Tax Status Summary

Scott Newland

7 February 2002

________________________________________________________________

Date: Thu, 7 Feb 2002 06:21:43 +0300

Sender: Headmasters List at International Schools <HEAD-NET@TC.UMN.EDU>

From: Scott and Shelia Newland <newland@TSE.COM.ER>

Subject: Tax Status Summary

Everyone has been great help. Over 18 Responses. For those of you who may need to use this adice in the future, save this email somewhere safe.

I will copy and paste responses. ( hope now one is offended). I will bring this anything else I see to ISS IRC DC. Ralph Jarr, has offered to make copies for anyone who may need this information and will keep a copy for future. As he pointed out, faxes of faxes soon become unreadable. For now, here is some of what schools sent that may be a help as well as the "key" people who may have more information from their own experiences.

I received several school/country Bilateral type agreements that I could fax or maybe able to scan and email when I have time.

Hope this helps others, as I am sure we will all be here again. As someone, said, eventually the tax man gets everyone. Maybe that is true, but I am willing to fight it as much as possible to be victorious for the teacher current and future.

If a small school could afford it would be fine, but we are not capable, so we have no choice but to fight, appeal and continue to fight and gather support.

Here are the responses to date:

Dear Scott,

Here we come under the umbrella of the US Embassy but with few laws here governing foreign institutions, no foreigners in any capacity are expected to pay tax. The government can't collect taxes from its own people yet.

Good luck, this is not much help.

Scott,

In Lebanon we all pay taxes on income up to 10 % which is the rate for

everyone in the country.

Dear Scott,

Greetings from CEESA. I can understand your concern re tax status and

although I don't have any documents in the office I know that AIS-Budapest

(Rick Detwiler: <detwiler.r@nk.aisb.hu>) has an agreement with the

Hungarian government that is great. It covers not only teachers' tax

exemption but all the various things you'd want out of a government. It is

a bilateral agreement.

AIS-Vienna (Rick Spradling: <r.spradling@ais.at>) also has a teacher tax

exemption agreement with the Austrian government.

I think AIS-Bucharest (Fred Wesson: <fwesson@aisb.ro>) does as well,

designed after Budapest's.

AS-Warsaw (Carol Kluznik: <kluznik@asw.waw.pl> is in the midst of trying to

get the Polish government to see the wisdom of making their teachers

officially tax exempt. Their agreement is not finalized but it may help to

have one more in the stack.

Chances are the above directors have already contacted you, but if not,

maybe this info will help.

Good luck,

Dear Scott,

I don't think that I am much help but for what it is worth, the United

Arab Emirates does not levy an income tax on any expatriate's salary. The

result of this is that there is much international business in the country

and people are wanting to come here. Hope this helps.

Scott,

Wiegh in with the Embassy - get them to help. After all the quality of education is directly is related to teachers and the quality of teachers is related to the benefit package. Emphazie to the emabssy to look long term - they may not have kids in school now but will in the future. Go to J Carney too. Reiterate that we have the support of the US State Departement.

good luck

Scott, Venezuela has an agreement with the U.S. whereby U.S. citizen teachers don't pay income taxes for the first two years they work in the country. After that, they start paying, which we actually pay. We deduct 6% from the local portion of pay from all expats from the beginning, and use that to subsidize the tax payments for those in third and subsequent years.

Scott In both Israel and venezuela there was negotiated tax free status

for US teachers. In both cases the intense involvement of the US Embassy was

necessary as only they have the leverage and sufficient interest in keeping

our schools viable. Perhaps there a combination of British, US and other

Embassies could intervene, esp. if they know the consequences of tax

imposition. Usually the US people will respond strongly to a local step that

will turn the school into a local-hire entity and preclude US teachers from

being hired. A/OS should be of help too!

Hope this helps! Good luck

Scott--

You for sure want to get Rick Detwiler in Budapest to send you the agreement they negotiated a few years ago with the Hungarian goverment--it's the best example I know of which covers your problem. They are entirely free of all tax obligations. I believe one of the Vienna schools also, many years ago, negotiated a similar agreement.

Ours is more convoluted and probably not a model you want to get into. What we did--and this took literally years--was secure a Government Decision from the Romanian cabinet which recognized the establishment of a non-profit Romanian subsidiary of a US Foundation. But to receive this recognition, we referred to a treaty negotiated between the US government and Romania (which had been passed in 1996). Our lawyers insist that we are covered regarding the tax issue, but we will probably try to do what Budapest did in order to achieve ongoing tax exemption from VAT, which we had for the duration of our building project (another long story there), but which we don't have going forward.

I had some sleepless nights along the way worrying about the payroll taxes (which here could amount to a 50% wack on the school or the expat employees--we do pay Romanian staff taxes). I know how it feels to face this, and I can only say that you need the best lawyer you can find to help you find a way forward. Maybe you can plead for a temporary extension while you work out a structure that will be acceptable to your host government? As I said, it took us years to accomplish the same here.

This is without doubt a tough moment for you, as you must feel at the mercy of forces outside of your control. If you don't have the legal expertise in country, by the way, I can suggest a law firm in Prague or our law firm here in Bucharest. Trouble is, ultimately they could only take you so far before you needed a local law firm to work on this, too. We started with the outside firm and over time turned things over to our local firm. Don't ask me what this cost. You don't want to know.

Best of luck and hang in there.

