The United States Government has very strict rules regarding taxes. If you are an American citizen residing and working in a foreign country, you should be well informed of your rights and obligations related to taxes.
Expat Taxes
There are certain benefits that apply to expats who meet specific requirements. For example, a fixed amount of one’s foreign income can be excluded from his/her income (FEI Exclusion). A person can also exclude the housing expenses from his/her gross income.
To get these benefits, you’ll need to file a tax return first. Many countries have tax treaties with the U.S., and people who work in these countries can reduce their tax liability.
Many people believe that giving up their U.S. citizenship will help them avoid U.S. taxes. Well, this is not true. The statute of limitations won’t run out; this means that your obligations will be growing each year.
The FEI (Foreign-earned Income)
The FEI exclusion is the greatest benefit for American expats. Each spouse will be entitled to it, but one spouse will not be allowed to use the unused tax exclusion of the other spouse. FEI is actually what you earn while working in a foreign country.
To qualify, you will have to have tax home outside the U.S. You need to be a resident of a foreign country for at least one tax year. You also qualify if you are a U.S. resident alien with citizenship of the country that has an income tax treaty with the United States, and you are a resident of that country for at least one tax year.
What Is Your Tax Home?
This is the main place of your employment. If you tax home is in some foreign country (and you meet the requirements), a certain amount of the foreign-earned income can be excluded from your gross income. However, you cannot expect to get any tax exclusions for the pay you get as the U.S. government employee abroad.
Self-employed Americans abroad have to file the income tax return if their net earnings are higher than 400 USD. Self-employment taxes have to be paid, even if this is foreign-earned income.
Tax Treaties
Different tax agreements can affect the taxes for expats, depending on which country they work in.
Many countries have tax treaties with the U.S. Most of these treaties will allow American residents to exempt their income for personal services from the host country’s income tax (but this is only possible if he/she is in that country for a limited period). The U.S. has such treaties with some of the most popular countries for expats, like Thailand, South Africa, Austria, Canada, Turkey and Switzerland. More than 42 countries have such treaties with the United States.
Here are some of the specialized companies you can contact to get some help:
May 15, 2010 at 1:50 am
Hello, I am seeking SPECIFIC information on what forms need to be filled in order to avoid double taxation. Every forum I enter just tells gives me links to the IRS or tells me there are ways not to be double taxed and “you can seek help” here or there. None say: “print this form, submit with this information”.
May 15, 2010 at 9:00 pm
Frank:
The Publication 54: Tax Guide for U.S. Citizens and Resident Aliens Abroad contains the specific details you need to know, even though it is an official IRS document.
June 8, 2010 at 1:45 pm
Admin, thanks for the link. Exactly what I needed.
July 16, 2010 at 10:55 am
How does the foreign income tax exclusion work if you begin work abroad mid-year? Can it be applied from your date of employment/residency, or only at the start of the calendar year? Thank you.
July 16, 2010 at 3:20 pm
Gary:
There are four rules you can use to determine the 12-month period for the Physical Presence test:
• Your 12-month period can begin with any day of the month. It ends the day before the same calendar day, 12 months later.
• Your 12-month period must be made up of consecutive months. Any 12-month period can be used if the 330 days in a foreign
country fall within that period.
• You do not have to begin your 12-month period with your first full day in a foreign country or end it with the day you leave. You can choose the 12-month period that gives you the greatest exclusion.
• In determining whether the 12-month period falls within a longer stay in the foreign country, 12-month periods can overlap one another.
August 31, 2010 at 4:21 am
Im an expat living in Japan. I have 2 questions:
1. I’ve just had stock transferred into my name. I was sent W-8BEN forms by the company managing the accounts. However, from what I’ve read, W-8BENs are for Non-US citizens only. I still file with the USA even tho I use to foreign income exclusion to eliminate any tax payments. Should I be using a W-9 or W-8BEN to reduce the withholding on these accounts?
2. As an expat, would “income” created by a roll-over into a Roth IRA be covered in the foreign income exclusion?
If these questions are too complicated, where do you suggest I look? At this point hiring an expat tax expert is out of my budget. thanks!
