Totalization Agreement Social Security Administration
Workers who are exempt from U.S. or foreign social security contributions under an agreement must document their exemption by obtaining a country coverage certificate that continues to cover it. For example, an American worker temporarily posted to the UK would need a SSA-issued coverage certificate to prove his exemption from UK social security contributions. Conversely, a UK-based employee working temporarily in the Us would need a certificate from the British authorities to prove the exemption from the US Social Security Tax. Canada has international social security agreements with more than 50 countries with comparable pension plans. These agreements aim to: the agreements also have a positive effect on the profitability and competitive position of companies with foreign activities by reducing their costs of doing business abroad. Companies with staff stationed abroad are encouraged to use these agreements to reduce their tax burden. 2 An exception to this rule is the agreement with Italy, which allows some transferred workers to choose the social security system to which they are subject. No other U.S. totalization agreement contains a similar rule. These objective rules include what may not apply to any agreement reached by the United States: the agreement with Italy constitutes a departure from other American agreements, since it does not provide for a rule of the secondment of workers. As in other agreements, the basic criterion of coverage is the territorial rule. However, the coverage of foreign workers is mainly based on the nationality of the worker.
If an employed or self-employed U.S. citizen in Italy would be covered by U.S. Social Security without the agreement, he will remain covered by the U.S. program and exempt from Italian coverage and contributions. Totalization agreements are popular with U.S. companies because they exempt employers from paying a dual social security tax. According to a regular study of net tax savings by the Office of International Programs of the Social Security Administration (SSA), U.S. companies and their employees save about $1.5 billion a year in foreign social taxes based on these agreements. These tax savings help make U.S.
operations more profitable around the world, while improving the competitiveness of U.S. trade. The totalization agreements also excuse foreign workers temporarily sent to the United States for payment of U.S. Social Security taxes. The result is annual savings of approximately $500 million for the foreign workers involved and their employers. These tax savings make the United States a more attractive destination for foreign capital, thereby encouraging foreign direct investment. 1 The same applies to workers whose employer temporarily transfers them to a company that has an agreement with the Ministry of Finance under Section 3121 (l) of the internal income code. These companies are generally referred to as «affiliates» and must pay U.S.
Social Security taxes on behalf of all U.S. citizens or residents employed by that subsidiary abroad. Although totalization agreements vary according to the partner country`s social security system, Table A-1 summarizes some common coverage situations for U.S. workers posted abroad to work. As a general rule, a worker is covered by the social security system of the country in which he works. However, totalization agreements indicate exceptions for certain categories of U.S. workers. Since totalization agreements are inherently reciprocal, these waivers apply equally to foreign workers in the United States. The labour shortage in Europe, just after the Second World War, led to an unprecedented period of labour immigration.