I'm a self-employed U.S. citizen living in Italy. According to http://www.expattaxprofessionals.com/wp-content/uploads/pdf/Tax-Handbook-Understanding-the-US-Tax-Basics.pdf, the rules for paying self-employment tax are generally the same as for U.S. residents. However,
In order to avoid paying self-employment taxes in both the U.S. and the foreign country, U.S. expats may be able to rely on a social security totalization agreement between the U.S. and the foreign country.
According to U.S.-Italy tax treaty (https://www.irs.gov/pub/irs-trty/italy.pdf), article 14:
Independent Personal Services
Income derived by an individual who is a resident of a Contracting State from the performance of personal services in an independent capacity shall be taxable only in that State unless such services are performed in the other Contracting State and a) the individual has a fixed base regularly available to him in that other State for the purpose of performing his activities, but only so much of the income as is attributable to that fixed base may be taxed in that other State; or b) the individual is present in that other State for a period or periods aggregating more than 183 days in the fiscal year concerned.
The term "personal services in an independent capacity" includes, but is not limited to, scientific, literary, artistic, educational, and teaching activities as well as independent activities of physicians, lawyers, engineers, architects, dentists, and accountants.
In other words, it seems like my self-employment income should be taxable only in Italy.
What it not yet clear to me is how to fill out my tax forms accordingly. As a self-employed individual I have to fill out Schedule C and Schedule SE, which leads to self-employment tax with no clear way to deduct it.
How can I make my self-employment tax zero (e.g. using foreign tax credit)?