August 31, 2010 at 8:17 am
You really should consult a tax lawyer and I am not a lawyer, but… here’s how I read the IRS regulations:
August 31, 2010 at 3:16 pm
Mother in Iraq………….in 2009 she injured her hip while there. she was sent back home for hip replacement. she was told no problem with going home for surgery and still keeping her tax break. when she got back to iraq found out that actually she will lose her tax break because her hip was pre-existing and she is just short of the 330 days needed to qualify?? your thoughts? ideas? THANKS!
August 31, 2010 at 4:16 pm
I believe she’s screwed. It sounds like she accepted some bad advice and is now going to pay for it.
Because of the sums involved, I would consult a tax expert to be certain.
October 7, 2010 at 12:22 am
hello-
I’m an american living in japan on expat contract for about 3 years now. my american company pays for my japanese taxes in return for a hypothetical tax deduction.
if i leave my current employer for another company in japan before january, can they defer liability of my japan taxes for 2010 to me? my contract doesn’t include such specific situation, except that i would settle any ‘outstanding’ taxes upon my exit.
October 9, 2010 at 4:42 pm
That appears very complicated. I believe it would have to be negotiated between you and your current employer. It seems quite reasonable that, if you terminate your employment, you would then be responsible for your own tax payments.
November 17, 2010 at 4:06 pm
I’m an American living in Germany. I’ve taken on a consulting job for an Australian company. I have a permanent residence visa for Germany and plan to be here for some time. I want to have them transfer payment through my existing bank account in the US but eventually pay into a German bank account. With whom do I pay taxes and should I be charging VAT to the Australian company? Does it makes sense to use a German bank or should I just keep the American one?
November 17, 2010 at 7:03 pm
As long as you keep your U.S. citizenship, and for as long as ten years afterwards, the U.S. government will demand that you pay taxes to them — no matter where you live. As a resident of Germany, the German government also demands that you pay income taxes — even on income not earned in Germany.
Germany and the U.S. have a double taxation treaty in effect, which means that you can avoid paying some of these taxes. Unfortunately, it also means that you should have your taxes prepared by a competent tax attorney. Few tax professionals have the legal background to correctly understand international law.
November 29, 2010 at 10:07 pm
What if you are residing in another country, but making below the federal requirements to file a tax return? I’ve been living outside of the US for 8 years now, and have yet to earn above the minimum for filing. Is there some sort of “expats must file, no matter what” rule?? Seems a little silly to me, seeing as how I would not have to file under the same circumstances back in the US.
November 30, 2010 at 12:41 am
Kyle:
You might want to check the IRS regulations yourself, but I believe that there is no requirement for you to file.
December 6, 2010 at 6:42 am
I’ve been working in Singapore for three years. If I move back to the US next year, say June, would I still qualify for the foreign earned income exclusion? Or would all my income be taxed at normal US rates?
December 18, 2010 at 10:56 am
Do you know of an expat CPA/Accountant list for Oregon?
December 21, 2010 at 12:31 am
Coming back to Kyle’s question – if below the federal requirements to file a return – I don’t know of anything about expats always needing to file.
However, something a lot of expats get confused about is that when using the FEIE – many wrongly assume not owing taxes means not needing to file.
December 22, 2010 at 4:01 pm
I have a friend fro costa rica and we are planning to start a business together. I am thinking we are going to register the business in the US or maybe Costa Rica or china. I know if we are registered in the US – i will have to pay taxes for my business and personal taxes. However if i register the business in another country (like china – because that is where most of our business would be) i know i have to follow that country’s tax law but what taxes do i have to pay here in the US if i own a business in another country?
January 3, 2011 at 1:44 pm
Hello…I am on a 12 month contract in the Middle East. I have taken 30 days vacation in the US but also had to do 2 weeks annual tour duty for the guard. I was on official military orders for those 2 weeks to be back staeside. My question is, can that time be excluded for the requirement to be out of country?
