Tax matters for US citizens living abroad

07 Oct 2015 2:18 PM | FIGT Blog Editor (Administrator)


Moving abroad can ignite a whole host of emotions. From elation and a sense of adventure and freedom, to the insecurity of missing familiar people, places and routines. The practicalities of the move, both packing up and saying goodbye, and organising our new life, can be stressful too. Something that is almost never at the forefront of our minds during this exciting and dramatic time though is taxes.

The consequences of neglecting tax obligations can be severe though. Furthermore, moving abroad, in the case of US expats, doesn't mean that we are no longer liable to file a federal US return, the US being one of just 2 countries that taxes by citizenship (and/or possession of a green card) rather than by residence. So Americans moving abroad become subject to the tax and filing obligations of 2 governments, rather than just one.

The good news is that the US has double taxation agreements with lots of countries, and has various other provisions in place to prevent the same income being taxed twice. We still have to file though, and there are some extra filing requirements especially for expats too (lucky us).

So my first piece of advice for those moving abroad is to take a little time to find out what the requirements are, for both your old and your new countries of residence. Once you know these, you can plan.

This can be normally be achieved with an online search. The first things that you'll want to find out are filing dates and tax rates, and whether you can file online. In most countries you'll need to register with the national tax authority too, so you should find out how to do so early on. If you are already employed when you arrive, your employer should be able to help with this.

For Americans, any taxes owed must be paid by April 15th, the same as for those living in the US, however the filing date for expats is June 15th, with an extension available until October 15th which you can request online.

The Foreign Account Tax Compliant Act (FATCA) meanwhile requires US expats to attach a form 8938 to their return declaring any overseas earnings and assets.

Furthermore, US expats who have at least ten thousand dollars in total in bank accounts outside the US at any time during the tax year must also submit an FBAR (Foreign Bank Account Report) declaring their overseas bank accounts. In practice this is form 114 which from 2016 must be filed online by April 15th, though again an extension will be available until October 15th.

My next piece of advice is to find out what if any tax treaties exist between your old and new countries of residence to prevent you paying tax on the same income twice. Typically, you pay tax on income in the country where it's earned. Again, an online search ought to fairly quickly shed some light on this.

Next, find out which exemptions you are entitled to claim. For Americans these might include the Foreign Earned Income Exclusion, which relieves US expats from paying tax on the first $100,800 (in 2015) of income earned abroad, the Foreign Tax Credit, and the Foreign Housing Exclusion.

With the help of tax treaties and the various exclusions and allowances available, most US expats won't owe the IRS a penny, although they still have to file.

If you own (or are starting) your own business, there'll be corporation tax to pay too, so don't forget to look up corporation tax rates and what is deductible too. Again it's unlikely that you'll have to pay taxes on your profits twice, but the key is to understand the rules, as what exactly is tax deductible can vary from country to country. So can the 'tax year': in some countries it's fixed (e.g. the calendar year), while in others it relates to the date of incorporation or first filing.

If your situation isn't straightforward, or if there's anything that you aren't sure about, seek help. This will normally mean a separate accountant for both your country of residence and your home country. In your new country of residence, seek a recommendation from someone that you trust. For Americans, consult a company that specialises in US expat taxes.

Contributed by H J Lesser of Bright!Tax, a specialist online US expat tax return preparer with clients in over 100 countries.

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