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Tax guide for Americans in China

Posted on June 19th, 2018

Tax guide for Americans in China

Wherever you live in the world, you are obligated to file a US expat tax return with the IRS reporting your worldwide income. Along with the regular US expat tax return for income, many individuals are required to submit a report disclosing assets in foreign bank and financial accounts or FBAR, by using FinCEN Form 114 (FBAR). What about tax returns for Americans who reside within China? As a US expat in China, you may need to file a Chinese return and pay taxes on your income to the Chinese Government. Here are some simple guidelines on dealing with and the obligations for filing Chinese taxes.

 

Not sure what to do? Do you have questions about your own tax situation?

What if I have not filed my US tax returns in years?

We focus in dealing with past due tax returns. The IRS is offering delinquent taxpayers a new special filing procedure called Streamlined procedures that may benefit you if you have not filed your US expat tax returns in years. With our help, we can get you back on track with the IRS.

 

What if I am paying income taxes in China? Do I have to pay taxes to the US?

 

The US and China has a tax treaty that can offer taxpayers additional benefits. We can help you with all treaty benefits.

Preparing US expat tax return can be complicated because of the tax laws for Americans citizens and Green Card Holders living abroad. There are many tax dangers with filing a US tax return for expatriates and green card holders, but there are also many opportunities to cut or eliminate your US expat taxes. If you are an American working overseas check out our free tax guide.

The Chinese Tax System

Since many US expatriates are living in China, it is necessary for Americans to know both Chinese and US expat tax laws. This tax guide adds to your understanding of the Chinese income tax system by giving practical knowledge. The official currency of China is the ‘renminbi’. General information about China   Government of the People’s Republic of China.

Introduction

China has a multi-tiered system of tax liabilities for foreigners, which has led to some confusion, particularly over the so-called 90- or 183-days rule. For those sent to China by a foreign company, who have their salary paid elsewhere (probably in their home country), and spend over 183 days of a calendar year in China (or 90 if they are from a country that does not have a double tax treaty with China), they need to pay IIT in China-based on the number of days they spent in the country. (more…)


“5 Things US Expats Should Know about Excluding Foreign Earned Income from US Taxes:”

Posted on June 4th, 2018

Foreign Earned Income Exclusion (FEIE)

A US citizen living and working abroad can use the Foreign Earned Income Exclusion as a shield against US taxes. Here is how to maximize the value of the Foreign Earned Income Exclusion (FEIE) in 2018.

Qualifying for FEIE

An individual able to establish that his or her “tax home” is outside of the U.S. by satisfying either the “bona fide residence” test or the “physical presence” test can exclude income earned overseas.

A U.S. citizen will satisfy the “bona fide residence” test if he or she resides in a foreign country for an uninterrupted period that includes the entire tax year.  The test is based on facts and circumstances.  The length and nature of stay overseas are examples of key facts that the IRS may examine.

An individual will qualify under the “physical presence” test if present in a foreign country for 330 full days during any period of 12 consecutive months.  The 330 days need not be consecutive nor in the same tax year.

A citizen’s “tax home” is the locale of his or her place of business or employment regardless of that of a family home provided it is not in the US.

Limitations of FEIE

For tax year 2018, the maximum exclusion is up to $104,100 of salary per qualifying person.  If married and both work abroad and meet either the bona fide residence test or physical presence test, each can choose the foreign earned income exclusion.  Together this can be an exclusion of up to $208,200.

Self-employed persons still must pay 15% in self-employment tax on 100% of net business income. The FEIE does not reduce self-employment tax.

Credits and Other Deductions

A U.S. expat can claim a foreign tax credit (FTC) for foreign income taxes paid. This is especially beneficial in high tax countries. Once the foreign earned income exclusion is chosen, a foreign tax credit or deduction for taxes cannot be claimed on the excluded income.  If a foreign tax credit or tax deduction is taken on any of the excluded income, the foreign earned income exclusion will be considered revoked. U.S. expats can also exclude or deduct from their gross income their housing cost amount in a foreign country provided they qualify under the bona fide residence or physical presence tests.

The Form 2555 (FEIE)

To choose the FEIE, file a U.S. federal income tax return (Form 1040) with Form 2555 attached.  Once the choice to exclude foreign earned income or housing amount is made, that choice remains in effect for that year and all later years unless revoked.

What many expats do not realize is while the FEIE may eliminate the requirement to pay tax, it does not eliminate the obligation to file a tax return. To claim the FEIE a US expat tax return must be filed.

Revoking the FEIE

Revoke an FEIE choice for any tax year by attaching a statement revoking one or more previously made choices to the return or amended return for the first year for which an individual does not wish to claim the exclusion (s).

If an individual revoked a choice and within 5 tax years wishes to choose the same exclusion, he must apply for IRS approval.  The IRS charges a fee for issuing these rulings.

Are You A US Expat with Questions?

Contact us today to learn more from our expat CPAs and IRS Enrolled Agents. We can answer questions and start on your US expat taxes.

 


Tax Tips for Foreign Taxpayers, FBAR , FATCA (Form 8938)

Posted on March 15th, 2018

If you are living or working outside the United States, you generally must file and pay your tax in the same way as people living in the U.S. This includes people with dual citizenship.

In addition, U.S. taxpayers with foreign accounts exceeding certain thresholds may be required to file Form FinCen114, known as the “FBAR” as well as Form 8938, also referred to as “FATCA.”

FBAR , FATCA (Form 8938) tax tips

Note: FBAR is not a tax form, but is due to the Treasury Department by April 17, 2018, and must be filed electronically through the BSA E-Filing System website. It may be extended to October 15.FATCA (Form 8938) is submitted on the tax due date (including extensions, if any,) of your income tax return.

Here’s what else you need to know about reporting foreign income:

1. Report Worldwide Income. By law, Americans living abroad, as well as many non-U.S. citizens, must file a U.S. income tax return and report any worldwide income. Some key tax benefits, such as the foreign earned income exclusion, are only available to those who file U.S. returns.

2. Report Foreign Accounts and Assets. Federal law requires U.S. citizens and resident aliens to report any worldwide income, including income from foreign trusts and foreign bank and securities accounts.

3. File Required Tax Forms. In most cases, affected taxpayers need to file Schedule B, Interest and Ordinary Dividends, with their tax returns. Part III of Schedule B asks about the existence of foreign accounts, such as bank and securities accounts, and usually requires U.S. citizens to report the country in which each account is located.

Some taxpayers may need to file additional forms with the Treasury Department such as Form 8938, Statement of Specified Foreign Financial Assets or FinCEN Form 114 (formerly TD F 90-22.1), Report of Foreign Bank and Financial Accounts (“FBAR”).

FBAR. Taxpayers with foreign accounts whose aggregate value exceeded $10,000 at any time during 2017 (or in 2018 for next year’s filing returns) must file a Treasury Department FinCEN Form 114 (formerly TD F 90-22.1), Report of Foreign Bank and Financial Accounts (“FBAR”).

Form 8938. Generally, U.S. citizens, resident aliens, and certain nonresident aliens must report specified foreign financial assets on Form 8938, Statement of Specified Foreign Financial Assets if the aggregate value of those assets exceeds certain thresholds:

  • If the total value is at or below $50,000 at the end of the tax year, there is no reporting requirement for the year, unless the total value was more than $75,000 at any time during the tax year
  • Taxpayers who do not have to file an income tax return for the tax year do not have to file Form 8938, regardless of the value of their specified foreign financial assets.

The threshold is higher for individuals who live outside the United States and thresholds are different for married and single taxpayers. In addition, penalties apply for failure to file accurately.

