International Tax Considerations
As in the U.S., taxes are a fact of life overseas; although precisely which taxes are owed is often less clear. We can research your project’s foreign tax requirements to help you budget appropriately and avoid costly penalties for unintentional non-payment.
You can start by:
- Understanding the activities that trigger tax requirements.
- Reviewing the common taxes that may apply to your international project.
- Contacting us or your School’s Finance Office for more guidance.
It's particularly important to consider foreign tax requirements if your program meets any one of the following criteria:
- has staff spending more than 180 days in foreign countries
- hires staff locally
- generates revenue abroad, such as executive education, online courses, publications, and gifts or grants leaving the country of origin
5 Common Taxes Abroad
1. Income and Payroll Taxes on Staff Hired Abroad
For staff employed overseas, you should budget for and expect to pay all country-specific income withholding and social tax requirements (i.e. social security or comparable pension plan, health care, unemployment insurance, workers' compensation, housing funds, severance funds, etc.). If working through a local partner, another Harvard office, Harvard Global, or a Professional Employer Organization (PEO), these taxes will be a part of the fee charged to your program. If an individual is hired as an independent contractor (IC), generally that contractor is required to pay their own taxes; however in some countries—like Brazil and China—the employer is required to withhold certain taxes and pay them directly to the government. Contact us for a list of countries that require this for IC’s.
Employees of all nationalities should expect to pay personal income taxes in that country. Additionally, U.S. citizens or third-country nationals (TCN's) may be required to pay taxes in their home country, even if permanently posted overseas. For more information, see the IRS guidance on U.S. citizens and resident aliens abroad.
Harvard does not provide tax advice to employees. However, it's acceptable to arrange and pay for employees to receive third-party tax advice and tax preparation. This is a good practice if faculty or staff incur foreign taxes due to a Harvard assignment overseas. Tax assistance is itself a taxable benefit in the U.S., so this expense should be reported as income and ordinarily would be grossed up. U.S. expatriates and TCN’s employed by Harvard Global automatically receive a tax briefing; assistance with personal tax filings can be offered as an additional option.
2. Income Taxes on Frequent Visitors to a Country
Frequent travelers or short-term residents (visiting scholars, interns, etc.) may be subject to income taxes in countries where they spend an extended period of time. These obligations depend on a number of factors, including:
- Amount of time spent in a country: If you spend more three or six months in a tax year or any 12-month period, you'll likely be considered a "tax resident" by that country. The tax you may owe may be levied on all income, including income earned in other countries. Some countries may also tax benefits you receive (housing, retirement, education, etc.). However, there may be ways that you can avoid being taxed twice on your income. Countries frequently negotiate double-taxation treaties, which usually avoid having your income taxed in your home country and the country you visited.
- Type of funding: Research stipends may be taxed differently than wages.
- Source of funding: Funding from a source within a country may be taxed differently than outside funding.
- Nationality: Countries may have certain provisions in treaties to reduce taxation.
3. Taxes on Harvard Purchases Abroad
Harvard is only registered as a tax-exempt institution in the U.S. Therefore, Harvard departments must pay consumption tax—such as sales tax, value-added tax (VAT), and goods and services tax (GST)—on international purchases. VAT is common in Europe and Japan, while GST is common in Asia-Pacific and Canada. While certain VAT or GST expenses may be recoverable, this process is handled centrally within the University. Contact the tax services group in the Office of the Controller for more information.
4. Taxes on Program and Grant Revenue Abroad
Because Harvard is not exempt from corporate tax outside the U.S., an international activity that produces any form of revenue may expose Harvard to taxation in the country where the activity occurs. Even where no revenue is produced, Harvard may incur filing requirements.
Where a Harvard unit sells goods or services (e.g. books, executive education, etc.) abroad, it may be required to collect tax on that revenue and pay the tax to the jurisdiction where the sale was made. Such a tax goes by various names, including sales tax, service tax, GST, or VAT. To pay the tax, Harvard or an affiliated entity will typically need to be registered with the appropriate tax authority; this requires prior consultation with the Office of General Counsel (OGC) and the Office of the Controller tax reporting group.
Some countries tax funds that leave the country, including grant funds. This may take the form of a "withholding tax" on payments to non-resident individuals or corporations, such as Harvard. Where they exist, withholding taxes typically range from 10 to 35 percent of the amount received.
When preparing grant proposals for international funders, consider potential withholding taxes in your budget. You can minimize these taxes by keeping the funds in the country by:
- working through local partners (who can receive the funds without a withholding tax)
- spending more of the funds in country (e.g. by paying travel expenses for Harvard staff in-country rather than from Cambridge or Boston)
Long-term projects and sites may have difficulty repatriating funds to the U.S. If it's necessary to fund or capitalize an overseas project beyond what is necessary for immediate expenses, first consider how to recover any unspent funds that may remain at project's end
5. Duties and Tariffs on Items Shipped or Hand-Carried
While not commonly thought of as a tax, some shipments or items that are hand-carried to and from other countries may generate a customs duty or tariff. Learn more about exports and imports.