Many are under the impression that international tax treaties ensure that there is no double taxation, ever. This is a myth. While they do address this point in length, there can be many exceptions.
One exception is with the US-Israel tax treaty, an outdated ancient tractate authored in 1975 and last updated in 1995. While almost all countries which have a tax treaty with the US have an anti-double social security taxation clause, called a "Totalization Agreement", Israel does not.
So, self-employed US citizens living in Israel, besides for paying 9-17% Israeli social security tax (depending on income), also need to file a US tax return and pay another 15.3% US social security (and Medicare) taxes. This is before getting to income taxes, for which thankfully there is an agreement in the tax treaty.
While there are complex solutions to this problem, such as setting up a foreign corporation, these solutions are costly and don't work in all situations.
This is a huge burden on US citizens in Israel, and in fact, many cannot believe they have to pay such a huge amount of tax. This inequity needs to be rectified! Why this problem has been allowed to remain for so long, nobody really knows.....
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