This site uses cookies. By continuing to browse the site you are agreeing to our use of cookies. Find out more here.  
USA-INTERNATIONAL-OFFSHORE-EXPATRIATE-TAX.COM  Favicon USA-INTERNATIONAL-OFFSHORE-EXPATRIATE-TAX.COM
Join us on Twitter Lowtax Facebook page Join our discussion on LinkedIn Join us on Google+ Delicious Subscribe to the Tax-News RSS Feed
 USTAXNETWORK.COM:
NEWSLETTER

To receive our free monthly network newsletter enter your email address below:

ADVERTISE!

Our sites have more than 200,000 highly targeted visitors every month. With cost-effective marketing solutions to suit any budget, we feel confident that we can deliver the results you need.

Contact us at info@ ustaxnetwork.com or for more information, click here.


HOME | CONTACT | RECRUITMENT | ABOUT | LEGAL | LINKS
 
 
> Information provided on this site is for general guidance only and is often simplified. Actual IRS procedures are complex, and taxpayers should obtain professional assistance or use IRS sources for complete information.

Last updated: 22nd October 2012

Tax Position Of US Citizens Overseas
The concept of 'offshore' is not very useful to a US national from a residence point of view.

Foreign Earned Income Exclusion
The income must be for services performed in a foreign country during a period of foreign residence or presence, whichever applies.

Foreign Housing Exclusion
To claim the housing exclusion, a person must meet the Physical Presence Test or the Bona Fide Resident Test.

The Tax Reconciliation Act 2005
The new law caps the Housing Exclusion at 30% of the foreign earned-income exclusion.

Foreign Tax Credits
Foreign taxes paid by a US taxpayer can often be credited against US tax liability or deducted in figuring taxable income on a US income tax return.



Information provided on this site is for general guidance only and is often simplified. Actual IRS procedures are complex, and taxpayers should obtain professional assistance or use IRS sources for complete information.

Tax Position Of US Citizens Overseas

Because the US taxes its citizens on the basis of their nationality and not on the basis of their residence, the concept of 'offshore' is not very useful to a US national from a residence point of view. There is an income tax concession available during non-residence, but beyond that the only real option for a US citizen is to change nationality. In all other respects the international tax situation of an individual citizen is about the same whether they are in or out of the US.

US expatriates who meet the Physical Presence Test or meet the Bona Fide Resident Test may be able to take advantage of the Foreign Earned Income Exclusion and or the Foreign Housing Exclusion.

You are considered physically present in a foreign country (or countries) if you reside in that country (or countries) for at least 330 full days in a 12-month period. You can live and work in any number of foreign countries, but you must be physically present in those countries for at least 330 full days. The qualifying period can be any consecutive 12-month period of time. A "full day" is 24 hours; days of arrival and departure are generally not counted in the physical presence test.

A person is considered a "bona fide resident" of a foreign country if they reside in that country for "an uninterrupted period that includes an entire tax year." A tax year is January 1 through December 31. Brief trips or vacations outside the foreign country will not jeopardize status as a bona fide resident. If the foreign government concerned has determined that a person is not subject to their tax laws as a resident, the Exclusions will not be available.

These benefits seemed under threat in 2004, but they were confirmed in the Tax Reconciliation Act of 2005 (passed in 2006) albeit with restricted terms.

US citizens and resident aliens who are outside the United States (and its possessions) have the same requirements to file tax returns as anyone living in the United States. Income from worldwide sources must be considered when determining if a federal tax return must be filed. In general, foreign earned income is income received for services performed in a foreign country.

If you pay foreign taxes, it may be possible to offset these against US taxes if there is a double tax treaty with the country in which you are resident.

The concept of 'tax home' is used in connection with foreign residence. Generally, a person's tax home is the general area of her main place of business, employment, or post of duty where she is permanently or indefinitely engaged to work. A person is not considered to have a tax home in a foreign country for any period during which their abode (the place where they regularly live) is in the United States.


The Heroes Earnings Assistance and Relief Tax (HEART) Act 2008

The HEART Act was directed at serving military personnel, but contained several stings in the tail for expatriates. One provision requires US employers doing federal contract work for the US government, and using foreign subsidiaries to compensate their US employees working abroad, to begin paying Social Security and Medicare taxes on behalf of these employees. The provision is designed to make sure that defense contractors in Iraq, Afghanistan and elsewhere meet their legal obligation to pay payroll taxes on behalf of the people who work for them.

“For the sake of transparency and fairness in our tax system, we cannot allow Federal contractors to set up shell corporations in tax shelters and shirk their responsibility to pay payroll taxes for their American employees," Obama commented following approval of the legislation by the House of Representatives on 21st May.

The other offset provision seeks to make certain that individuals who relinquish their US citizenship or long-term US residency pay the same Federal taxes for appreciation of assets, such as stocks or bonds that they would pay if they sold them as US citizens or residents. Under this legislation individuals are treated as if they sold all of their property for its fair market value on the day before they expatriate or terminate their residence.

In May, 2012, Senators Charles Schumer and Bob Casey introduced the Expatriation Prevention by Abolishing Tax-Related Incentives for Offshore Tenancy’ or the ‘Ex-PATRIOT Act’. The bill, if passed, would penalize individuals giving up their US citizenship for the purpose of avoiding taxation. Penalties would include a bar on returning to the US and a 30% capital gains tax on profit realized after enactment of the law.

