Tax Tips For US Expats in Thailand, Hong Kong, UAE
Feb 15, 2016 11:10:47 GMT 7
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Post by Deleted on Feb 15, 2016 11:10:47 GMT 7
ASK AN EXPERT: As Americans living overseas know, U.S. citizens and green-card holders must pay U.S. tax on their worldwide income, no matter where they live or are considered tax residents. In recent years, the introduction of the Foreign Account Tax Compliance Act has dramatically increased the requirements for tax reporting. While the new reporting requirements are burdensome to say the least, the good news is that by making full use of foreign tax credits, you can lower your U.S. taxes due while avoiding paying double tax on foreign investment income.
Most U.S. expat taxpayers are already using U.S. tax breaks on their income from foreign salaries to help lower their overall tax bill. These include the foreign-earned income exclusion and foreign housing deduction or allowance. However, U.S. expats are not always taking advantage of foreign tax credits that may be available for non-salary income such as on investments.
For example, if you’re a U.S. expat with a foreign bank or brokerage account, or a shareholding in a foreign company, chances are you are receiving interest or dividend income from your foreign investment and that you pay foreign tax on the income. The taxes may be paid in an annual tax filing in your country of residence, or they may be withheld or netted off the income at source. In other words, there might be a third country involved, the country where the investment paying the dividend is actually located. For Americans overseas, that third country might get first dibs on taxing the income, followed by the country of residence, and then the U.S. But with treaty protection, Americans should only have to pay a total tax of the highest rate of the three countries involved, not three times the tax, which sometimes happens. In some cases, the tax isn’t explicitly shown in a transaction, and some expats may not even realize there was already tax withheld.
What you need to know is that the final foreign tax that you owe on the foreign income, adjusted for any double taxation treaties, can be used as a foreign tax credit to reduce your U.S. tax liability. Here are some examples:
1.) As a tax resident of Thailand, your bank paid you net interest income on your account after withholding a 15% tax. The 15% withheld is considered your final tax owed in Thailand. By filing Form 1116-Foreign Tax Credit, you can apply the Thai tax withheld as a foreign tax credit against any U.S. tax that might be owed on the same interest income.
Continues:
blogs.wsj.com/expat/2016/02/10/tips-for-u-s-expats-using-foreign-credits-to-avoid-double-tax-on-investment-income/
Most U.S. expat taxpayers are already using U.S. tax breaks on their income from foreign salaries to help lower their overall tax bill. These include the foreign-earned income exclusion and foreign housing deduction or allowance. However, U.S. expats are not always taking advantage of foreign tax credits that may be available for non-salary income such as on investments.
For example, if you’re a U.S. expat with a foreign bank or brokerage account, or a shareholding in a foreign company, chances are you are receiving interest or dividend income from your foreign investment and that you pay foreign tax on the income. The taxes may be paid in an annual tax filing in your country of residence, or they may be withheld or netted off the income at source. In other words, there might be a third country involved, the country where the investment paying the dividend is actually located. For Americans overseas, that third country might get first dibs on taxing the income, followed by the country of residence, and then the U.S. But with treaty protection, Americans should only have to pay a total tax of the highest rate of the three countries involved, not three times the tax, which sometimes happens. In some cases, the tax isn’t explicitly shown in a transaction, and some expats may not even realize there was already tax withheld.
What you need to know is that the final foreign tax that you owe on the foreign income, adjusted for any double taxation treaties, can be used as a foreign tax credit to reduce your U.S. tax liability. Here are some examples:
1.) As a tax resident of Thailand, your bank paid you net interest income on your account after withholding a 15% tax. The 15% withheld is considered your final tax owed in Thailand. By filing Form 1116-Foreign Tax Credit, you can apply the Thai tax withheld as a foreign tax credit against any U.S. tax that might be owed on the same interest income.
Continues:
blogs.wsj.com/expat/2016/02/10/tips-for-u-s-expats-using-foreign-credits-to-avoid-double-tax-on-investment-income/
