Are you a Miami-based company who is about to make a transaction with a foreign company? Or are you a Miami-born U.S. citizen permanently residing in a foreign country? As a U.S. citizen or legal resident, you certainly know the importance of the U.S. taxation system. This articles outlines some of the basics of international tax through the most frequently asked questions.
The answers presented in this article are not intended as legal advice. For legal advice and professional counsel, contact a trustworthy tax attorney and inquire about your case-specific international tax issues.
Do U.S. expats have to pay taxes?
This is a rather general question to which the general answer would be: yes. Still, even if we were to narrow the question down, the answer would mostly be affirmative, providing the term ‘’expatriate’’ is understood as a U.S. citizen living outside the United States. The U.S. tax system comprises a system of worldwide taxation. So, the worldwide income of U.S. citizens who live and work outside the U.S. are subject to U.S. income tax.
As a U.S. citizen, do I have to pay taxes on money earned abroad if I already pay taxes in the foreign country I live and work in?
As a U.S. citizen or resident alien, you have to file a U.S. income tax return for your worldwide income. In order not to be subject to U.S. income tax, you have two options:
- To renounce your U.S. citizenship (if you are a U.S. citizen)
- To abandon your green card holder status (if you are a resident alien).
Do U.S. expats qualify for foreign income tax exclusions?
Yes, a U.S. citizen or company earning income abroad can apply for the foreign earned income exclusion and/or for a foreign tax credit to be claimed against their U.S. taxes. Not every expat will qualify for the foreign earned income exclusion or foreign tax credit, so it is important to discuss the specifics of your case with an experienced international tax attorney.
Is any of my expenses tax-deductible if I work for a U.S. company abroad and am a U.S. citizen?
Yes, although there are certain conditions you have to meet to qualify for the exclusion. For example, you can have a limited amount of your income excluded by claiming a housing exclusion or deduction. In order to qualify for a housing deduction, your tax home has to be in the foreign country you live in, and you have to either be a bona fine resident of a foreign country (and a U.S. citizen), or remain outside of the US for 330 full days in a calendar year. To see if any other conditions apply, it’s best to contact a trusted Miami tax attorney who is experienced and knowledgeable in international tax matters.
How to check if the U.S. has an income tax treaty with my country of origin?
As a foreign individual earning income in the U.S., your U.S. source income is subject to U.S. income tax. You might also be subject to a 30% withholding tax on any passive income you might have in the US. This rate can be reduced if the country where you reside has an Income Tax Treaty with the US.
To find out whether your country of origin has a tax treaty with the U.S., refer to United States Income Tax Treaties – A to Z on IRS.gov or Publication 901, U.S. Tax Treaties.
If you still have questions or doubts, contact Paula Brunoro-Borokhov, a knowledgeable attorney fully equipped to handle international tax matters for foreign individuals and companies doing business in the U.S.
What are tax obligations of green card holders who have been absent from the U.S. for a long period of time?
As a green card holder, you are required to report your worldwide income regardless of how long you have lived abroad. If, however, you surrender your green card or it has been taken from you by the U.S. Citizen & Immigration Service, you will have to file U.S. income tax as a non-resident alien.
What is Offshore Voluntary Disclosure Program?
Offshore Voluntary Disclosure Program (OVDP) is an initiative some U.S. taxpayers (including U.S. expats and legal U.S. residents of a non-U.S. citizenship) employ to disclose unreported foreign income or unreported foreign financial assets. Since failing to disclose worldwide income and failing to file FBARs entails hefty fines and jail time for tax evasion, OVDP is often used to avoid the penalties.
However, the IRS is terminating the traditional Offshore Voluntary Disclosure Program on September 28, 2018. It is still possible to apply for OVDP, which is what many Miami taxpayers are doing. It’s advisable to seek assistance from an attorney specializing in OVPD to make sure your submission process goes smoothly and you avoid severe penalties.
What are the common cross-border tax issues?
As a U.S. business that plans to do business in a foreign jurisdiction, there are several issues to pay attention to. For instance, explore tax regulations in the country you want to do business in, look for any international tax treaties the U.S. may have with that country, account for debt financing, foreign partnership and define goals for repatriation. A veteran attorney in cross-border tax issues can be of great help in addressing all the issues properly and drafting a bulletproof financial strategy.
Do I need an international tax attorney?
As international trade expands, so does the portfolio of rules and laws applicable to cross-border and international tax. The U.S. system of worldwide taxation is complex and ever evolving to account for the rapid changes. Professional services of a reliable tax attorney are becoming more and more indispensable, especially if you are involved in any kind of tax controversy.
Our recommendation is to choose an attorney who specializes in the area you need assistance with – OVDP, cross-border tax, corporate tax, international tax audits, etc. But first of all, make inquiries. Brunoro Law provides free one-hour consultations that do not form attorney-client relationship. We are based in San Diego, but serve clients from Miami, Florida, and other U.S. states, as well as Brazil and other countries in South America.