Please contact the office if you need additional information about thresholds for reporting, what constitutes a specified foreign financial asset, how to determine the total value of relevant assets, what assets are exempted and what information must be provided.

Note: An individual may have to file both forms, and separate penalties may apply for failure to file each form.

4. Review the Foreign Earned Income Exclusion. Many Americans who live and work abroad qualify for the foreign earned income exclusion when they file their tax return. This means taxpayers who qualify will not pay taxes on up to $102,100 of their wages and other foreign earned income they received in 2017 ($103,900 in 2018). Please contact the office if you have any questions about foreign earned income exclusion.

5. Don’t Overlook Credits and Deductions. Taxpayers may be able to take either a credit or a deduction for income taxes paid to a foreign country. This benefit reduces the taxes these taxpayers pay in situations where both the U.S. and another country tax the same income. However, you cannot claim the additional child tax credit if you file Form 2555, Foreign Earned Income or Form 2555-EZ, Foreign Earned Income Exclusion.

6. Automatic Extension. U.S. citizens and resident aliens living abroad on April 17, 2018, qualified for an automatic two-month extension (until June 15) to file their 2017 federal income tax returns. The extension of time to file also applies to those serving in the military outside the U.S. Taxpayers must attach a statement to their returns explaining why they qualify for the extension.

7. Additional Extension of Time to File. U.S. citizens and resident aliens living abroad may be granted a filing extension of up to six months (October 15, 2018) by filing Form 4868, Application for Automatic Extension of Time to File U.S. Individual Income Tax Returnprior to the due date of the tax return (April 17, 2018). However, a taxpayer filing an extension must pay any tax due by the original date or be subject to late payment penalties and interest.

8. Get Tax HelpIf you’re a taxpayer or resident alien living abroad that needs help with tax filing issues, IRS notices, and tax bills, or have questions about foreign earned income and offshore financial assets in a bank or brokerage account, don’t hesitate to call.


Tax Guide for US Expats Living in Costa Rica

Posted on January 18th, 2018

Tax Guide for US Expats Living in Costa Rica

Wherever you live in the world, you are obligated to file a US expat tax return with the IRS reporting your worldwide income. Along with the regular US expat tax return for income, many individuals are also required to submit a report disclosing assets in foreign bank and financial accounts or FBAR, by using FinCEN Form 114 (FBAR).

 

But what about US expat tax returns for Americans who reside in Costa Rica? As a US expatriate in Costa Rica, you may need to file a Costa Rican tax return, and perhaps pay taxes on your income to the Costa Rican government.

Here are some simple guidelines on dealing with your US expat taxes and the obligations for filing Costa Rican taxes. Below is our tax guide for us expats living in Costa Rica.

 

Not sure what to do? Do you have questions about your own tax situation?

What if I haven’t filed my US tax returns in years?

We focus in dealing with past due tax returns. The IRS is offering delinquent taxpayers a new special filing procedure, called Streamlined procedures that may benefit you if you haven’t filed your US expat tax returns in years. With our help, we can get you back on track with the IRS with your US expat tax.

What if I am paying income taxes in another country? Do I have to pay taxes to the US?

The US has tax treaties with many countries that can offer taxpayers additional benefits. We can help you with all treaty benefits.

Preparing US expat tax return can be complicated. Because of the particular tax laws for Americans citizens and Green Card Holders living abroad. There are many tax dangers with filing a US tax return for expatriates and green card holders, but there are also many opportunities to cut or eliminate your US expat taxes. If you are an American working overseas check out our free tax guide.

The Costa Rican Tax System

Since many US expatriates are living in Costa Rica, it is necessary for Americans to know both Costa Rican and US expat tax laws. This tax guide is meant to add to your understanding of the Costa Rican income tax system by giving practical knowledge.

The article highlights important rules that US expats should keep in mind about residency, income, and tax withholding. The importance of tax planning and treaty provisions available to American citizens and residents living in Costa Rica are discussed.

Introduction

Costa Rica, officially called the Republic of Costa Rica, is a presidential, representative democratic republic. Costa Rica mixes a presidential and parliamentary system, with a president, his cabinet, and 57 elected Legislative Assembly deputies representing executive and legislative power, respectively. The Ministerio de Hacienda, or Ministry of Finance in English, is the federal authority responsible for the oversight of local tax authorities and most international tax matters dealing with the collection and assessment of taxes.

Costa Rican Residency

Costa Rica has several qualifications for an expat to be considered a Costa Rican resident. Meeting all requirements for any of these brackets of residency will qualify you as a resident for tax purposes. The criteria are below:

  • To become a pensionado, one must fulfill all four requirements:
    • You must be able to prove that you receive at least $1,000 per month from a qualified pension. Examples include social security, a state retirement pension, or a military pension. You could also purchase or own a lifetime annuity guaranteeing an income of $1,000 USD or more per month for the rest of your life.
    • You must be able to prove at each yearly residency renewal that you still receive the monthly pension.
    • Every year, spend four months or more living in Costa Rica.
    • Enroll in the local CCSS Government Health program known as CAJA, Costa Rica’s version of socialized medicine.
  • To qualify as a rentista, one must meet all four requirements:
    • You must be able to provide proof that you receive at guaranteed check of at least $2,500 every month
    • You must be able to prove at each yearly residency renewal that you still receive the monthly income.
    • Every year, spend four months or more living in Costa Rica.
    • Enroll in the local CCSS Government Health program known as CAJA, Costa Rica’s version of socialized medicine.
  • To qualify as an Inversionista, one must:
    • Invest $200,000 USD in any business OR a certain, specified amount of investment in certain government-approved sectors.
    • Live in Costa Rica for a minimum of six months every year.
  • To qualify as a permanent resident, you must:
    • You must have first-degree relative status with a Costa Rican Citizen, either through marrying a Costa Rican citizen or through birthing a Costa Rican child.
      • You can also apply after 3 years in another residency.
    • You must visit Costa Rica once a year.

 Taxable Income and Rates

Costa Rica only taxes residents (see above!) on income generated within Costa Rica. There is also a small property tax payable to the local government based on the government’s assessment of the property. There is no capital gains tax.

The taxable income is based upon the net income of a resident. The laws of Costa Rica define gross income as the total amount of income, including profits earned in the country, during each taxable year. This includes earnings from real property, investment of capital and other business activities. It also contemplates any increase in net worth during the taxable year, which cannot be justified by declared or registered income.

Below are the Costa Rica tax bands for single, salaried people. These tax bands apply to one month’s work.

 

Band

 

 

Taxable Income

 

Tax Rate

 

Basic Allowance

 

 

Up to ¢792,000.00 (approx. US $1,415)

 

Exempt

 

First Band

 

 

From ¢792,000.00 up to ¢1,188,000.00 (approx. US $2,124)

 

10%

 

Second Band

 

 

Over ¢1,188,000.00 (approx. over US $2,124)

 

15%

 

Taxable Deductions and Exclusions

Costa Rica has many exclusions to what can be taxed as income. Examples of tax exclusions include donations, whether those are made in cash or in kind, fixed assets that have been reevaluated, excluding depreciable assets, prizes from the national lotteries, charitable donations that have been approved by the government, inheritances or legacies, and community properties. Other tax exclusions include profits, any other distributed benefit credited to the taxpayer, international income, or capital gains obtained from the sale of retail property.

Deductions may be subtracted from the gross income. For a deduction to be allowable, the taxpayer must prove that the costs incurred were necessary to produce income.  Examples of taxable income in Costa Rica are costs, which include services, raw materials, parts, or components purchased to create income, salaries paid out by the taxpayer, any taxes paid on behalf of the goods and services produced. Other deductions include insurance premiums, interest, bad debts, depreciation, travel expenses (only if they represent 1% or less of the taxpayer’s gross income,) advertising costs, gifts made to the state, and start-up expenses.