Thanks
January 8, 2011 at 4:50 pm
Hello. I am a U.S. citizen who has lived and worked in Norway for 20 years. I pay taxes to Norway and I file a 1040 each year to the U.S. with income exclusion. It has worked very well–no problems. I am now earning money as a part-time consultant for a U.S. company while living in Norway and working full-time in Norway. I know I will need to declare this income on my U.S. 1040. Do I need to report this income to Norway as well? Do I need a special form for this, like an income exclusion form? Thank you for your help.
February 16, 2011 at 7:39 pm
I’m planning on moving to Norway for a job, and wondering how my rollover IRA is going to work. Will it be respected as tax-free-until-retirement in Norway? At that point if I retire there, will the periodic distributions during retirement be treated as income, or capital gains, from Norway’s perspective? What about the US perspective, is that type of income also excluded to avoid double taxation?
February 24, 2011 at 12:21 pm
Hi! I’m going to be transferred abroad for an indefinite amount of time beginning this summer, and my “tax home” will be in a foreign country. I know that my total stay in the foreign county will meet the “330 days out of 12 consecutive months” requirement, but it’s likely that I won’t have been there quite 330 days when tax day rolls around next year. Can I count future dates as part of my 12 months? For instance, if I expect to meet the 330 day requirement between June 2011 and June 2012, could I put that as the time frame for the physical presence test on Form 2555, even though I’ll be filing my taxes in April? Thanks in advance for your help!
March 3, 2011 at 11:56 am
My husband and I are both US citizens and MA residents, but are living in Mexico with our children for one school year (August 2009-June2011). We are also Mexican citizens, as we grew up here, though have long established our domicile in MA. Three questions:
Question 1: Would we qualify for the foreign earned income exclusion based on the physical presence test? We arrived Aug. 10th 2010 and will return around July 1st 2011.
Question 1: Can we claim the foreign earned income if my husband is self-employed and works from Mexico but for a US company?
Question 2: Would we be able to deduce the following expenses in Mexico?:
a. Housing expenses: Rent and home office deductions (husband works from home 100%)
b. Children’s education? Us and Mexican health insurance?
Thank you so much for your help with these questions,
Susanna
April 19, 2011 at 9:56 am
I’m a retired US citizen living here in Brasil 8 years and have only filed and paid taxes in the US to date
2010 has been the start of Brasilian income and paying taxes here and I’d like to know that since I’m self-employed and a full-time resident can I file Foreign Earned Income Exclusion?
April 19, 2011 at 11:52 am
Definitely. Enjoy your well-earned tax deduction!
April 24, 2011 at 1:29 am
I have read a lot of comments referring to expats, which seem to be business people residing in the overseas area. In my situation, I am a U.S. citizen, retired military, residing permanently in the Netherlands. I have been paying taxes and filing my returns with the U.S. on my retirement pay. However, it seems the Dutch government has decided to charge me income taxes on my retirement pay, too, basically I end up now being double taxed. It just doesn’t seem right to me and we use a professional tax guy here to do our taxes every year with the Dutch government. Ideas or suggestions?
April 24, 2011 at 3:36 am
Dale:
You and your accountants should be familiar with “The Convention Between the Government of the United States of America and the Government of the Kingdom of the Netherlands for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income.”
Here is an except from Article 19:
Here is an excerpt from article 20:
May 1, 2011 at 12:30 am
Shawn,
Good question. I wonder about the same myself. I am Norwegian and my wife American and we live now permanently in Norway. I asked the Norwegian tax authorities and they said they would tax IRAs as regular funds. That means 28% on capital gains when sold/exchanged for another fund, 28% on reinvested dividends, pluss wealth tax of 1,1% if you have over 700 000 kroners worth in total assets ($ 110 000). However, they would not commit to this answer, so we will see in the fall what they have decided.
June 16, 2011 at 6:43 pm
I am an American citizen who moved from the USA when i was 11, i m now 52 have never worked in America and have never filed any forms. I have kept my citizenship and have never and will never accept citizenship in the country i have lived in most of my life. If i was to ever be lucky enuff to move back to America, would i have to pay any back taxes or be peanilized for not payig. I actually just heard a couple of years ago literally, that taxes for Americans r expected to be filed if they live outside US. any info would be helpful.
