Learn some of the tax, financial, and immigration issues involved with being a U.S. citizen living abroad and working or running a business.
Find an Experienced Tax Professional
Look for someone who is knowledgeable about tax issues and reporting for ex-patriates (those living outside their native country). You may be able to find tax software that will help you file the right tax forms, but if your situation is complicated, even just a little, you should have someone to guide you through the process of working abroad.
Check Immigration and Visa Requirements
Each country has different requirements for foreign residents who want to live and work in their countries. Working in a country is different from just staying in a country; working requires you to get a work-related visa, not just a tourist visa. You must apply for this visa with the embassy or consulate of the country in which you want to work. You’ll need a passport, and possibly other documentation, depending on the requirements of the specific country in which you want to work.
Set Up Banking and Financial Matters
Banking in non-U.S. countries has become more difficult with new U.S. laws to curtailmoney laundering and also to prevent tax evasion by keeping money overseas. The Foreign Account Tax Compliance Act (FATCA) law requires that U.S. citizens report financial assets that are held outside the U.S. So, if you are working in another country and you have a bank account there for local transactions, you must report these balances to the Internal Revenue Service (IRS) if the value of these assets exceeds $50,000. You’ll need to use Form 8939 for this filing. If you are a U.S. taxpayer and you don’t have to file a tax return for a year, you don’t have to file Form 8939, no matter how much you have in foreign assets.
Designate a Registered Agent in the U.S.
You’ll need someone to receive business—and personal—mail and to deal with other business matters. There’s no reason you can’t run a U.S.-based company abroad, but you will need to check with your state to make sure you have a legitimate business address in the state. Most states require you to have a registered agent, someone who can receive legal documents, and this person needs to have a physical address (not a PO box) in the state.
Understand the Foreign Earned Income Tax Exclusion
If you want to exclude your foreign income from U.S. taxes, you’ll need to know the details of this program so you can make sure you comply with the limits and restrictions. Only earned income (wages, salaries, or professional fees, for example ) is eligible for the exclusion, not dividends or other investment income. You must be a U.S. citizen to receive this exclusion, but some resident aliens may be eligible. You must also have a tax home outside the U.S. Your tax home is your main place of business or work. Generally, you must reside in that country for 330 days within a 12-month period, and there are limits on the amount of income you can exclude. You may also be eligible for an exclusion or deduction on your housing expenses overseas if your tax home is in a foreign country. There are, of course, some restrictions and limitations.
Other Tax Issues for U.S. Citizens Working Abroad
Here are two more issues you might have to address as a U.S. citizen working in a foreign country.
Social Security and Medicare Taxes
Generally speaking, you do not have to pay Medicare and Social Security taxes when you perform work as an employee outside of the United States. However, there are exceptions to this, including if you worked for an American employer or a foreign affiliate of an American employer. If you are self-employed, then you’re generally required to pay self-employment tax (Medicare and Social Security) if you work in the U.S. or abroad. If your foreign income comes from an employer, you may be able to get an exemption from withholding this foreign earned income, if you are eligible for the exclusion. Use IRS Form 673 to file this claim.
Owning a Foreign Corporation
You may decide to set up a corporation in the country where you are working. This business is considered a foreign corporation, and you may be required to report and pay U.S. income taxes for this business if the business has income from any U.S source. One source might be your own investment in the business. You’ll need to use Form 1120-F to report gains, losses, deductions, and credits of this business.
