Although the agreements with Belgium, France, Germany, Italy and Japan do not use the residence rule as the primary determinant of coverage of self-employment, each of them contains a provision guaranteeing that workers are insured and taxed in only one country. For more information on these agreements, click here on our website or by writing to the Social Security Administration (SSA) in the „Conclusion“ section below. International social security agreements, often referred to as „totalization agreements,“ have two main purposes. First, they eliminate double taxation of social security, the situation that occurs when a worker from one country works in another country and has to pay social security taxes to both countries with the same income. Second, the agreements help fill gaps in benefit protection for workers who have shared their careers between the United States and another country. Double taxation can also have an impact on the United States. Citizens and residents working for foreign subsidiaries of U.S. companies. This is likely the case when a U.S. company has followed the usual practice of entering into an agreement with the Treasury, pursuant to Section 3121(l) of the Internal Income Code, in order to provide social security coverage to U.S. citizens and residents employed by the subsidiary.
In addition, U.S. citizens and residents who are self-employed outside the U.S. are often subject to a dual social security requirement, as they remain insured under the U.S. program, even if they do not have a business activity in the United States. „Social security pensions and other public pensions paid by one of the States Parties to a natural person established in the other State Party shall be exempt from tax in both States Parties … The exemption rule may apply whether the U.S. employer transfers a worker to a foreign branch or one of its foreign subsidiaries. However, in order for U.S. coverage to continue when a transferred employee works for a foreign subsidiary, the U.S. employer must have entered into a Section 3121(l) agreement with the U.S. Treasury regarding the foreign subsidiary.
Any agreement (with the exception of the one concluded with Italy) provides for a derogation from the territoriality rule, which aims to minimise disruptions in the coverage of the careers of workers whose employers temporarily send them abroad.