Costa Rican Tax Credits

There are two main tax credits in Costa Rica, which can be paid toward your monthly income. For each dependent that is either under 18 years old, a high school or college student younger than 25, or a dependent that is mentally or physically handicapped and therefore unable to make their own living, the government of Costa Rica grants you a monthly tax credit of ¢560. There is also a yearly tax credit of ¢1,800 for each dependent meeting the above criteria.

If you are married to a spouse and not legally separated, a monthly tax credit of ¢830 can be deducted by one of the two married people.

Social Security in Costa Rica

Social Security contributions established by law and paid to the employees on behalf of an employer are tax deductible. The Social Security deductions are as follows:

 Service Provided Employee Employer
Medical and Maternity 5.50% 9.25%
Disability, Old Age, and Death Benefits 2.84% 5.08%
Family Welfare Programs 0.00% 5.00%
Workmen’s Savings Bank 1.00% 0.50%
INA – National Institute of Learning 0.00% 1.50%
IMAS – Institute
of Social Welfare
0.00% 0.50%
Complementary Pension 0.00% 0.50%
Labor capitalization fund 0.00% 3.00%
INS- National Institute of
Securities
0.00% 1.00%
Total Deductions: 9.34% 26.33%

 

Foreign Taxes in Costa Rica

If you are a resident of Costa Rica, your worldwide income is untaxed. Note that although Costa Rica and the United States do not have a tax treaty, they do have an agreement where they share information.

Other Costa Rican Taxes

Costa Rica has a sales tax like the “value added” tax in Europe. This tax sits at 13% for many goods and services with the exceptions of foodstuffs and medicinal products, which are untaxed. This tax is levied both at the point of importation and at the point of sale.

Filing your Costa Rican Taxes

Unlike the US fiscal year, the Costa Rican tax year is from October 1 to September 30. Your Costa Rica tax return is due on February 15 for the year prior.

Tax Planning for US Expats in Costa Rica

US expats living and working in Costa Rica must submit a US income tax return. A foreign tax credit is granted for income made in Costa Rica and reported on a US income tax return. It is likely that US expats working in Costa Rica will not have to pay US taxes on income made in Costa Rica.

Are You A US Expat in Costa Rica With Questions?

Contact us today to learn more from our expat CPAs and IRA Enrolled Agents. We can answer your questions and get started on your US expat taxes.

 

 


Tax Guide for Americans in Spain

Posted on January 5th, 2018

US Expats in Spain

Wherever you live in the world, you are obligated to file a tax return with the IRS, reporting your worldwide income. Along with the regular tax return for income, many individuals are also required to submit a report disclosing assets in foreign bank and financial accounts by using FinCEN Form 114 (FBAR).  What about tax returns for Americans who reside within Spain? As a US expat in Spain, you may need to file a Spanish return, and perhaps pay taxes, on your income to the Spanish Government. Here are some simple guidelines on dealing with, and the obligations for filing Spanish taxes.

Not sure what to do? Have questions about your own tax situation?

What if I haven’t filed my US tax returns in years?

We focus in dealing with past due tax returns. The IRS is offering delinquent taxpayers a new filing procedure that may benefit you if you have not filed your returns in years. With our help, we can get you back on track with the IRS with your US expat tax.

What if I am paying income taxes in Spain? Do I have to pay taxes to the US?

The US and Spain have a tax treaty that can offer taxpayers additional benefits. We can help you with all treaty benefits.

Preparing US expat tax return can be complicated due to the particular tax laws for American citizens and Green Card Holders living abroad. There are many tax dangers with filing a return for expatriates and green card holders, but there are also many opportunities to cut or eliminate your US expat taxes. If you are an American working overseas check out our free tax guide.

 

The Spanish Tax System

Since many US expatriates are living in Spain, it is necessary for Americans to know both Spanish and US expat tax laws. This tax guide is meant to add to your understanding of the Spanish income tax system by giving practical knowledge.

The article highlights important rules that US expats should keep in mind about residency, income, and tax withholding. The importance of tax planning and treaty provisions available to American citizens and residents living in Spain are discussed.

Introduction

Spain, officially the Kingdom of Spain, is a constitutional monarchy. Spain mixes an inherited monarchy with a bicameral parliament called the Cortes Generales. The Agencia Tributaria is the federal authority responsible for the oversight of local tax authorities and most international tax matters dealing with collections and assessment of taxes.

Spanish Residency

Spain has only one qualification for an expat to be considered a Spanish resident. To become a Spanish resident, you must spend 183 or more days in Spain or spend more time in Spain than in any other country. When you arrive in the country for the first time, you will need to register within 30 days of arrival with the local Foreigner’s Office (Oficina de Extranjeros). Here you will receive a Foreigner’s Identity Card (NIE) number used for tax and identification purposes. To pay your taxes for the first time, you must fill out Form 30 (Modelo 30) to register your obligation to pay Spanish tax as a resident or non-resident.

Taxable Income and Rates

Personal income tax in Spain or the Impuesto de Renta sobre las Personas Fisicas (or IRPF) is a tax system split between state and regional taxes. The state does have reduced taxes and simplified income tax bands, but this system is still being phased in.  Each region of the country sets its own tax bands and rates of tax on your income, so how much tax you pay depends heavily on where you live. Madrid has the lowest tax rates in Spain, while Andalucia has the highest tax rate on the highest tax band, nearly 7% higher than that of Madrid’s.

In determining your tax liability, the Spanish tax authority will first establish your total income before making certain adjustments to obtain your net taxable income. What parts of your total income are considered taxable? Your base salary, benefits-in-kind, any tax paid for you on your employer’s behalf, school tuition reimbursements, housing allowances paid in cash (with some other exceptions), and deferred compensation for services performed in Spain are all considered taxable income. International income, so long as the country the income is coming from has an income tax rate like Spain’s, or if both if countries have a tax treaty, is generally untaxed.

If you are married, you can choose to be taxed separately or together. You should compare the tax you would pay as individuals to the tax you would pay as a couple before filing, to ascertain the best option. There is a married couples allowance or “declaracion conjunta” of 3,400 euros for the family, and a general allowance of 5,550 euros granted to the main taxpayer.

Below are the simplified Spanish tax bands for a single person.

 

Band

 

 

Taxable Income

 

Tax Rate

 

Basic Allowance

 

 

Up to €12,450

 

19%

 

First Band

 

 

€12,450- €20,200

 

24%

 

Second Band

 

 

€20,200 – €35,200

 

30%

 

Third Band

 

 

€35,200 – €60,000

 

37%

 

Fourth Band

 

 

Over €60,000

 

45%

Taxable Allowances and Reductions

Contributions made to a pension that is in line with Spanish pension laws and allocated to the employee as a tip for their work are deductible. Up to 8,000 euros or 30% of the taxpayer’s net employment and business activities income are eligible for deduction. There are also certain unique reductions for contributions made on behalf of the spouse (which only covers up to EUR 2,500) and contributions to the pensions of handicapped family members. European Union pensions, under some circumstances, can also entitle an employee to a tax reduction.

A reduction of 30% over a maximum base of 300,000 euros may be applicable if certain requirements were met in general to a single tax period. These include work income generated over a period of more than two years, those whose income are specifically determined by the Spanish tax authority, or  Agencia Tributaria as being obtained on a non-regular basis.

