Once you know how the IRS treats your income (VA disability is not taxable, military retired pay is), the next question is the one people ask at every meetup: will my new country tax it too?
The honest answer is that it depends on two things. First, your new country's own tax law. Second, whether the U.S. has an income tax treaty with that country, and what the treaty says. This post explains how to read the treaty side, with real examples from the treaty texts published by the IRS and the Treasury Department, and why you still need a local tax professional to answer the domestic-law side. It is general information, not tax advice.
Why a treaty matters, and why it does not help with your U.S. tax
An income tax treaty is an agreement between two countries about which one gets to tax what, and how to avoid taxing the same income twice. The IRS publishes the list of U.S. treaty partners and the treaty documents for each one on its tax treaties A to Z page.
Countries popular with our readers that have a U.S. income tax treaty listed there include Germany, Italy, Spain, Portugal, the United Kingdom, Japan, Korea, the Philippines, Thailand and Mexico. Vietnam, Costa Rica and Panama do not appear on that list, so for those countries there is no U.S. income tax treaty to rely on, and local law plus the U.S. foreign tax credit decide the outcome.
Before you get excited about any treaty clause, understand the saving clause. IRS Publication 54 explains that U.S. treaties contain saving clauses providing that the treaties do not affect U.S. taxation of its own citizens and residents. As a result, U.S. citizens generally cannot use a treaty to reduce their U.S. tax. Most treaties have specific exceptions to the saving clause, so you have to read the applicable one. In practice, for a U.S. citizen, a treaty mostly answers the question "can my new country tax this?" rather than "can I stop paying U.S. tax on this?"
The government service article: where military retired pay usually lands
Most modern U.S. treaties have an article called "Government Service" (sometimes "Governmental Functions"). It covers pay and pensions paid by one government for services rendered to that government. Military retired pay is paid by the U.S. government for service to the U.S., so this article is the first place to look. Here is how several treaties word it, quoted from the official texts.
Germany
The 2006 protocol deleted the original Article 19 of the U.S.-Germany treaty and replaced it with a new Government Service article. Paragraph 2 of the new Article 19 says:
Pensions and other similar remuneration paid by, or out of funds created by, a Contracting State or a political subdivision, local authority or an instrumentality thereof to an individual in respect of services rendered to that State or subdivision, authority or instrumentality shall be taxable only in that State.
The same paragraph flips the rule if the individual is both a resident and a national of the other country (or in a narrow case where the services were performed entirely in the other country). So for a U.S. citizen living in Germany who is not also a German national, the treaty text says a U.S. government pension for service to the U.S. is taxable only in the United States. The protocol also added a rule on Social Security (discussed below). Older copies of the treaty show the pre-2006 wording, so always read the treaty together with its protocols.
Spain, Portugal and Thailand
These three treaties use nearly identical language in Article 21 (Government Service). The Spain text reads:
Any pension paid by, or out of funds created by, a Contracting State or a political subdivision or a local authority thereof to an individual in respect of services rendered to that State or subdivision or authority shall be taxable only in that State.
The next paragraph adds the exception: the pension is taxable only in the other country if the individual is both a resident and a national of that other country. Put simply, if you are a U.S. citizen living in Spain, Portugal or Thailand and you are not also a citizen of that country, the treaty text says a U.S. government pension for service to the U.S. is taxable only in the United States.
Japan
The current U.S.-Japan treaty (signed in 2003, published by the Treasury Department) has the same structure in Article 18: a pension paid by a Contracting State for services rendered to it "shall be taxable only in that Contracting State," unless the individual is a resident and a national of the other state. The article carves out U.S. Social Security from this rule.
The Philippines
The U.S.-Philippines treaty is older and worded differently. Article 20 (Governmental Functions) says wages and similar remuneration, "including pensions, annuities, or similar benefits," paid from public funds of one country to a citizen of that country are exempt from tax by the other country.
What about VA disability compensation?
This is the part people most want answered, and the part we cannot answer for every country. VA disability compensation is not pay or a pension for services rendered; it is compensation for a service-connected disability. The government service articles quoted above are written around pay and pensions for services, so they may not clearly cover VA compensation. Germany's treaty is one example that also has a separate clause (Article 19, paragraph 3, as revised in 2006) exempting from the other country's tax amounts paid as compensation for an injury or damage sustained as a result of hostilities or political persecution, but whether a given VA payment fits a clause like that is a question for a professional.
In practice, whether your new country taxes VA compensation usually comes down to its domestic law: how it treats foreign disability benefits, whether it taxes foreign income of residents at all, and whether it taxes only income brought into the country. Those rules change, and we could not confirm them from official sources for every country our readers live in. Do not rely on what someone heard at the bar. Ask a licensed local tax adviser, and bring your VA award letter and your benefits summary from VA.gov so they can see exactly what the payment is.
