the foreign tax paid to your US tax liability, but in the US you can do that regardless of treaties (some countries don't allow that). Also, if you're a US tax resident (or even worse - a US citizen), the royalties related treaty provision might not even apply to you at all (see the savings clause).

FICA taxes are generally not part of the income tax treaties but totalization agreements (social security-related taxes, not income taxes). Most countries who have income tax treaties with the US - don't have social security totalization agreements.

Bottom line - talk to a licensed professional.