If you pay Social security contributions, these are also deductible from your gross work income if those payments are compulsory and earned while working in Spain. There are personal and family minimums that are deductible. These are calculated based on the progressive scale of taxable income above, with a personal minimum of 5,550 euros. For each parent or family member older than 65, there is a deductible of 1,150 euros, which increases to 2,550 if the family member is older than 75. There are also deductions that are applicable for children. The first child earns a deductible of 2,400 euros, the second 2,700 euros, and the third 4,000 euros. For each additional child, you are allowed a deduction of 4,500 euros. If any child is under three years old, an additional 2,800 euros is applied to the deductible.

Spanish Tax Credits

There are three main tax credits, which take the form as an allowance towards your tax payments. One of these credits takes the form of donations to charity. For each donation to charity, you are allowed 10 percent of the donations made in favor of foundations legally recognized, and declared to be of a public interest. If you donate to a charity recognized by the Foundations Law, you are allotted a tax reduction from 30 percent of up to a maximum of 75 percent of the donation. Increased tax rates apply for certain donations, like those made to the same charitable entity for amounts greater than the ones donated in the previous two years. As of 2015, new family deductions of up to EUR 1,200 were established for each handicapped descendant or older family member or for large size families. A deduction for employed mothers is also available as a credit.

Foreign Taxes in Spain

International income, so long as the country the income is coming from has an income tax rate like Spain’s, (or if both if countries have a tax treaty) is generally untaxed, but is used in the determination of your tax bracket.

Other Spanish Taxes

Spain, like many other countries in the European Union, has a value-added tax (Impuesto sobre el Valor Añadido (IVA) in Spanish).The first tier, which is taxed at 21%, contains goods and services. The second tier is taxed at 10% and includes passenger transport, toll roads, amateur sporting events, health products, exhibitions, trash collection, pest control, wastewater treatment, and non-basic foods. The third tier, which is taxed at 4%, contains medicine, essential foods, newspapers, and books.

The corporate tier was reduced from 28% to 25% in 2016. For companies in the first two years of opening, the corporate tax is 15%.

Many regions of Spain also pay no gift or inheritance tax, but it does vary by region, so consult a financial advisor before continuing.

Filing your Spanish Taxes

In the first year of Spanish tax residency, everyone must file a Spanish tax return. After the first year, you do not have to file a Spanish tax return if your income from all sources is less than EUR 8,000. You also do not have to file a return if your rental income is less than EUR 1,000 or you earn less than EUR 22,000 as an employee.

To make a Spanish income tax declaration, see Form 100 (Modelo 100 in Spanish). You can find information on how to go about completing and submitting your Spanish tax return, information about previous tax returns, and previous payments you have made.

The tax year is the calendar year like in the United States. You must file your tax return by May to June of the next year, with the deadline to pay your taxes being the last Friday in June, which was 30 June 2017 for the 2016 calendar year.

Tax Planning for US Expats in Spain

US expats living and working in Spain must submit a US income tax return. A foreign tax credit is granted for income made in Spain and reported on a US income tax return. It is likely that US expats working in Spain will not have to pay US taxes on income made in Spain.

Are You A US Expat in Spain With Questions?

Contact us today to learn more from our expat CPAs and IRA Enrolled Agents. We can answer questions and start on your US expat taxes.

 


Tax Guide for Americans in Mexico

Posted on January 4th, 2018

A Tax Guide for Americans in Mexico

Wherever you live in the world, you are obligated to file a tax return with the IRS, reporting your worldwide income. Along with the regular tax return for income, many individuals are also required to submit a report disclosing assets in foreign bank and financial accounts by using FinCEN Form 114 (FBAR). But what about tax returns for Americans who reside within Mexico? As a US expat in Mexico, you may need to file a Mexican return, and perhaps pay taxes, on your income to the Mexico Government. Here are some simple guidelines on dealing with, and the obligations for filing Mexico taxes.

Not sure what to do? Have questions about your own tax situation?

What if I haven’t filed my US tax returns in years?

We focus in dealing with past due tax returns. The IRS is offering delinquent taxpayers a new filing procedure that may benefit you if you have not filed your returns in years. With our help, we can get you back on track with the IRS with your US expat tax.

What if I am paying income taxes in Mexico? Do I have to pay taxes to the US?

The US and Mexico have a tax treaty that can offer taxpayers additional benefits. We can help you with all treaty benefits.

Preparing US expat tax return can be complicated because of the particular tax laws for Americans citizens and Green Card Holders living abroad. There are many tax dangers with filing a return for expatriates and green card holders, but there are also many opportunities to cut or eliminate your US expat taxes. If you are an American working overseas check out our free tax guide.

 

Mexico’s Tax System

Resident individuals are subject to Mexican income tax on their worldwide income, regardless of their nationality. Non-residents, including Mexican citizens who can prove residence for tax purposes in a foreign country, are taxed solely on their Mexican-source income.

Personal income tax rates

The following tax rates are effective for resident individuals for calendar year 2017:

Taxable income (MXN) Basic tax
Over Not over Tax on column 1 (MXN) Tax on excess (%)
0.01 5,952.84 0 1.92
5,952.85 50,524.92 114.24 6.40
50,524.93 88,793.04 2,966.76 10.88
88,793.05 103,218.00 7,130.88 16.00
103,218.01 123,580.20 9,438.60 17.92
123,580.21 249,243.48 13,087.44 21.36
249,243.49 392,841.96 39,929.04 23.52
392,841.97 750,000.00 73,703.40 30.00
750,000.01 1,000,000.00 180,850.82 32.00
1,000,000.01 3,000,000.00 280,850.81 34.00
3,000,000.01 and above 940,850.81 35.00

 

If the employee is regarded as a non-resident for Mexican tax purposes, the tax rate applicable to compensation will vary from 15% to 30%. The first MXN 125,900 of employment income earned in a 12-month floating period will be tax exempt.

The following tax table is applicable to income tax with regard to income earned by non-residents for the calendar year 2017:

Taxable income (MXN) Tax rate (%)
Over Not over
0 125,900 Exempt
125,900 1,000,000 15
1,000,000 and above 30

 

Non-residents are subject to withholding taxes (WHTs) on Mexican-source interest income at rates ranging from 0% to 30%, depending on several factors. Non-residents are subject to Mexican tax on gains arising from the sales of real property located in Mexico (including shares of foreign companies holding a significant value of Mexican real property) as well as the sale of shares of Mexican companies outside the Mexican stock exchange. Generally, when a capital gain is subject to tax, the non-resident investor can elect to either pay a flat rate of 25% of the gross proceeds or 30% of the net gain.

Who is Required to File a Tax Return in Mexico?

A person’s liability for Mexican tax is determined by the residence status for taxation purposes, and the source of income derived by the individual.

There is no minimum number of days of residency that exempts the employee from filing and paying taxes in Mexico. A person’s liability to Mexican tax is determined by residence status. Once it is determined that the individual is a nonresident for Mexican tax purposes, however, the individual could be fully exempt from Mexican taxation as long as:

  • A nonresident who does not have a permanent establishment in Mexico pays the salary or a permanent establishment does exist, but the service is not related to the permanent establishment.
  • The employee is present in Mexico for less than 183 calendar days, whether consecutive or not, in a period of 12 months
  • The employer paying the salary does not have an establishment within Mexican territory to which the service is related. The exemption will not be applicable if the employer has an establishment in Mexico, even if such establishment does not constitute a permanent establishment for Mexican tax purposes.

The nonresident employee does not receive complementary payments from nonresidents in consideration of services rendered for which salary income was obtained.

Additionally, to the extent that the individual qualifies for relief in terms of the dependent personal services article of the applicable double tax treaty, there will be no tax liability. The treaty exemption will not apply if the Mexican entity is the individual’s economic employer and, as such, bears the cost of the individual’s compensation.