Thanks
June 17, 2011 at 5:29 am
Terry:
Unfortunately, under U.S. tax law, you are guilty of not filing taxes for the last 34 years. You may not owe money, as your deductions may exceed your income, but the IRS can still send you to federal prison for not filing.
August 24, 2011 at 7:44 pm
Hello, my wife and I are considering a relo (we are both being transferred by our current US based companies) to Australia and I was wondering if in addition to the foreign earned income deduction and the foreign housing deduction will be deduct the childcare expense for our 4 children?
Thanks
September 17, 2011 at 5:49 am
Hello,
My wife and I are US professors and residents and have both US and French citizenship. Ordinarily we teach in the US. This year (July- July) we are teaching in France. The question is the relation between the US-France treaty, Art. 20 (for teachers) and the sec. 911 foreign income exclusion. That is, assuming we meet the residency requirements for the exclusion, can we use the treaty to opt only for the tax regime in the US (and avoid French income tax) on our French income, and then apply the foreign income exclusion to that declared income on our 1040 filing? The IRS told me (their question line) that we could; but another person has said that if we apply the tax treaty to that income, then it might no longer count as “foreign” for purposes of the exclusion. Thanks.
September 24, 2011 at 8:33 pm
I am a US citizen and plan to work in Norway for six months. During this time I will be on paid leave from my employer in the US. Is my income from Norway subject to Norwegian tax and/or US tax? Is my income from my US employer subject to Norwegian and/or Us taxes?
September 28, 2011 at 9:35 pm
Terry I wouldn’t worry too much about it, my son was 12 when he moved to Europe, and moved back to the states when he was 34 we had never heard that you had to file tax forms for the US and therefore never did, he has been back 6 years but has never had a problem. It seems to me that if this is such an important thing that the US Embassy would inform you about it when you go there to renew your passport but they never have.
October 14, 2011 at 11:45 pm
I am a US citizen working in Thailand. I work for a US staffing company, but they have placed me under their branch in Bangkok which I feel I am being paid by the host country due to the fact of currency conversions prior to transfer to my banking in the US. The company branch in Thailand has refunded all the withholding back to me and claims if is my money. I don’t know what the specific rules are regarding me being paid by the host country. Am I still obligated to pay the hypo tax?
October 30, 2011 at 8:05 pm
My husband and I have retired and are moving permanently to Montenegro. Will we have to pay taxes on our Pension and Social Security?
October 30, 2011 at 8:41 pm
Carol:
You will be legally liable for U.S. taxes on that income, but you will qualify for a large deduction if you stay out of the U.S. for 336+ days a year.
Your liability for the 9% Montenegrin income tax will depend upon your legal status here. A foreign resident in Montenegro pays income tax only on the income he has earned in Montenegro while a permanent resident of Montenegro is required to pay tax on both the income he has earned in Montenegro and overseas.
November 17, 2011 at 1:09 pm
I am a US Citizen retired from the military (pension) living in Brazil on a permanent visa. I don’t own any property or make any income in the country working. I file US Federal Income taxes every year. Do I also have to file income tax yearly with the Brazilian government?
Thanks, Vince
December 5, 2011 at 9:09 am
I’m a US citizen working in Russia, and I am locally employed for the Russian subsidiary of a US corporation (for example, Coca-Cola’s Russian business). I am on the Russian company’s payroll, not the US organization’s payroll. I am paying taxes on my income to the Russian tax system. Do I still have to pay US Social Security tax and Medicare tax to the US?
January 2, 2012 at 10:31 pm
My husband and I are not US citizens, but have lived in the US for a few years together and have paid our taxes while living there. However, we moved from the US to Japan in mid July and I was wondering what we need to do about taxes this year? Are we expected to pay taxes for the half year we lived there? Could you advise us on what needs to be done from our front?
