Guide to Bilateral Social Security Agreements for American Expats

By ZM Ishmurzina

Globalization has a profound impact on U.S. citizens and green card holders. An increasing number of baby boomers prefer to retire overseas. More and more American expatriates split their careers between multiple countries. Most of the countries levy social security taxes on its residents. To eliminate dual social security coverage, the United States has established bilateral Social Security agreements with 24 countries.

This is the latest email from one of our clients, American expatriates living abroad. “I plan to move to New Zealand and expand my consulting business. However, I am confused about social security taxes and my U.S. social security coverage. I read about bilateral social security agreements/totalization agreements between the U.S. and other countries. However, New Zealand is not on the list. How does it affect me?”

Earlier we discussed social security benefits and social security taxes. Let’s review the key issues about social security agreements affecting American expatriates.

Which countries signed bilateral SS agreements with the U.S.A.?

Countries with Social Security Agreements

Country Entry into Force
Italy November 1, 1978
Germany December 1, 1979
Switzerland November 1, 1980
Belgium July 1, 1984
Norway July 1, 1984
Canada August 1, 1984
United Kingdom January 1, 1985
Sweden January 1, 1987
Spain April 1, 1988
France July 1, 1988
Portugal August 1, 1989
Netherlands November 1, 1990
Austria November 1, 1991
Finland November 1, 1992
Ireland September 1, 1993
Luxembourg November 1, 1993
Greece September 1, 1994
South Korea April 1, 2001
Chile December 1, 2001
Australia October 1, 2002
Japan October 1, 2005
Denmark October 1, 2008
Czech Republic January 1, 2009
Poland March 1, 2009

 

What are the social security benefits for Americans working abroad?

  • Bilateral social security agreements eliminate dual social security coverage.

Dual social security liability is a common problem for U.S. multinational companies and its employees. U.S. social security coverage extends to American expatriates working abroad for American companies even if they have been hired abroad or have been on a long-term foreign assignment. In addition to US SS coverage, both U.S. employers and employees are subject to social security liability in a foreign country. This is due to the fact that most countries impose social security contributions on any person who works in their territory.

Dual Social Security liability is costly for U.S. companies that offer “tax equalization” arrangements for American expatriates. These companies send their employees overseas and usually guarantee that the after-tax income of an employee will not decrease as a result of a foreign assignment. As a result of it, the U.S. companies have to pay both the employer and employee part of social security liability in a foreign country.

Bilateral social security agreements eliminate this problem for American expatriates and the U.S. companies.

 

  • International Social Security agreements provide benefit protection for American expatriates.

Americans working abroad must obtain a certificate of coverage to document their exemption under the totalization agreement. For example, a U.S. citizen working in London will need a certificate of coverage issued by SSA to prove his exemption from U.K. social security contributions. In case of social security contributions in a foreign country, per Revenue Procedure 84-54, the foreign certificate is a proof of the exemption from U.S. Social Security taxes for the period shown on the certificate.

 

  • Self-employment social security coverage.

Per international totalization agreements, self-employed American expatriates are exempt from dual social security liability. For example, an American expatriate working as a self-employed in Sweden is subject to social security taxes in Sweden and is exempt from the US Social Security taxes.

 

Conclusion

American expatriates must review totalization agreements on the SSA website to understand the social security coverage in a foreign country. A consultation with an expat tax CPA/preparer is recommended before American expatriates decide to move abroad, to renounce citizenship or to retire overseas.