Resident individuals are taxed on worldwide income and non-residents on Mexican sourced income. Salary income is considered Mexican sourced income when the services are rendered in Mexico.

  • Reimbursement of foreign and/or home country taxes. Hypothetical taxes charged to the employee would be offset against this income to determine the net taxable income.
  • School tuition reimbursements are taxable.
  • Cost-of-living allowances and expatriation premiums for working in Mexico are taxable.
  • The employer contribution to rent is taxable. The imputed value of housing provided directly by the employer is also taxable. Hypothetical housing charged to the employee would be offset against this income to determine the net taxable income.
  • A car allowance is taxable. An automobile granted by a Mexican company is not taxable and deductible for the Mexican company under certain limitations
  • Stock options are taxable at exercise for the difference between the fair market value of the stock at the time of exercise and the exercise price.
  • Contributions up to certain caps made by employers to employees’ savings funds qualify as a social welfare benefit when granted to all employees. The income from the funds is not taxable provided a number of requirements are complied with. Special rules also apply to thrift/savings plans and retirement plans.

When are Mexican tax returns due?

The tax year in Mexico is, like the US, from January 1 to December 31.  Annual tax returns are due by April 30 following the tax year-end, which is December 31. Extensions are not permitted. Nonresidents are not obligated to file a Mexican annual tax return since the payments made are considered as final or definitive.

Mexico Resident

According to the Mexican Tax Code, an individual should be considered resident for Mexican tax purposes if he/she establishes his/her place of abode in Mexico. In case the individual also has a place of residence in another country, the individual will be taxed resident in Mexico if his/her center of vital interests is in Mexico. It is considered that the individual has his/her center of vital interests in Mexico in either of the following cases, among others.

  • When more than 50 percent of the individual’s total income received during the calendar year is derived from Mexican sources.
  • When the individual’s main center of professional activities is located in Mexico.

On the other hand, the Mexican Tax Code states that in the absence of proof of the contrary, individuals of Mexican nationality are presumed to be residents of Mexico.

Additionally, individuals of Mexican nationality should retain their status as tax residents of Mexico when proving their tax residency in a country with a preferential tax regime for the year in which the notice of termination of tax residence is filed and for the following three years. It is important to mention that this provision is not applicable in those instances where Mexico has executed an unlimited exchange of information agreement with such preferential tax regime country.

Non-Mexico Resident

Individuals considered non-residents are taxed on their Mexican-sourced income only and are not  subject to file a Mexican annual income tax return, as monthly tax payments/withholdings are considered as final or definitive.

Non-residents are allowed to have an exempt income on the first MXP125,900 wages earned, an income tax rate of 15 percent is applied when income exceeds MXP125,900 and 30 percent on income that exceeds MXP1,000,000 within a 12-month period. Individuals should accumulate the income received every month to determine the tax rate to be used to calculate the corresponding income tax.

Mexico’s Social Security

Mexican employers who have employees on payroll in Mexico pay Social Security taxes.  The responsibility to pay these taxes falls on the employer. Foreigners who work for Mexican employers are subject to Mexican social security contributions when an employment relationship is deemed to exist in Mexico. Such relationship is deemed to exist in Mexico when the employee’s activities are supervised, controlled, or governed by a Mexican employer. These are based on several components where the capped salary is 25 times the minimum wage of Mexico City (for 2016 the minimum wage is MXN 73.04 per day).

Tax Treaty between the US and Mexico

In addition to Mexico’s domestic arrangements that provide relief from international double taxation, Mexico has entered into double taxation treaties with approximately 54 countries to prevent double taxation and allow cooperation between Mexico and overseas tax authorities in enforcing their respective tax laws. Please be informed that taxpayers must provide a tax certificate of residence in order to apply the benefits given by the treaties to avoid double taxation.

Are You A US Expat in Mexico With Questions?

Contact us today to learn more from our expat CPAs and IRA Enrolled Agents. We can answer your questions and get started on your US expat taxes.


Tax Guide for US Expats Living in Canada

Posted on January 3rd, 2018

US expat in Canada

Wherever you live in the world, you are obligated to file a tax return with the IRS reporting your income. Along with the regular tax return for income, many individuals are required to submit a report disclosing assets in foreign bank and financial accounts by using FinCEN Form 114 (FBAR). What about tax returns for Americans who reside in Canada?  Here are some simple guidelines for possible obligations in filing Canadian taxes.

Not sure what to do? Do you have questions about your own tax situation?

What if I haven’t filed my US tax returns in years?

We focus on dealing with past due tax returns. The IRS is offering overdue taxpayers a new filing procedure that may benefit you if you have not filed your returns in years. With our help, we can get you back on track with the IRS with your U.S. expat taxes.

What if I am paying income taxes in Canada? Do I have to pay taxes to the US?

The US and Canada have a tax treaty that can offer taxpayers additional benefits. We can help you with all treaty benefits.

Preparing U.S. expat tax return can be complicated. There are many tax dangers with filing a return for expatriates and green card holders, but there are also many opportunities to cut or eliminate your U.S. expat taxes. If you are an American working overseas check out our free tax guide.

 

The Canadian Tax System

The equivalent of the US Internal Revenue Service in Canada is the Canada Revenue Agency, which collects taxes in Canada. Both the provincial/territorial and the federal government levy income taxes and sales taxes (also called consumption taxes). There are three levels of government – territorial and provincial, municipal, and federal.

Income Tax Return in Canada

The tax system in Canada is unique in many aspects, and as a resident in Canada, you must pay the taxes on the worldwide income you earned that year. You must file a tax return annually. This includes income such as retirement income, commission income, investment income, and employment income. You are required to pay taxes on your income at both the provincial/territorial level and the federal level.

The income tax system in Canada is progressive, where the more income you make the more taxes you pay. Below show the Canadian Federal Tax Rates for 2017:

  • 15% on the 1st $45,916 of taxable income, +
  • 5% on the next $45,915 of taxable income (on the portion of taxable income over $45,916 up to $91,831), +
  • 26% on the next $50,522 of taxable income (on the portion of taxable income over $91,831 up to $142,353), +
  • 29% on the next $60,447 of taxable income (on the portion of taxable income over $142,353 up to $202,800), +
  • 33% of taxable income over $202,800.

The corporate tax rates are:

  • The basic rate of Part I tax is 38% of your taxable income, 28% after federal tax abatement.
  • After the general tax reduction, the net tax rate is 15%.
  • For CCPC (Canadian-Controlled Private Corporations) claiming the small business deduction, the net tax rate is 10.5%.

You would also have to pay provincial/territorial income taxes, depending on the region you were living in on December 31 of that tax year. For instance, if you were living in British Colombia until September and then moved to Ontario. You would file Ontario income taxes and returns. The provincial taxes are progressive like federal taxes.

The due date for an income tax return is April 30 for many. Those who are self-employed have until the June 15, though it is preferred that they pay on April 30. Those who do not work can submit their tax return by June 30 at the latest, though they should submit a return by April 30.

Who is Required to File a Return in Canada?

Every person living in Canada has to file a Canadian tax return every year. Before a person can file a tax return, it is vital to identify if you are a non-resident, a “deemed” resident, or a resident of Canada for tax purposes.

As per the CRA, you are regarded as a Canadian resident only after you meet certain criteria, which includes having a spouse and/or dependent or your permanent residence in Canada. The criteria also includes holding Canadian Documentation like the SIN or a driver’s license displaying a Canadian address or a provincial health card.

The CRA might deem you as a resident of Canada if you have spent a continuous 183 or more days in Canada. If you have maintained ties with your country of origin or another country, you would be considered as a non-resident of Canada.

