How the location affects your taxes Expat

Many expats wonder how much dual citizenship Taxation can be influenced depending on where you live. To answer this age-old question, our accountants have developed a hypothetical tax comparison of two expats with the same salary to find out how much your place of residence affects your taxation of dual citizens.

US Citizenship: Keep or Drop?

The basic problem for expats is: How does my location affect my taxation of dual citizens? The answer can be complicated, but is best illustrated by the tax returns of two different dual citizens. One of our hypothetical taxpayers, Joan Q. Taxpayer, is a dual citizen of the United Arab Emirates and the United States. Her cousin Jane Q. Taxpayer is a dual citizen in the United Kingdom and the United States.

Taxes for dual citizens in the UAE

First, we’re going to tackle Joan’s scenario. Note: There is currently no income tax in the UAE. Therefore, there are no individual tax registration or reporting requirements. However, in the case of a dual citizen (or even an emigrant), the US taxes the income of its citizens and residents regardless of where they work or live. This means that you may have a US tax liability based on the income from which you earned the UAE.

Suppose Joan is single, works for a company in the UAE, and makes the equivalent of $ 150,000 a year. For 2019, Joan’s U.S. taxation would be as follows:

Taking into account the $ 105,900 foreign income exclusion (for 2019) and the standard $ 12,000 single filing deduction, Joan’s taxable income would be $ 32,100. The resulting tax (and the amount due in the U.S.) would be $ 7,704.

Joan would not pay income tax in the UAE. In this case, the “cost” of US citizenship is nearly $ 8,000 a year.

UK Citizens Tax

Now let’s assume that cousin Jane Q. Taxpayer is also single and has dual citizenship of the United States and the United Kingdom. Your US tax liability would be the same as in the example above. Keep this thought in mind as we assess UK tax.

Britain will tax Jane unlike the UAE. Taking into account the UK tax-free allowance (similar to the US standard deduction) of approximately USD 8,333 (varies depending on the exchange rate), the UK tax on remaining income is approximately USD 47,000 excluding the UK national insurance tax, which is another approximately USD 8,300 Dollars more!

So you may think that dual citizen Jane will have a huge tax burden on both sides of the pond. However, this is not the case. Since the United States offers a foreign tax credit that can be used to offset taxes due in the United States against taxes paid abroad on the same income, the US tax due is reduced to $ 0.

In this case, the “cost” of US citizenship is practically nothing.

As you can see, the tax costs of US or dual citizenship are complex. However, in most situations, the foreign tax rate is higher, so the FEIE or foreign tax credit does not normally pay US tax. However, the tax return must be submitted to report the income.

Greenback accountants are experts in the taxation of dual citizens

Tax calculations for dual citizens can be complex and vary depending on individual circumstances. If you want professional advice on your unique situation, start with Greenback today!

  • Expat US Personal Tax Information

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