Tax Treaties and Crewmembers

by Tom Andrews, CPA

Nonresident crewmember that have worked on a foreign flagged vessel have probably been asked to sign form 8233 “Exemption Form Withholding on Compensation for Personal Services of a Nonresident Alien”.   By properly executing  this form the vessel/employer may be relieved from the responsibility income  to withhold federal taxes from the wages of nonresident crewmembers while the vessel is cruising in US territorial waters.  When a crewmember signs form 8233 they are basically attesting to the fact that they are a resident of a country that has a tax treaty with the United States and that they qualify for the benefits under their home countries tax treaty with the United States.  In most cases a crewmember that qualifies for tax treaty benefits may work on a foreign flagged vessel in the Unites States for up to 183 days without the employer withholding tax from their salary.

Unfortunately many employers are accepting Form 8233 from crewmembers without completing the due diligence necessary to determine whether or not the nonresident crewmember qualifies for tax treaty benefits.    A common error is that the crewmember is not a resident of a country that has a tax treaty with the United States.  While many traditional seafaring countries do have tax treaties with the United States there are many countries that do not. For example the only country in South America that has a tax treaty is Venezuela.  This means that any other crewmember from a country in South America will not be eligible to claim the benefits afforded under a properly executed tax treaty.

If a crewmember  is a resident of a country that is not party to an income tax treaty with the United States the employer (in most cases) must withhold federal income taxes from that crewmembers salary.  Another common error I have encountered is that the foreign employer is not eligible to accept Form 8233 from nonresidents, this has more to do with how the foreign corporation is organized, just because the vessel is foreign flagged or the employer is a foreign entity does not mean they automatically qualify to accept a crewmembers claim to tax treaty benefits.  Lastly another error is on the part of the crewmember.  If a crewmember is requesting that an employer not withhold tax from their salary due to a tax treaty benefit claim, that crewmember must be a tax resident of another country.  Many crewmembers have declared themselves as nonresidents for tax purposes making them ineligible for tax treaty benefits between the United States and their home country.

In conclusion, a properly executed form 8233 is a great tool to avoid having tax withheld from nonresident crewmember.  It is important that the form is not used as a “tax exemption waiver” as this is not the purpose of the form.  While this column only touches on the basics of this topic it is important that a crewmember, owner or management company consult with their tax attorney/CPA regarding any technical questions they many have.  I would also recommend nonresident crewmembers keep in touch with a tax professional in their home country. 

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