Each member of a household in Canada is obligated to file his or her own income tax return. if a person has lived in Canada for half of the year, a tax return must be filed. Canada has tax treaties or conventions with more than 90 countries in the world.

Social Insurance Number (SIN) in Canada

If a person is a citizen of Canada, a temporary resident, or permanent resident, he or she needs to obtain a Social Insurance Number (SIN) for working in Canada. Any child 12 years or older can apply for their own SIN.

The parent or an individual authorized legally to take care of an applicant can apply for the SIN for that child under the age of the majority in their province and adults under their care.

Social Security Agreement with the United States

The US and Canada have a Social Security  agreement in place that is advantageous to the individuals who have contributed to both the systems over their working lives or who have life partners or guardians who have contributed to the plans of one or both nations. This social security agreement offers that a time of commitment to one framework can be used to meet the residency necessities of the other nation.

Social Security in Canada

Canada’s open retirement program has two legs, the Old Age Security and the Canada Pension Plan. The Old Age Security is a month-to-month annuity accessible to long term Canadian inhabitants of middle or lower incomes. The Canada Pension Plan is a contributory arrangement like Social Security in which the representative pays 4.95% of the primary $54,900 of their wages and places of employment match the sum dollar for dollar. For the two plans, the ordinary retirement age is 65 with exemptions for exceptional conditions.

Tax Treaty between the US and Canada

The double taxation tax treaty between Canada and the United States allows U.S. expats living in Canada to pay the taxes Social Security taxes to only one country. Both Canadian residents and U.S. citizens report their foreign income no matter where they file their tax return, whether in the United States or Canada.

Are You a U.S. expat in living Canada with Questions?

Contact us today to learn more from our U.S. expat CPAs and IRS Enrolled Agents. We can answer questions and start on your U.S. expat taxes.


Tax Guide for Americans in France

Posted on January 2nd, 2018

Tax Guide for Americans in France

Where ever you live in the world, you are obligated to file a tax return with the IRS, reporting your worldwide income. Along with the regular tax return for income, many individuals are required to submit a report disclosing assets in foreign bank and financial accounts by using FinCEN Form 114 (FBAR). But what about tax returns for Americans who reside within the France? As a US expat in France, you may need to file a French return, and perhaps pay taxes, on your income to the French Government. Here are some simple guidelines on dealing with, and the obligations for filing French taxes.

Not sure what to do? Have questions about your own tax situation?

What if I have not filed my US tax returns in years?

We focus in dealing with past due tax returns. The IRS is offering delinquent taxpayers a new special filing procedure that may benefit you if you have not filed your returns in years. With our help, we can get you back on track with the IRS with your US expat tax.

What if I am paying income taxes in France? Do I have to pay taxes to the US?

The US and France have a tax treaty that can offer taxpayers additional benefits. We can help you with all treaty benefits.

Preparing US expat tax return can be complicated. Because of the tax laws for Americans citizens and Green Card Holders living abroad. There are many tax dangers with filing a return for expatriates and green card holders, but there are also many opportunities to cut or eliminate your US expat taxes. If you are an American working overseas check out our free tax guide.

 

The French Tax System

Since many US expatriates are living in France, it is necessary for Americans to know both French and US expat tax laws. This tax guide is meant to add to your understanding of the French income tax system by giving practical knowledge.

The article highlights important rules that US expats should keep in mind about residency, income, and tax withholding. The importance of tax planning and treaty provisions available to American citizens and residents living in France are discussed.

Introduction

France, officially called the French Republic, is a constitutional republic. France mixes a presidential and parliamentary system, with a president and a bicameral legislature like that of the United States. The French Tax Authority is the federal authority responsible for the oversight of local tax authorities and most international tax matters dealing with collections and assessment of taxes.

French Residency

France has several qualifications for an expat to be considered a French resident. Meeting any of these three requirements will qualify you as a resident for tax purposes. The criteria are below:

  • You or your family’s primary residence is either in France or a French territory. If you spend more than 183 days in France, or if you spend more time in France than any other country, this also applies to you.
  • Your primary source of employment or the bulk of your professional activity is in France. You are considered a resident if most of your professional or economic activities take place in France.
  • France is the hub of your economic activity.

Taxable Income and Rates

In determining your tax liability, the French tax authority will first establish your total income before making certain adjustments to obtain your net taxable income.

Your tax liability will then be calculated with having regard to the composition of your household, your level of income, and any allowances you are entitled to.

France taxes based on families, meaning married couples will be required to file a joint tax return. The total taxable income for a family is divided by the number of members in it, with some exceptions. One “part” of a household is taxed according to which band it falls into, and then the tax charge is multiplied by the rest of the “parts” to get the tax liability for the household.

Some exceptions to the number of parts include the third child—generally the first two children are “half-parts,” representing 0.5 of a share. However, the third and beyond child or dependent are counted as one “part.” Disabled dependents are granted an extra 0.5 share, and people who brought up a single child are also granted an extra half-share. Divorced parents who share joint custody of a child are only responsible for 0.25 share because of the joint custody.

Below are the French tax bands for single people.

 

Band

 

 

Taxable Income

 

Tax Rate

 

Basic Allowance

 

 

Up to €9710

 

0%

 

First Band

 

 

€9,711 – €26,818

 

14%

 

Second Band

 

 

€26,819 – €71,898

 

30%

 

Third Band

 

 

€71,899 – €152,260

 

41%

 

Fourth Band

 

 

Over €151,261

 

45%

 

Taxable Allowances and Reductions

Generally, there is an abatement of 10% for professional costs in relation to business earnings and salaries, up to a maximum of €12,183. The minimum abatement is €426. There are also deductions for travel to work, meals, tools, and clothing. You must, however, retain invoices, and these deductions are governed by rules.

If your pension is taxed, as all except for government positions, are, then there is a 10% abatement. The minimum is €379, and counted by each individual taxpayer, and the ceiling is €3,711, which is derived from a family’s taxable income.

Supporting children under the age of 21 (or under the age of 25, if they are in school) is another abatement. You can either opt to attach them to your fiscal household, or charge the support you provide to them against your liability to income tax.

Domestic help for single parent households or for those where both parents work is a tax allowance of 50% against the costs, with a maximum allowance of €6,000. Long term nursing care is eligible for a tax allowance of up to 25% against the costs, with a maximum allotment of €2500.

There are also taxable allowances for French investments and charitable donations, both of which require you to speak to a financial advisor.

French Tax Credits

There are three main tax credits, which either take the form as direct payments from the French Tax Authority, or an allowance towards your tax payments.

Home energy conservation, or the installation of certain energy conservation works, are eligible if completed by a tradesman. The Home energy conservation is a tax credit of up to €8,000 per person, or €16,000 for a family. The rules governing this tax credit are extremely complex, so proceed with caution.

Home adaptations for the safety and mobility of the elderly, which excludes labor costs, is represented as anywhere from 15%-25% of €5000 for a single person, €10000 for a couple.

There is also a child care credit, which takes the form of a credit of 50% on a maximum of €2,300 per child under 7 years of age for child care outside of the home. Maternity schools are excluded, and only costs incurred by you and not your employer count for this credit.

Social Security in France

If you were sent to France by a US employer for less than five years, would you pay into US Social Security.  If your assignment by a US employer is longer than five years, you pay into French social security.  If you were hired in France, regardless of your employer’s nationality, you pay into France’s social security.  If you are on a US government assignment, you automatically pay into US Social Security.