January 26, 2012 at 11:04 pm
I am a retired Air Force officer. I am getting ready to take a job in Hong Kong this spring. I’ve done some research, but can’t find anything that lays out how it will work with my pension and the “foreign tax exclusion”.
I own property in FL and DC. Both are/will be rental properties. I will probably change residency to FL and use my property there as my home address, so I know I will avoid any state tax issues.
My pension gets deposited after taxes and I don’t expect Hong Kong to mess with it anyway, or will they?
If the company starts paying me in Feb and I don’t move til March, can I still qualify for the tax exclusion for 2012?
What does the “first $90,000″ mean? (I know it goes up each year)
How much can I expect to be taxed after the “first $90,000″?
When does my pension get factored in first or last, or at all?
The company doesn’t give a housing allowance. My rent will come out of my standard salary. Can I deduct that as well?
Thanks
March 16, 2012 at 9:33 am
My wife and I are permanent residents in France. She is French and I’m American. She still works, I’m retired with a US pension and we file both French and US taxes. My question relates to which line on her pay stub (Bulletin de Paie) should I be reporting on our US taxes? The French tax form call for the “Revenu Imposable” line. However for the US tax forms I have been using the “Brut Impots” line which is her income before they take out all of the deductions for social services. The difference is about 20%.
Have I been over paying by using the “Brut Impots” line? Thanks
April 2, 2012 at 8:13 am
I am a US citizen who was recently offered a job by a Swiss company. The company does not have a presence in the US as of yet. I will be working between the US and Switzerland, mainly meeting with prospective clients in the US. In addition, I recently got married to a French national and have applied for French residency. Where would I report my income?
April 9, 2012 at 11:23 am
My son is an American citizen who has lived and worked in Vietnam since October 2010. He is employed by a Thai corporation that has an office in Vietnam. He also receives some consulting income from another corporation headquartered in another Asian country
For 2010 I filed his return late – he qualified for the exclusion of earned income – form 2555 – because of the number of days in Vietnam. So he was essentially exempted from income tax in the United Statesl I did file a form 1040 se reporting all his income (less appropriate expenses) for 2010 and he paid self employemnt tax
In 2011 his Thai employer began withhholding PIT from his check in October. I think that is correct and he will have to pay income tax to Vietnam. Since his income is exempted from US tax because of form 2555 he will get no credit for this foreign tax paid
But I am confused about social ssecurity. Does he have to pay social security to US govt on all of his earnings. If so does he have to pay both employer and employee shares? I have found conflicting info about this online. Really appreciate any advice.
April 11, 2012 at 11:49 am
I began working abroad and earning income in August of 2011. I just filed an extension until October 15, 2012 to get this whole thing sorted. As of August 12, 2012, I will have been out of the country for 330 of 365 days. If I wait and file after August 12, will that suffice for the 2011 tax year foreign income exemption requirement?
April 18, 2012 at 12:26 am
Anyone able to help with this?
Step-mother is a Dutch citizen who lives in Germany. She previously held a Green Card which expired a few years ago. Since the passing of my father 2 years ago, she’s applied for a new green card under the widow provision. She has a US social security number obtained when she had a green card. Now the complex question about her taxes…
1. She receives widow benefits from my father’s federal government annuity. She does not received a 1099R which she did when she filed jointly with my father who was an american citizen when they were married. i forget the form she got this year but it was something about non resident aliens income.
2. she received a retirement check from the hospital where she worked in Virginia. that is a 1099R.
3. she received social security payment on the social security retirement form.
4. she does not work in The Netherlands, Germany, EU, etc. her sole sources of income are from the us.
for 2011, where would she file taxes? she wants to continue filing as she did when she filed jointly as my father’s spouse, but that doesn’t seem right.
does she file taxes in The Netherlands because she is a dutch citizen. does she file taxes in Germany because she lives there. does she file taxes in the US because it is US based income. which form does she file her taxes on?
thanks.
April 18, 2012 at 12:28 am
one other thing.
she has NOT received a new green card yet. she only spent a few weeks in the US this year.
hope that’s enough info.