2

My question is as above: Can one be non-resident alien in the US without being a resident anywhere else?

Let's assume the following simplified case: a former resident of Germany visits the US for a full calendar year of research on a J visa (his first stay in the US ever). He receives a German scholarship in a form that would be taxable in Germany. Hence, he ends his residency ("Wohnsitz") in Germany in order to avoid tax liability in Germany. Still, he is considered a non-resident alien for US tax purposes because he is exempt of counting days, and his scholarship is not US source income since it is non-compensatory, is primarily intended to support your own personal research or study, and is from a non-US payer. The tax treaty between Germany and the US because he is neither a resident of the US nor of Germany. So his scholarship is not taxable in the US nor in Germany.

Where is the flaw in the described situation? I guess it is that if you are not a resident of Germany (and hence cannot claim German residence for tax purposes on Schedule OI of Form 1040NR-EZ), you are not exempt of counting days of presence in the US. Still, I have not found any citeable source to support this guess; in particular, Form 8843 does not ask for residence at all.

Update: The tax treaty

shall apply to persons who are residents of one or both of the Contracting States, except as otherwise provided in this Convention.

This is article I of the tax treaty with Germany; in the 2006 protocol, this one has been subject to major additions, though.

In the version of the 2006 protocol (article II), the definition of residence is the following (article IV, paragraph 1):

“1. For the purposes of this Convention, the term "resident of a Contracting State" means any person who, under the laws of that State, is liable to tax therein by reason of his domicile, residence, place of management, place of incorporation, or any other criterion of a similar nature, and also includes that State and any political 4 subdivision or local authority thereof. The term, however, does not include any person who is liable to tax in that State in respect only of income from sources in that State or of profits attributable to a permanent establishment in that State or capital situated therein.”

Article IV, paragraphs 2 and 3 then only deal with residents of both Contracting States.

  • 2
    When he ends his residency ("Wohnsitz") does he give up his German citizenship and passport? Europeans seems to use "residence" and "citizenship" interchangeably, but they are certainly different concepts completely in US law, and, I believe, in most international treaties. – user32479 Mar 16 '16 at 13:53
  • No, you can be a German citizen (simply put, having a German passport) without being a resident of Germany (simply put, having a place to live in Germany, and declaring so). They two concepts have nothing to do with each other. – bers Mar 16 '16 at 13:59
  • 1
    OK, that's what I thought you were saying. In this case, I'm pretty sure that the answer to your question is "yes." Being a non-resident alien in the US should generally require citizenship elsewhere, but I don't think that it depends on residency elsewhere. I'm not sure enough to post it as an answer though. (It may even be possible in some unusual cases to not have citizenship elsewhere, but that would require, I think, circumstances like being a refugee or asylee.) – user32479 Mar 16 '16 at 14:01
  • How that plays with the US-German tax treat though may be a separate issue - Is it written based on being a non-resident here or on being a resident in Germany? As your top-line question illustrates, these are not exactly equivalent. – user32479 Mar 16 '16 at 14:06
  • 2
    Regarding your comment about being "a German citizen (simply put, having a German passport)" is one that you should be wary of. This "equivalence" between citizenship and holding a passport is a notion that is somewhat unique to Europe, especially to EU countries. Worldwide there are many cases where citizens do not routinely get passports and there are also cases where non-citizens can get passports. A passport specifies nationality, not citizenship. That may or may not matter for this question though. – user32479 Mar 16 '16 at 16:21
1

You'll need to read carefully the German laws on tax residency, in many European (and other) tax laws the loss of residency due to absence is conditioned on acquiring residency elsewhere.

But in general, it is possible to use treaties and statuses so that you end up not being resident anywhere, but it doesn't mean that the income is no longer taxed.

Generally every country taxes income sourced to it unless an exclusion applies, so if you can no longer apply the treaty due to not being a resident - you'll need to look for general exclusions in the tax law. I don't know how Germany taxes scholarships under the general rules, you'll have to check it. It is possible that they're not taxed.

Many people try to raise the argument of "I'm not a resident" to avoid income taxes altogether on earnings on their work - this would not work. But with a special kind of income like scholarship, which may be exempt under the law, it may.

Keep in mind, that the treaty has "who is or was immediately before visiting a Contracting State a resident of the other Contracting State" language in some relevant cases, so you may still apply it in the US even if no longer resident in Germany.