Foreign Taxes in France

If you are a resident of France, your worldwide income is taxed at the same rate as it would be if you were a French resident. However, with the US-France tax treaty, some parts of your income are excluded. These excluded portions of your income are not taxed, but are included when determine your tax bracket.

Other French Taxes

France, like many other countries in the European Union, has a value-added tax of 20% on many goods and services. The only exceptions to this rule are books and restaurant meals, which are taxed at only 10%, and groceries, which are taxed at a mere 5.5%.

Filing your French Taxes

Like the US fiscal year, the French tax year is also the calendar year.  When you pay your taxes, however, depends on where you are located and how you decide to file.

If you are a resident and filing a paper return, your returns are due May 18th of the year following the tax year.  If you are a resident and filing electronically, your returns will be due on either the 24th of May, the 31st of May, or the 7th of June, depending on your French home address.

Tax Planning for US Expats in France

US expats living and working in France must submit a US income tax return. A foreign tax credit is granted for income made in France and reported on a US income tax return. It is likely that US expats working in France will not have to pay US taxes on income made in France.

Are You A US Expat in France With Questions?

Contact us today to learn more from our expat CPAs and IRA Enrolled Agents. We can answer your questions and get started on your US expat taxes.

 

 


What is the Foreign Bank Account Report (FBAR) or FinCEN Form 114?

Posted on December 28th, 2017

 

What is the Foreign Bank Account Report (FBAR) or FinCEN Form 114?

In today’s worldwide economy, it is commonplace for U.S. taxpayers to have financial accounts (banking, pension, investment, etc.) located outside of the U.S. They may be surprised to know that just by keeping money in a foreign account you might have to file a special form with FinCEN, the U.S. Treasury Department’s Financial Crimes and Enforcement Network. Not filing the form can lead to heavy penalties. The special form is commonly called the “FBAR” or FinCEN Form 114, Report of Foreign Bank and Financial Accounts.

FBAR in a Snapshot:

  • US citizens with foreign accounts totaling $10,000 at any time during the year must file.
  • Citizens reporting account information such as the account number, value, and bank address may have to file.
  • The FBAR must be filed electronically through the FinCEN’s BSA E-Filing System.
  • The due date for filing is now April 15 with an automatic extension until October 15.
  • Not correctly reporting foreign accounts can result in a penalty of up to $10,000 per violation.

 

Ready to get started on FBAR or your US expat tax return? We are here to help.

Who must file a FBAR?

Every US citizen, green card holder, resident alien, partnership, corporation, estate, or trust must file the FBAR if they have financial interest in or signature authority, or other authority over any financial accounts. If the aggregate value of these financial accounts exceeds $10,000 at any time during the calendar year.  These accounts include bank, securities, or other types of financial accounts in a foreign country.

FBAR is the FinCEN Form 114.

A blank copy of FinCEN Form 114 can be downloaded from the Financial Crimes Enforcement Network’s FBAR E-Filing page. FinCEN Report 114. This is a PDF download.

The Report is filed directly with the Financial Crimes Enforcement Network (FinCEN), a division of the US Treasury Department, located at bsaefiling.fincen.treas.gov/main.html.

FinCEN requires that foreign bank account reports be filed electronically through the FinCEN website. For assistance with electronic filing, refer to FinCEN’s instructions located at How to File the FBAR Electronically (pdf).

What Types of Foreign Financial Accounts are Reportable?

The following types of accounts have to be reported on the FBAR if they meet the filing requirement of $10,000:

  • Bank accounts (checking and savings)
  • Investment accounts
  • Mutual funds
  • Retirement and pension accounts
  • Securities and other brokerage accounts
  • Debit and prepaid credit cards
  • Life insurance and annuities having cash value

How to file an FBAR

Reporting Foreign Bank Accounts

You will list each foreign financial account you own or have signature authority using FinCEN 114. This form is self-explanatory. You will provide information on all your financial accounts held in foreign countries, such as the name of the bank or financial institution where the account is held, your account number, and account balance.

Be aware that Foreign Bank Account Report is filled for each account holder. Married couples either need to file separate reports or a single joint report. If you own accounts jointly with your spouse, and either none or only one of you own a separate account, you can file a single report. Otherwise, each spouse must file their own. For accounts having multiple account-holders or persons with signature authority may have several persons or businesses reporting the same account on separate foreign bank account reports.

Below is a Sample of an actual FBAR information required for an account in your name only, at Barclays in London, and that reached a maximum value of $15,000 during the tax year.

How to file an FBAR Reporting Foreign Bank Accounts

Why file an FBAR?

Under the present FBAR rules, if you are required to file but either you do not file on time or do not accurately report your foreign accounts you may be subject to a penalty of up to $10,000 per violation. Even if you are unaware it was required. If you are cognizant of your requirement and do not file an accurate FBAR or if you fail to file it on time, you could get hit with a $100,000 penalty per violation or an even higher penalty, depending on your account balances at the time of the violation.

When to File an FBAR

The FBAR, FinCEN Form 114, is due April 15 of each year to report foreign bank accounts owned in the previous calendar year. FBAR filing was recently changed to the same date that individual income tax returns are due. The earlier FBAR due date of June 30 was hard to remember and there was no possibility of an extension.

Any taxpayer required to file an FBAR who misses the April 15 due date will be granted an automatic extension of six more months to file. The extended due date is October 15.

The extension will always be automatic. No extension longer than six months is normally granted.

An FBAR is not filed with a federal tax return. It is filed separately and directly with FinCEN. Significantly, if you are required to file an FBAR, you must file the form even if you are not required to file a U.S. return with the IRS.

What if the filing deadline is missed? The IRS is now conducting an offshore voluntary disclosure initiative (Streamlined Procedures) for people who need to file late foreign bank account reports and report previously undeclared foreign income.

How an FBAR can be related to a Tax Return

Although the foreign bank account report is not a tax form and is not submitted to the IRS, information relating to foreign bank accounts may need to be coordinated with information on a tax return.

Income generated inside of these foreign financial accounts is reported on an income tax return in the year the income is earned. You will report the foreign income based on the type of income generated. For example, interest and dividends are reported on Schedule B, capital gains on Schedule D, etc.. If you earn dividends or interest in these accounts, be sure to check the box in Part III Line 7a of Schedule B and indicate the country or countries where you have accounts.

In some cases, a person may need to file Form 8938, Statement of Foreign Financial Assets, with their tax return. This tax form is separate from the foreign bank account report even though it has similar information. There are separate thresholds for being required to disclose foreign accounts. For Form 8938, the threshold starts at total foreign account balances of $50,000 on the last day of the year or $75,000 at any time during the year. There are higher reporting thresholds for married couples filing jointly and for Americans living abroad. The following chart from the IRS may be helpful: Comparison of Form 8938 and FBAR Requirements. Also, any foreign taxes paid on foreign income may qualify for the Foreign Tax Credit on Form 1116.

Exceptions to Filing an FBAR

Accounts held at US military banks even if those banks are located in foreign countries do not have to be reported. Military banks are considered domestic U.S. banks. Accounts held at banks found in Guam, Puerto Rico, and the US Virgin Islands do not have to reported, as these are U.S. territories. U.S. based accounts held by a branch or division of a foreign bank do not have to be reported.

File your FBAR with American Expatriate Tax Consultants

Have questions about the FBAR? Ready to file? No matter how complex your U.S. tax return is, there is an Expat Tax Expert ready to help. Get started with Virtual Expat Tax Preparation.