Social Security is a different article
Social Security benefits are usually handled in the pensions or Social Security article, not the government service article, and the rules vary more from treaty to treaty:
| Treaty | What the text says about U.S. Social Security paid to a resident of the other country |
|---|---|
| Germany (2006 protocol) | Taxable only in the country where the recipient lives |
| Japan (2003) | Pensions, including social security payments, taxable only in the country of residence |
| Philippines | Taxable only in the paying country (the U.S.) |
| Thailand | Taxable only in the paying country, including for U.S. citizens |
| Spain and Portugal | May be taxed in the paying country (the U.S.); the treaty text does not make it exclusive |
Remember the saving clause: even where a treaty gives the residence country the taxing right, the U.S. can generally still tax its citizens, and you rely on the foreign tax credit to avoid double tax. This is exactly the kind of interaction a professional should map out for you.
Relief from double tax when both countries tax
When both countries do tax the same income, Publication 54 says most treaties relieve double taxation through U.S. domestic law, by allowing a credit or deduction for the tax paid to the treaty country. That means Form 1116, the foreign tax credit. See our guide to U.S. taxes for veterans living abroad for how the credit works.
The IRS treaty page also warns that many U.S. states tax income sourced within them and some do not honor treaty provisions. If you still have a state filing requirement, a treaty may do nothing for you there. Read our post on ending state tax residency.
Step by step: working out how your new country treats your income
- List your U.S. income by type. VA compensation, military retired pay, CRSC or CRDP, Social Security, federal civil service annuity, private pensions or IRA withdrawals, and investment income. Each may fall under a different treaty article.
- Check if a treaty exists. Look for your country on the IRS treaties A to Z page. If it is not there, skip to step 5.
- Download the treaty and any protocols from the country's treaty documents page on irs.gov or from the Treasury Department treaties page. Read the government service article, the pensions article and the saving clause. Many treaties also have a Treasury technical explanation that explains the intent.
- Check whether you are a national of the new country. Several government service articles flip the rule if you are a resident and a national there. Veterans who naturalize abroad, or who hold dual citizenship by descent, need to pay attention here.
- Book a licensed local tax adviser to confirm how domestic law treats each item, including VA compensation, and whether you must file a local return even for income that ends up exempt.
- Get a U.S. residency certificate if needed. Publication 54 notes you can request certification of U.S. residency for treaty purposes on Form 8802. Ask your adviser whether your new country requires it.
- Keep proof. Your DFAS retiree account statements, your VA award letter and your SSA benefit statement show the payer and the type of payment. Local tax offices may ask for them.
Gotchas to watch for
- Exempt does not always mean invisible. Some countries require you to declare exempt income, or use it to set the tax rate on your other income. Ask your local adviser.
- Treaties get amended. Germany (2006), Spain (2013) and Japan (2013) all have later protocols. Germany's replaced its whole Government Service article; the Spain and Japan protocols we checked did not change the government service or pension articles quoted here. Always read the current position, not just the original text.
- Retired pay with a VA waiver. If part of your retired pay is waived to receive VA compensation, the two pieces may be treated differently both by the IRS and by your new country. Bring both documents to your adviser.
- Your visa may care too. Some retirement visas look at pension income. That is an immigration question, not a tax one, but the same paperwork helps.
For more on how VA payments reach you overseas, see VA benefits paid abroad, and for the broader checklist see our taxes and voting abroad hub.
Common questions
Can a tax treaty reduce my U.S. tax on military retired pay?
Generally no. IRS Publication 54 explains that saving clauses keep treaties from affecting U.S. taxation of U.S. citizens, with specific exceptions you need to check in each treaty.
Will Germany tax my military retired pay?
Article 19 of the U.S.-Germany treaty, as replaced by the 2006 protocol, says U.S. government pensions for service to the U.S. are taxable only in the U.S., unless you are both a resident and a national of Germany. Confirm your situation with a German tax adviser, since local reporting rules still apply.
Is VA disability compensation covered by tax treaties?
Treaties are mostly written around pay and pensions for services, so VA compensation may not be clearly covered. Its treatment usually depends on your new country's domestic law, so ask a licensed local tax professional.
What if my country has no tax treaty with the U.S.?
Then local law decides whether it taxes your income, and you use the U.S. foreign tax credit to reduce double taxation on income both countries tax.
Where can I read the actual treaty?
The IRS tax treaties A to Z page links to each country's treaty documents, and the Treasury Department publishes treaties, protocols and technical explanations.
Ask vets who have done it
Post your question in the free community. Members in your country have usually been through it.
Published August 29, 2026. Information only, not legal, tax, immigration or medical advice. Confirm with the official sources.
