Moving abroad is a new chapter in anybody’s life. Many Americans moving overseas have to think about various things like choosing a moving company, finding a new place to live, choosing the right schools for their children and immersing into a foreign culture. Although, many taxpayers prefer to think about taxes before a deadline, American expats are advised to think through the tax consequences before taking on an overseas assignment.
First, it is essential to understand the income taxes in a country of residence. Structuring the compensation package and taking into consideration various tax treaty positions is strongly suggested before moving abroad. We have helped many Americans who decided to work in the United Kingdom, the United Arab Emirates, Hong Kong, China, Germany, Spain and many other countries in the world. The international tax law is constantly changing so it is important to keep up to date with various expat tax issues.
Second, most foreign countries are residency based tax systems so they will tax its residents on the worldwide income. However, the United States is one of the few countries in the world that uses a citizenship-based taxation. It means that American expats are required to file US expatriate tax returns, although, they do not live in the USA anymore and they do not have any US-sourced income. However, the USA signed an income tax treaty with various countries to avoid the double taxation.
Third, per the Internal Revenue Code 911 American expats living abroad can reduce the US tax liability by applying the foreign earned income exclusion, foreign housing exclusion and foreign tax credit if they meet the requirements. For example, American expats can exclude up to $97,600 on their US expat tax return if they are eligible to claim the foreign earned income exclusion.
Finally, our website has a lot of valuable information to assist and to answer many expat tax questions. We pride ourselves on providing accurate and timely advice to our clients. If you need any help with international tax assignments, expat tax planning or US expat tax preparation, please let us know. Expat tax CPAs at Expattaxservices.com are here to help you.