Expat Tax Basics

Tax Residency

The country that considers you a tax resident (where you owe taxes on worldwide income) depends on multiple factors:

• • Physical presence test: Usually 183 days in a calendar/fiscal year = tax resident
• • Domicile: Your permanent home country (even if you leave, you may remain domiciled)
• • Permanent residence: Legal status granted by immigration
• • Center of economic interest: Where your business/employment is based
• • Nationality: Many countries tax citizens regardless of residency (like the US)

Tax Residency vs. Visa Status

Having a long-term visa doesn't automatically make you a tax resident. Conversely, you can be a tax resident without official residency status. Example: You spend 200 days in a country on tourist visas—you may owe taxes even without a residence permit.

Taxable Income

Countries typically tax:

• • Salary and employment income
• • Self-employment and freelance income
• • Investment income (dividends, interest, capital gains)
• • Rental income
• • Passive income (pensions, annuities)
• • Some countries tax "worldwide income" (all income regardless of source), others tax only local-source income

Tax Treaties

Most countries have bilateral tax treaties to prevent double taxation. These determine which country taxes specific income and provide tax credits. If your home and destination countries have a treaty, you typically won't pay tax twice on same income. Treaties are complex—professional guidance is essential.

Annual Filing Requirements

If you have US source income or meet income thresholds:

• ✓ File Form 1040 (US individual tax return) annually
• ✓ Thresholds: Generally $12,550+ income (2023) or $400 self-employment income
• ✓ Deadline: April 15 (can request automatic extension to October)
• ✓ Many expats qualify for extension automatically if filing from abroad

Foreign Earned Income Exclusion (FEIE)

MOST IMPORTANT: US expats can exclude the first ~$120,000 (2023) of foreign earned income from US taxation. Earned income = salary, self-employment income, NOT investment income.

• • Requirement: Pass Physical Presence Test (330+ days outside US in 12-month period)
• • Cannot exclude: Investment income, rental income, interest, dividends
• • Self-employment tax: Still owe 15.3% self-employment tax on net earnings (cannot exclude this)
• • Married filing jointly: Both can claim FEIE ($240,000 total)
• • Strategy: Primary benefit for digital nomads and remote workers abroad

Physical Presence Test (PPT)

To qualify for FEIE, you must be outside the US at least 330 days in a 12-month period.

• • Any day you're physically in the US counts as "in the US" (even partial days)
• • 12-month period can be calendar year or any 12-month rolling period
• • Days in US territories (Puerto Rico, Virgin Islands, Guam) may NOT count as US days (but verify)
• • Keep detailed travel records (passport stamps, receipts, dated photos)

FATCA and FBAR

US requires reporting of foreign financial accounts:

• • FBAR (FinCEN Form 114): Report all foreign bank accounts totaling over $10,000 (due June 30, extendable to December)
• • FATCA (Form 8938): Report foreign assets over certain thresholds ($200,000+ in most cases)
• • Penalties for non-compliance: Severe ($10,000+ per violation, criminal prosecution possible)
• • Simple check: Any bank/investment account abroad? File FBAR and FATCA

Statutory Residence Test (SRT)

The UK uses the Statutory Residence Test to determine tax residency. Primarily depends on days spent in UK:

• • Automatically UK tax resident: 90+ days in UK in current tax year AND 3 of previous 4 years, OR 120+ days in current year
• • Automatically not UK resident: Fewer than 16 days (if UK resident in past 3 years) or 91 days (if not resident in past 3 years)
• • In between: Apply detailed rules based on work, accommodation, family

Non-Resident Status

Once you become non-resident, you only pay UK tax on UK-source income:

• ✓ Remote work for non-UK employer/clients: Usually NOT taxed in UK
• ✓ UK rental income: Still taxed
• ✓ UK pension: Still taxed
• ✓ Strategy: Move abroad, work remotely for international clients, minimize UK-source income

Non-Resident Tax Return

If you have UK-source income as a non-resident, you must file a UK Self-Assessment tax return. Failure to notify HMRC of non-resident status can result in penalties.

Zero Income Tax Countries

These countries have no personal income tax for residents:

• • UAE (Dubai, Abu Dhabi): Zero income tax on salary + freelance income (since 2020). Must be tax resident in UAE.
• • Monaco: Zero income tax for residents (extremely high cost of living, expensive residency requirements)
• • Liechtenstein: Very low income tax, expensive residency
• • Cayman Islands: Zero income tax (but limited visa options for residents)
• • Note: Many "zero tax" countries tax corporate income or have other taxes (VAT, property, etc.)

Low-Tax Programs for New Residents

Some countries offer special programs for new residents:

• • Portugal NHR (Non-Habitual Resident): 10 years of 50% tax reduction on foreign-source income
• • Greece New Resident Incentive: 50% tax reduction for 7 years for new residents from abroad
• • Malta Status: Special tax regime for certain professionals and remote workers
• • Requirements vary: Some require establishing residence, home purchase, minimum income