We have had tax free status on teachers' salaries since RAS was founded in

1962. We agreement seems to have been based on a cultural agreement

between the US and Morocco in 1957. That agrement does not contain enough

detail to make us comfortable and at the recommendation of the Embassy we

are now engaged in setting up a bilateral agreement between the two

countries that specifically addresses the status of our school as well as

the schools in Casablanca and Tangier. This process is being conducted by

the Embassy with our active participation. We have been at it for 2 years

now and have made slow progress. Last year, quite independently of this

process, the tax people started cracking down on all private schools and

tried to sweep us up in their net. We were able to fend them off because

we are in the process of working out an agreement. We have no real idea

how all of this will turn out but the Embassy is pretty optimistic.

Regarding our tax-free status here in Vienna, there has been a treaty in

place between the U.S. government and the Austrian government since 1989,

and before that there were diplomatic notes. Either government can give a 9

month notice to cancel this status, but otherwise it is solidly in place and

we don't have to meet any particular requirements.

I'm sorry I can't be of more help. Good luck to you!

The US and Croatian Governments have a signed agreement that the school and all foreign teachers are granted tax free status. This is true of many of the countries in the former Eastern Bloc. Local Croatian employed at the school pay regular Croatian taxes.

Few documents exist regarding our situation, but I hope that the information below proves helpful.

When our school started (1994) several embassies worked with the Ministry of Foreign Affairs on our behalf. Their argument was that without a school of international standard they would have difficulty assigning qualified people to Uzbekistan. They also pointed out that business would be reluctant to send executives with children.

The result was that the Ministry advised us as to how to establish the school under Uzbek law. We are now accredited annually by the Ministry. Our status is as a mission. This confers upon us (staff) tax free privleges and semi-diplomatic status (no hassle from police, no baggage inspection, no inspection of shipments, etc.) It also permits the school to do business in dollars.

If anything, I would suggest that you elicit the support of the embassies that have children in the school.

AIS/D has a tax free position due to a diplomatic agreement between the US

and Bangladesh governments. If you have Embassy support you need to get

them to rally. The Office of Overseas School and your REO will be a big

part of the process. Use them.

Scott,

My heart goes out to you..what a ______ thing to have happen. Unfortunately I can't help in the way in which you've asked, all I can do is offer moral support. The UK is really set in its ways.two years tax free but if you stay into a third, you not only have to begin paying taxes but pay retroactive taxes in addition. We're saddled here with paying taxes on our expat teachers as soon as they arrive in country. If the teachers leave at the end of two years, we collect from the government the taxes we've paid unnecessarily. If they stay into a third year, which most do, we continue to pay the taxes for an additional three years, then it's the teacher's responsibility if they wish to stay longer.

I truly wish you all the best of luck.

No help I fear. We have just gone fully tax compliant hopefully to fend off legal action and back taxes. We are raising salaries to compensate. I have an interesting budget to balance for next year! Int. Sch of Senegal (where I was before) does have an agreement between US and Senegal Gov. giving tax free status to teachers under some quasi diplomatic status.

Scott,

In Ecuador we had the same problem before I left. We were able to find a loophole and to pay our teachers as temporary consultants--school picked up tax as professional honorariums deductible at the source. Don't know if they still do this or get away with it, but it was a solution at the time. France has a tax treaty with US which exempts for first two years.

Tax man gets everyone! Sorry to say, but we pay it for our overseas

teachers, and it eats us up. I'm afraid it is inevitable...

Hi Scott,

When I was the head at AIS-Budapest we negotiated a special status for

our school and teachers. One of the interesting things that came to

light in the process is that Hungary already had a law on the books that

exempted foreign teachers who work for not-for-profit schools from local

taxes. Hope this precedent can be of help to you. Why is it that most

"interesting" things happen just before the recruitment trip!!??

Good luck!

Dear Scott,

Regrettably the trend is decidedly away from tax free status to expatriates

of all kinds including teachers.

Indonesia offers tax free status for only two years to teachers. Some

schools turn over all their expats every two years.

Pakistan just made teachers taxable, they may have a two year holiday as well.

Here we operate with teachers on cultural volunteer visas with only basic

needs paid locally tax free. Then we have another company in the states

that receives all tuition and pays salaries to teachers. It is as

cumbersome as it sounds but works and is legal.

Ultimately both teachers and parents are going to end up sharing the burden

of this added cost.

Responding your inquiry re: local tax free status on teachers incomes,

please find the following regulation approved recently in Venezuela. It is

an agreement between the government of the United States of America and the

government of Venezuela for the avoidance of double taxation and the

prevention of fiscal evasion with respect to taxes on income and capital.

Article 21

Students, Trainees, Teachers and Researchers

1. a) An individual who is a resident of a contracting state at the

beginning of his visit to the other contracting state and who is temporarily

present in that other contracting state for the primary purpose of teaching

or carrying on research at a recognized educational or research institution

shall be exempt from tax in the other contracting state on his income from

personal services for teaching or research at such institution for a period

not exceeding two years from the date of the individual's arrival in that

other State. In no event shall any individual have the benefits of this

paragraph for more than five taxable years.

After two years, we start tax retentions from teachers, but as they have

been here that long, they are considered as "resident" and the percentage of

the tax retention is low (between 4-5%).

I am not sure if this will help you, but that is all we have in Venezuela.

I tried to fax you the information, but it seems your fax is not working. I

tried also to scan the document, but it was too long. So I decided to email

you just the most important paragraph (according to my appreciation) where

it is mentioned the temporary exemption.

Scott Newland, Director

Asmara International Community School

PO Box 4941

Asmara Eritrea

+(291)(1) 16 17 05 Phone/Fax

aics@eol.com.er

newland@tse.com.er

Back