U.S. income tax treaty with Jamaica

Treaty documents and protocols

The convention was signed at Kingston on May 21, 1980. A Protocol signed July 17, 1981 amended it before it took effect, and the two entered into force together on December 29, 1981. IRS Table 3 gives a general effective date of January 1, 1982. The IRS lists an Income Tax Treaty and a Technical Explanation for Jamaica.^[1][2][5]

The Protocol matters because it replaced the original Article 17 with a limitation on benefits article, tightened the saving clause for former U.S. citizens, set the 10 percent direct dividend rate in its present wording, and added a rule on deducting convention expenses in Jamaica.

Convention structure

The articles cover personal scope, taxes and definitions, then residence and permanent establishment. They also address income categories, procedures and closing provisions.^[2]

Dividends, interest and royalties

The dividends article allows the recipient's state to tax dividends paid by a company resident in the other state. The company's state may also tax them under its own law, subject to a ceiling when the beneficial owner is resident in the other state. The ceiling is 10 percent of gross dividend income when the beneficial owner is a company other than a partnership that directly or indirectly owns at least 10 percent of the payer's voting stock. In other cases, the ceiling is 15 percent of the gross amount.^[2]

Those dividend limits do not apply when the holding is effectively connected with the recipient's permanent establishment or fixed base in the payer company's state, subject to the article's stated business profits or independent services rules. The article defines dividends through income from shares or other profit-participating corporate rights, with a further condition tied to the distributing company's state's tax treatment.^[2]

The article's general interest limits do not apply if the payer and beneficial owner have a special relationship, in which case the article's treatment is limited to the arm's-length amount.^[2]

Royalties may be taxed both in the beneficial owner's country of residence and in the country where they arise. The source country's tax cannot exceed 10 percent of the gross amount. Royalties include payments for the use of, or the right to use, listed intellectual property, as well as payments for information about industrial, commercial or scientific experience. Payments for the use of tangible personal property are not royalties.^[2]

A special relationship that makes the royalty exceed an arm's-length amount limits the article's treatment to that amount; the excess remains subject to each state's laws and the convention's other provisions.^[2]

Residence and dual residence

The residence article defines a U.S. resident for convention purposes as a person other than a company who is resident in the United States for U.S. tax purposes. For a partnership, estate or trust, the definition applies only to income subject to U.S. tax as resident income, either at the entity level or in the hands of partners or beneficiaries. A U.S. company is defined by creation or organization under U.S. law or the law of a political subdivision.^[2]

For an individual treated as resident in both countries, the article first assigns residence to the country where a permanent home is available. If homes are available in both countries or neither, the test turns to closer personal and economic relations. If that cannot be determined, the sequence proceeds to habitual abode, then nationality. When the individual is a national of both countries or neither, the two competent authorities are to settle the question by mutual agreement.^[2]

For a company treated as resident in both countries, the convention generally places it outside the convention's scope, with specified exceptions for dividends, non-discrimination, mutual agreement, information exchange and entry into force. For a dual-resident person other than an individual or company, the competent authorities are to seek a mutual agreement to settle the question and determine how the convention applies.^[2]

Information exchange

When one country requests information under the article, the other is to obtain it in the same manner and to the same extent as if the requesting country's tax were that other country's tax. The article also addresses specific requests by a competent authority.^[2]

Limitation on benefits

Article 17, titled Limitations on Benefits, was substituted for an earlier investment and holding company article by Article III of the 1981 Protocol. A person other than an individual that is resident in one country gets relief in the other only if more than 75 percent of its beneficial interest is owned by individual residents of its own country, and its income is not used in substantial part to meet liabilities to residents of third countries. A company with substantial trading in its stock on a recognized exchange in its country is presumed to meet the ownership test.^[2]

Paragraph 2 disapplies those conditions if the acquisition, ownership and operation of the person did not have obtaining treaty benefits as a principal purpose. Paragraph 3 gives examples where that purpose test is satisfied, such as a Jamaican company with third-country owners that carries on business operations in Jamaica, or whose owners would have qualified for similar U.S. benefits under their own countries' treaties.

Saving clause and U.S. citizens

Paragraph 3 of Article 1, as replaced by the 1981 Protocol, states that, notwithstanding the convention except for paragraph 4, a country may tax its residents as determined under Article 4 and may tax its citizens by reason of citizenship as if the convention had not taken effect. For the United States, the term citizen includes a former citizen whose loss of citizenship had tax avoidance as one of its principal purposes, for ten years after the loss. The technical explanation calls this paragraph the saving clause.^[2][3]

Paragraph 4 lists exceptions to that rule, including specified benefits under the pensions, relief from double taxation, non-discrimination and mutual agreement articles. It also preserves certain benefits under government service and student provisions, as well as teacher and researcher and diplomatic provisions. The government service, student, teacher and researcher, and diplomatic benefits apply to individuals who are neither citizens of nor immigrants in the state granting the benefit.^[2]

Related reading

See also U.S. income tax treaty with Georgia. U.S. income tax treaty with Germany and U.S. income tax treaty with Japan offer additional country-specific treaty summaries. U.S. income tax treaty with Switzerland covers residence, income rules, information exchange, and benefits.

Questions and answers

Related resources

Related glossary terms

• Tax residence: Tax residence describes a person's status in a country for tax purposes. Treaty texts address how it affects income items and applicable treaty requirements.

Related articles and guides

• U.S. income tax treaty with Georgia: For Georgia the IRS lists the 1973 convention with the Soviet Union, which exempts only specified items such as certain royalties and trade-financing interest.
• U.S. income tax treaty with Germany: The U.S. income tax treaty with Germany is the 1989 convention as amended by a 2006 Protocol, which added a 0 percent dividend rate for qualifying companies.

Related pages

• Tax treaties: All treaty partners listed by the IRS.
• Treaty documents lookup: Find IRS-listed treaty documents by country.