Tax Guide for Americans in the UK

Posted on December 14th, 2017

US Expats living in United Kingdom

Wherever you live in the world, you are obligated to file a tax return with the IRS reporting your worldwide income. Along with the regular tax return for income, many individuals are also required to submit a report disclosing assets in foreign bank and financial accounts by using FinCEN Form 114 (FBAR). However, what about tax returns for Americans who reside in the United Kingdom? As a US expat in the UK, you may need to file a UK return, and perhaps pay taxes, on your income to the United Kingdom Government. Here are some simple guidelines on dealing with, and the obligations for filing UK taxes.

Not sure what to do? Do you have questions about your own tax situation?

What if I haven’t filed my US tax returns in years?

We focus in dealing with past due tax returns. The IRS is offering delinquent taxpayers a new special filing procedure that may benefit you if you haven’t filed your returns in years. With our help, we can get you back on track with the IRS with your US expat tax.

 

What if I am paying income taxes in the UK? Do I have to pay taxes to the US?

 

The US and the UK have a tax treaty that can offer taxpayers additional benefits. We can help you with all treaty benefits.

 

Preparing US expat tax return can be complicated. Because of the particular tax laws for Americans citizens and Green Card Holders living abroad. There are many tax dangers with filing a return for expatriates and green card holders, but there are also many opportunities to cut or eliminate your US expat taxes. If you’re an American working overseas check out our free tax guide.

The United Kingdom Tax System

The equivalent of the US Internal Revenue Service in the United Kingdom is the Her Majesty’s Revenue and Customs office (HMRC). This office is the main collector of revenue for the UK government. They administer some regulatory processes (e.g., minimum wage), collect taxes, and pay some welfare.

The UK tax period is different from the US tax year. In the UK, it is the 6th of April through the 5th of April. Your UK tax return is required to be filed by January 31st of the year following the end of the tax year if you electronically file your return. If the tax return is paper filed, it must be completed and filed by October 31st following the end of the tax year. There is no automatic extension available to file your UK tax return, but the HMRC may remove the late filing penalty if you satisfy certain conditions. The HMRC considers each case individually.

In order to work in the UK, and subsequently file your tax returns, you will need to file for a National Insurance number. You will apply for a number through Jobcentere Plus. You will need proof of your identity, verification of marriage or domestic partnerships, and residence permits.

The UK tax structure is much like the US tax system, where tax is levied as you earn your wages, business income, and investment income. Payroll taxes are identified as Pay As You Earn (PAYE) taxes. PAYE includes your income tax and national insurance contributions. The tax rates are progressive, meaning the higher you earn, the greater your rate of tax for each additional dollar of income. See National Insurance later.

Married couples cannot file a joint tax return. Each individual is expected to file their own tax return/assessment as required for their own income, but there is a marriage allowance that allows one spouse to transfer some personal allowance to the other spouse.

Who is required to File a UK tax Return?

The HMRC sends tax return forms to each individual. If the HMRC has determined that you paid enough tax through your payroll withholding, they may not send you a tax form, and you do not have to file a return unless you have alternative income/factors.

If you have alternative sources of income, such as from self-employment or investment income, then you will need to file a tax return and pay the taxes on that income. Other occasions where you would need to file a tax return include the following:

  • Income from renting out property
  • Profits from selling shares, a second home, or other assets resulting in capital gain
  • Income earned from non-UK sources while you lived in the UK
  • Income from dividends over £5,000.
  • Your income was £100,000 or higher

You may also need to file a tax return to claim deductions, which further to reduce your tax liability or receive a ‘refund’ from the HMRC. Common deductions are contributions to charity, private pension contributions, and personal allowances.

If you have not received a tax form from the HMRC, but need to file one, you must register online with the HMRC. The sign-up process takes 10-14 days to complete, as a verification PIN needs to be mailed to the taxpayer. If you need to register online, be certain to do so as soon as possible to avoid late filing penalties.

UK residence status affects whether or not you need to pay tax in the UK on your income received outside of the UK.

  • Non-residents only pay tax on their UK income – they don’t pay UK tax on their foreign income.
  • Residents normally pay UK tax on all their income, whether it’s from the UK or abroad. But there are special rules for UK residents whose permanent home (‘domicile’) is abroad (see below).

The HMRC defines residency requirements in the United Kingdom. In general, residency is determined by the long-term intentions of the taxpayers, along with the number of days they are physically in the United Kingdom.

UK Resident

Whether you are a UK resident depends upon how many days you spend in the UK during the tax year (not the calendar year).

You are automatically considered a tax resident if either:

You spend 183 days or more in the UK during the tax year

Your only home was in the UK–a home you have owned, rented, or lived in for at least 91 days–and you spent at least 30 days in there in the tax year.

If you are a resident of the UK, you will need to report your worldwide income on a tax return filed with the HMRC. Income includes wages, salaries, rental income on foreign property, investment and savings interest, and pension income. There are some tax reliefs available to help offset double taxation on your income, so you are not paying tax to more than one country on the same income. This is relevant with US expats as the US also requires you to file a tax return and report your income to the IRS (even if you don’t live in the USA). Foreign sourced income will need to be reported on a self-assessment return filed with the HMRC.

Non- UK Resident

You are automatically considered a non-resident if either:

  • You spent fewer than 16 days in the UK, (or 46 days if you haven’t been classified as a UK resident for the 3 previous years)
  • You work abroad full time and spend fewer than 91 days in the UK (of which no more than 30 days are spent working in the UK)

Nonresidents only pay tax on their UK income. A self-assessment will need to be filed to report your income and calculate the taxes due to the HMRC.

UK Tax Rates

How much income tax you pay each year depends on how much of your taxable income is above your personal allowance and how much of that income falls within each tax band.

The standard amount of personal allowance is £10,600 per person.

TAX BANDS for 2016-2017
INCOME ABOVE PERSONAL ALLOWANCE TAX
£0 to £32,000 20%
£32,001 to £150,000 40%
Over £150,000 45%

Some income is taxed at different amounts. Savings interest is taxed at a flat 20% automatically by financial institutions. Those with lower income may request tax-free interest or a refund of taxes already paid on savings interest.

US Expats living in United Kingdom

 

UK’s Social Security (National Insurance)

Generally, expats are required to participate in the United Kingdom’s National Insurance after they have started employment (including self-employment). This provides for the cost of welfare, health insurance, pension plans, unemployment insurance, and workers compensation, along with other assorted social programs in the United Kingdom. There is an agreement between the US and the UK concerning Social Security. This agreement requires individuals to pay tax for Social Security in the country in which they are working. But, if you are assigned to the United Kingdom by your employer for 5 years or fewer, you continue coverage in the US Social Security system on your United States expat taxes, with an exemption from coverage by the UK program. For the self-employed, they pay in the country they reside in.

 

Social Security Agreement with the US

The US and the UK have a Social Security Agreement in effect that dictates which country is allowed to assess Social Security taxes on income of US and UK citizens. US employees in the UK are generally not assessed US social security taxes, but must make the UK National Insurance payments on their income. This agreement (known formally as a ‘Totalization Agreement’) also covers self-employed individuals. Normally, no matter where you earn it, self-employment income is subject to US Social Security and Medicare taxes; known as self-employment tax. This is in addition to regular income tax assessed. With a ‘Totalization Agreement’ in place, the taxpayer only needs to pay the Social Security and Medicare taxes to the resident country; in this case the United Kingdom.

Tax Treaty between the US and UK

The tax treaty between the US & the UK is helpful for understanding situations where it is not clear which country you should pay taxes to. The country receiving tax payments is normally determined by residency status of the taxpayer in each of the countries. The treaty is meant to help prevent the double taxation on dual citizens, but also to explain tax issues that are not clear.

Are You A US Expat in The UK With Questions?

Contact us today to learn more from our expat CPAs and IRA Enrolled Agents. We can answer your questions and get started on your US expat taxes.

 




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