While some argue that the bill is unconstitutional, and given the seeming inability for the Senate and the House of Representatives to agree on virtually all proposed legislation linked to raising taxes, the future of the bill remains uncertain.


IRS Guidance For Expatriates In 2009

In 2009, the IRS issued new guidance to certain individuals who have expatriated by relinquishing their American citizenship, or by ceasing to be treated as long-term residents of the United States.

According to the IRS's announcement: "An individual who expatriated before June 17, 2008, and needs to file an initial Form 8854, Initial and Annual Expatriation Information Statement, may either wait until the new Form is ready or use the 2007 Form 8854. If the 2007 Form 8854 is used, the individual should strike out '2007' and replace it with '2008.' There is no due date and therefore no potential penalties. However, the individual will continue to be subject to tax as a US citizen or resident until the Form 8854 is filed."

"An individual who expatriated before June 17, 2008, and needs to file an annual Form 8854 will generally not be required to file the form until June 15, 2009, because he or she is overseas. The revised Form 8854 should be available before June 15. An individual who falls into this category and has an April 15 due date should use the 2007 Form 8854 and strike out '2007' and replace it with '2008.' If unable to file by April 15, the IRS will waive the USD10,000 penalty for late filing under the reasonable cause exception."

"An individual who expatriated after June 16, 2008, and before January 1, 2009, is required to file Form 8854 for 2008. The Form 8854 must be filed by the due date for the 2008 Form 1040 or 1040NR, with extensions. In many cases, someone in this category will have until June 15, 2009, if living and working outside the United States on April 15. However, if the return is due on April 15 and an individual has not requested an extension, he or she should do so immediately. Individuals who file Form 8854 by the due date, with extensions, will not be subject to the USD10,000 penalty for late filing."

In recent years, Congress has tightened tax laws for US citizens living and working abroad, or who have chosen to give up their US citizenship.

The Tax Increase Prevention and Reconciliation Act, signed by then President George W. Bush in May 2006, increased the amount that can be earned free from US taxes to USD82,400 from the previous level of USD80,000. However, income earned by expats above this threshold is now typically subject to higher tax rates. Furthermore, high housing costs, much of which previously could be excluded from the computation of US tax, are now treated as a taxable benefit and taxed often at 30% to 35%, making many individuals worse off, or leaving the employer to pick up the extra bill. The legislation is retroactive to January 1, 2006.

BACK TO TOP


Tax Position Of US Citizens Overseas
The concept of 'offshore' is not very useful to a US national from a residence point of view.

Foreign Earned Income Exclusion
The income must be for services performed in a foreign country during a period of foreign residence or presence, whichever applies.

Foreign Housing Exclusion
To claim the housing exclusion, a person must meet the Physical Presence Test or the Bona Fide Resident Test.

The Tax Reconciliation Act 2005
The new law caps the Housing Exclusion at 30% of the foreign earned-income exclusion.

Foreign Tax Credits
Foreign taxes paid by a US taxpayer can often be credited against US tax liability or deducted in figuring taxable income on a US income tax return.





Lowtax Network Sites
Lowtax Network Portal: 'Low-tax' business and investment in the top 50 jurisdictions covered in exceptional detail.
Tax News: Global tax news, continuously updated through the day.
Expat Briefing: A free online publication serving international expatriates and featuring world news, forums, events, in-depth country information and reliable investment and personal taxation guides.
Law & Tax News: Daily news and background data on tax and legal developments for international business.
Offshore-e-com: A topical guide to offshore e-commerce focused on tax and regulation.
Lowtax Library: One of the web's largest and most authoritative business and investment information sources.
US Tax Network: The resource for free online US taxation information, covering: corporate tax, individual tax, international tax, expatriates, sales and e-commerce tax, investment tax.
Offshore Trusts Guide: OTG publishes news, features and newsletters on the use of offshore trust structures.
TreatyPro: Online tax treaty resource.
Global Incorporation Guide [GIG]: A BSI / Lowtax Network international business smart tool.
THE LOWTAX SUBSCRIPTION LIBRARY

THE LOWTAX LIBRARY

One of the web's largest and most authoritative business and investment information sources. Alongside topical, daily news on worldwide tax developments, you can receive weekly newswires or access up-to-date intelligence reports on a range of legal, tax and investment subjects.

FREE TRIAL NEWS SUBSCRIPTION

Our 16 constantly updated intelligence reports cover every important aspect of 'offshore' and international tax-planning in depth, including banking secrecy, the EU's savings tax directive, offshore funds, e-commerce, offshore gaming and transfer pricing. Reports are available for immediate downloading or as subscription services with news pages.

IMPORTANT NOTICE: Important Notice: Wolters Kluwer TAA Limited has taken reasonable care in sourcing and presenting the information contained on this site, but accepts no responsibility for any financial or other loss or damage that may result from its use. In particular, users of the site are advised to take appropriate professional advice before committing themselves to involvement in offshore jurisdictions, offshore trusts or offshore investments.

All rights reserved. © 2014 Wolters Kluwer TAA Limited


All content on this site has been provided by BSIRN.