  • Thanks. Some comments: 1. In the German tax code, I cannot find any explicit requirement to acquire residence elsewhere (it may be implied, though). 2. Germans are not taxed based on citizenship/nationality. A German working and living outside of Germany receiving pay from outside Germany is not taxable in Germany. – bers Mar 18 '16 at 14:22
  • 3. With money coming from inside Germany, there may be limited tax liability (for German-sourced income from a German payer). The form of scholarship I asked about in my question is in fact taxable as salary in Germany [although it would most probably be considered non-compensatory by the IRS], even for non-Germany-resident German citizens (if paid by a German public payer). So in the case I proposed, legal tax evasion is impossible. 4. If the tax treaty does not apply because one is resident of neither country (article 1), the provision "who is or was immediately" does not, either. – bers Mar 18 '16 at 14:29
  • Finally, my question was mainly targeted at the US side of things. So although you convinced me that leagel tax evasion is not possible in the case I proposed, I am still interested what would prevent that situation from legally happening. @Bishop mentioned visa requirements, which is certainly a possibility, although I wonder how a five-year J-1 is supposed to maintain residence (pay rent? be present physically?) in his home country. – bers Mar 18 '16 at 14:31
  • @bers You seem very confident in what you're saying. Why asking questions then? I have no familiarity with the German law, but your interpretation of the tax treaty (your comment #4) is completely wrong - so I wouldn't be surprised you're interpreting the German law incorrectly as well. I don't understand why you're using a term "legal evasion" which is self-contradictory ("evasion" is avoiding a legal duty - so how can it be legal?), and not sure why you think this situation should be legally prevented. It seems like you reached conclusions before you asked the question and want validation... – littleadv Mar 19 '16 at 4:12
  • You may be right, I do have some expectation as to what the answer should be, and I am happy that this is the case looking at the answers you sometimes receive (such as the early answer by Bishop and the wrong answer by keshlam). So I am used to challenging the answers I receive. Sometimes, however, it's hard to squeeze significant amounts of information into these small comment boxes, so my above comments may sound a little harsh due to shortening. – bers Mar 20 '16 at 14:40
-2

You may be considered a resident for tax purposes.

To meet the substantial presence test, you must have been physically present in the United States on at least:

31 days during the current year, and 183 days during the 3 year period that includes the current year and the 2 years immediately before. To satisfy the 183 days requirement, count: All of the days you were present in the current year, and One-third of the days you were present in the first year before the current year, and One-sixth of the days you were present in the second year before the current year.

If you are exempt, I'd check that ending your residence in Germany doesn't violate terms of the visa, in which case you'd lose your exempt status.

If you are certain that you can maintain your exempt status, then the income would definitively not be taxed by the US as it is not effectively connected income:

You are considered to be engaged in a trade or business in the United States if you are temporarily present in the United States as a nonimmigrant on an "F," "J," "M," or "Q" visa. The taxable part of any U.S. source scholarship or fellowship grant received by a nonimmigrant in "F," "J," "M," or "Q" status is treated as effectively connected with a trade or business in the United States.

and your scholarship is sourced from outside the US:

Generally, the source of scholarships, fellowship grants, grants, prizes, and awards is the residence of the payer regardless of who actually disburses the funds.

I would look into this from a German perspective. If they have a rule similiar to the US for scholarships, then you will still be counted as a resident there.

  • People on J-1 visas are generally exempt from this test for the first few years (depending on their category under J-1). That's what the OP means when writing about "exempt from counting days." – user32479 Mar 16 '16 at 14:27
  • 1
    @Brick: Not generally, but often (maximum of two years in every period of six years). Find more here: irs.gov/Individuals/International-Taxpayers/… – bers Mar 16 '16 at 14:29
  • I added more info. You would avoid US taxes in this scenario, but I am not sure you could avoid German – Bishop Mar 16 '16 at 14:53
-2

If you aren't a US National (citizen or Green Card holder or some other exception I know not of), you're an alien, no matter where else you may or may not be a citizen.

If you don't meet the residency tests, you're nonresident.

Simple as that.

  • This is wrong. Under 8 USC 1101, a US National is not an alien, and being a US Citizen in sufficient but not necessary for being a US National. "Green card holders," for example, are US Nationals and therefore not aliens under the law. law.cornell.edu/uscode/text/8/1101 – user32479 Mar 16 '16 at 16:35
  • I stand corrected, @brick. – keshlam Mar 16 '16 at 18:06

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Not the answer you're looking for? Browse other questions tagged or ask your own question.