Gaining a detailed understanding of how the tax regulations of the country where your project operates work should be an integral part of your plan.
Generally, MIT does not want to create a permanent establishment in foreign countries. Please adhere to the following when considering a project that may have international implications:
- Do not sign any contracts on behalf of MIT in the foreign country.
- Do not rent or lease office space for MIT in the foreign country.
- Do not open a bank account for MIT in the foreign country.
- As possible, conduct as much of the program’s activities in the U.S.
- Limit the number of days any MIT employees have to spend in the foreign country.
- When possible, obtain payments from sources inside the U.S.
Although MIT is a tax-exempt organization in the U.S. and is exempt from certain taxation related to its charitable activities and on certain other passive income, MIT is generally not exempt from tax liability in other countries. MIT may be able to obtain tax-exempt status or an exclusion from the typical tax regulations in a foreign country in some limited situations. However, many governments do not recognize U.S. tax-exempt status and do not distinguish between charitable, educational and research activities and those that are for profit.
Without a specific exemption, an agreement with the foreign government, or an exemption afforded by an income tax treaty between the U.S. and a foreign country’s government, MIT could be taxed on ALL funding received from a foreign country just like any other for-profit entity operating in the foreign country. Given the tax implication, MIT must carefully plan the type of activities that will occur in a foreign country.
Anyone planning an international project should consider the withholding tax implication as it may affect the level of funding available for the program. MIT generally asks the sponsor to pay withholding tax. In other words, the contract amount in the international agreement is net of taxes, imposts and/or duties of any type. In case taxes are withheld at the source and paid on behalf of MIT, it is important to request that the sponsor send MIT the withholding tax documentation and receipt for the payment of the tax to ensure that the withholding tax liability is properly discharged.
Individual Income Taxes
When planning a program that requires MIT to send our employees abroad, the program administrator should consider the potential individual income tax impact for the MIT individual employees and the incremental cost to the program. If you plan to have MIT people traveling abroad for more than 30 days in the same country, please refer to the HROI process.
In the course of providing assistance to MIT employees for their individual income tax in a foreign country, it may be necessary to obtain professional advice or services from accountants or tax advisors. The program administrator should contact the ICC prior to the engagement of professional services in order to ensure consistency and efficiency as well as management of quality and cost.