Want to work on the beach in Belize? Many people are tempted by the virtual andglobale economy of 21st century to move to another country to work or start a business. Many people want to start a business overseas.
Find out about the financial, tax and immigration issues that arise when you are a U.S. Citizen living and working abroad, or running a small business.
The Key Takeaways
- It is helpful to hire a tax expert who has experience in filing taxes.
- Check the visa and immigration requirements for the country in which you plan to open a new business.
- If your foreign bank account balances exceed $50,000, you’ll have to declare them.
- When you file your tax return, it is important to understand the exclusion for foreign earned income.
Find an experienced tax professional
Find someone who has experience with tax reporting and issues for expatriates. Tax software can help you fill out the correct tax forms. However, if you have a complicated situation, it is best to consult someone who has experience in this area.
Check immigration and visa requirements
Working in a country is different from just staying there. It is not enough to stay in a foreign country. You must also get a work visa. This visa must be applied for at the embassy or the consulate of the particular country where you wish to work. You will need your passport and other documents, depending on what the country you wish to work in requires. 1
Set up Banking and Financial Matters
The new U.S. legislation to curb money laundering and to prevent tax evasion through keeping money abroad has made it more difficult to do banking in non-U.S.
According to the Foreign Account Tax Compliance Act, U.S. citizens are required to report any financial assets held outside of the U.S. If you work in another country, and have a local bank account, you will need to report the balance to the Internal Revenue Service if it exceeds $50,000. You will need to file this using Form 893.
No matter how many foreign assets you own, if you’re a U.S. tax payer and haven’t had to file for the past year, then you do not have to fill out Form 8939.
Note:
Find a U.S.-based bank that handles these transactions daily. Chase Bank, for example, has a department dedicated to international transactions. Compare fees to find the best deal. 3
Select a registered agent in the U.S.
You will need someone to handle your business and personal mail, as well as other matters. You can run a U.S. company overseas, but check with your state first to ensure you have an official business address. You will need a Registered Agent in most states. This person can receive legal documents and must have an address in the state.
Note:
You can give that person a a data-component=”link” data-ordinal=”1″ data source=”inlineLink” and data type=”internalLink”. You can give this person powers of attorney. You can specify the matters to which that POA is applicable. 5
Learn about the Foreign Earned income Tax Exclusion
You’ll want to make sure that you understand the program details so you know what limits and restrictions apply. The exclusion is only available for earned income, such as wages, salaries or professional fees. Dividends and other investment income are not eligible.
This exclusion is only available to U.S. citizens, although some resident aliens are eligible. You must have a home tax located outside of the U.S. Your main place of work or business is your tax home. You must generally reside in the country for at least 330 days during a 12-month period. There are also limits to how much income you can exclude. 6
If your tax home is located in a foreign nation, you may be eligible for a deduction or exclusion on housing costs. Of course, there are some limitations and restrictions. 7
Additional Tax Issues for U.S. Citizen Working Abroad
As a U.S. Citizen working abroad, you may have to deal with two other issues.
Social Security and Medicare taxes
In general, Medicare and Social Security tax are not due when you work outside the United States. There are some exceptions, such as if you work for an American company or a foreign subsidiary of an American company.
You may be able to get an exemption from withholding if your foreign income comes from your employer. You may be eligible to receive an exclusion from having withheld from your foreign earned income if it comes from an employer. Use IRS form 673 for this claim. 8 9
Foreign Corporations: Owning one is a foreign corporation
You might decide to form a company in the country you work. You may have to pay U.S. taxes on this business, if it has any income coming from the United States. You may be able to use your investment as a source of income. You will need to use Form 1200-F in order to report the gains, losses and deductions of this business. 11
FAQs (Frequently Asked Questions)
Do I need to pay tax if I own a business abroad?
This tax relief is called a a data-component=”link” data-ordinal=”1″ data source=”inlineLink” and it only applies to earned income, including self employment income. This tax relief, called a foreign earned income exclusion only applies to self-employment and earned income. This exclusion is only available to those who meet certain criteria, such as living abroad for an entire year and spending at least 330 consecutive days there.
Can I open a business abroad?
According to the laws of a country, you can open a business there. You may be required to pay U.S. taxes on a portion of the income you receive from this business. IRS considers corporations that are formed by U.S. residents in foreign countries as foreign corporations. The business could be required to pay income taxes if it has income that comes from the United States, such as investments.
