For US expats in Dubai, UAE, the international taxation system can be confusing and challenging. It is important to seek professional help from a firm that specializes in US expatriate tax planning.
Despite the complexity of international taxation, US Expats can take advantage of some key benefits when they have a strong understanding of their situation. The advantages of offshore tax planning include:
Offshore taxation can be a powerful tool for remote workers who are paid on a salary basis, even if they live in a country that has no double tax treaties with the U.S. Rather than paying a high US income tax rate, they can pay a lower income tax rate in their host nation and then claim any foreign income tax credits available to them in the U.S.
In addition, the Foreign Earned Income Exclusion allows Americans abroad to exclude a limited amount of foreign earned income from U.S. taxes, as long as they meet certain IRS requirements.
However, these FEIE benefits are not automatic and must be claimed using Form 2555 as part of their US tax filing. Once expats stop claiming the FEIE, they will generally not be eligible to claim it again for five years.
Another benefit for Americans living abroad is that they can claim the Foreign Housing Exclusion, which allows them to deduct some of their expenses of living in a foreign country from their US income taxes. This can be particularly helpful for digital nomads who don’t pay any income tax in their host countries, but still have some expenses to deduct.
The IRS also offers a streamlined compliance procedure that provides a fast-track option to file US expat tax returns. Those who qualify can receive an extension until October 15 to ensure they are fully compliant with their US tax obligations, which may help them avoid the penalties of late filing and failing to pay on time.
If you are a US citizen or green card holder and you are working overseas, you can be eligible to exclude a limited amount of foreign income from your US tax liability by claiming the Foreign Earned Income Exclusion (FEIE). This credit is especially useful for those who live in a country with a higher tax rate than the U.S. This may give them enough of a US tax credit to eliminate their US income tax liability for the year.
You can claim the FEIE by staying in a foreign country for at least 330 days during any 365-day period during your US tax year. This can be any period that starts or ends during your tax year and includes time spent in the US, including travel days to and from the foreign country and time on international waters.
Alternatively, Americans working overseas can also choose to file a tax return to claim the Foreign Earned Income Exclusion and Foreign Housing Exclusion. This is an easier way to get the FEIE benefits, but it does not come without some risks.