Foreign Earned Income Exclusion for US taxpayers

[Guest]

I've been studying the IRS info, and I'm pretty sure I can take the Foreign Earned Income Exclusion for a small amount of income I received last year from a US company (consulting work done for US company while I was in Thailand).

 

 

 

However, I am a bit concerned that taking the Exclusion might open up a can of worms. I've been living here for almost 2 years now, have not earned any Thai money, and have been living off savings in US banks. I have treated interest earned from savings as US income and paid US tax on it. I am not aware whether I am supposed to be paying Thailand any tax on this.

 

 

 

Could taking the exclusion cause me problems because I am not paying Thai tax? I have always thought that the Foreign Earned Income Exclusion exists to keep people from getting double-taxed by two governments, as I can't understand why the US govt would give me a tax break like this without strings attached. But as I study the forms, I see that the only questions asked about Thai taxes are:

 

 

 

a) Have you made a declaration to the foreign govt that you are not a resident, and

 

 

 

Are you required to pay taxes to the foreign govt?

 

 

 

I guess one problem is that I don't know the answer to "b"

 

 

 

I don't know if I'll stay in Thailand much longer, but do need to decide whether taking the Foreign Earned Income Exclusion could turn out to be a bad move.

 

 

 

On the other hand, if you take the Exclusion not as a "Bonafide Resident" but rather under the "Physical Presence" qualification, I'm wondering if all these issues can be avoided.

 

 

 

I would appreciate comments from those in the know, and certainly won't hold anyone responsible for bad or wrong advice.

 

 

 

Please don't advise to see an accountant. The amount involved is not worth it.

 

 

 

KwazyWabbit

[Guest]

My suggestion - answer "no" to question b, and proceed to file for the exclusion.

 

 

 

I qualified for the exclusion for the first time this past year - filed, and already have my refund.

 

 

 

The IRS doesn't question the spirit of the law - " 'just the facts, maam."

 

 

 

The Thai revenue authorities only focus on you:

 

 

 

1. If you have a "Class B" visa.

 

2. If your Thai employer withholds tax on you.

 

3. In connection with work permit processing.

 

 

 

Last year, I worked for a US employer, paid in US dollars, to a US bank. I advised country offices of my employer's parent company throughout Asia, and I could live wherever I wanted. I chose Bangkok (no shit!?). I got all my money via ATM withdrawls - I was basically invisible to Thai revenue department. No Tax ID card, no work permit. I was initially here on a Class "O" visa, but it expired, and I just strung together tourist visas.

 

 

 

My position was eliminated effective January 1, 2002. So - I just launched my own company here. I'm being processed for a work permit and Tax ID card, even though I do not plan to draw a salary for the rest of this calendar year. My new company made its first payment (employee withholding) to the Thai revenue authoritiesthis past week.

 

 

 

I do have one problem - while going through the byzantine process of registering a company here, I went ahead and performed some freelance consulting work. I got paid by check, with 3% tax withholding, and my passport number on the paperwork. I did this work without a work permit. At some point, I suppose I will becalled on this - by then I should have a work permit, and I will just try to rationalize the discrepancy as a calendar/timing mistake. I expect a fine.

 

 

 

"Let the good times roll!"

 

 

 

"Beaten paths are for beaten men."

 

 

 

B-Fly BKK

 

 

[Guest]

What are you deducting and how does the items compare to total income? For example, if your housing costs are less than you made as a consultant, its pretty easy.

 

 

 

Housing costs are different. EMPLOYEES get the exclusion while Self-employed persons (i.e., private consultant) get a deduction from taxable foreign earned income.

 

 

 

Go to the IRS web site and download Form 2555. You'll need to file that form anyway, and it might help answer all your questions.

 

 

 

 

[lopburi3]

Read the Tax Treaty and decide.

 

 

 

1. Interest arising in a Contracting State and paid to a resident of the other Contracting State may

 

be taxed in that other State.

 

2. However, such interest may also be taxed in the Contracting State in which it arises, and

 

according to the laws of that State, but if the beneficial owner of the interest is a resident of the other

 

Contracting State the tax so charged shall not exceed:

 

a) 10 percent of the gross amount of the interest if the interest is beneficially owned by

 

any financial institution (including an insurance company);

 

10 percent of the gross amount of the interest if the interest is beneficially owned by a

 

resident of the other Contracting State and is paid with respect to indebtedness arising as a

 

consequence of a sale on credit by a resident of that other State of any equipment, merchandise

 

or services, except where the sale was between persons not dealing with each other at arm's

 

length; and

 

c) 15 percent of the gross amount of the interest in all other cases.

 

3. Notwithstanding the provisions of paragraph 2, interest arising in a Contracting State and paid to

 

the Government of the other Contracting State, or to a resident of that other State with respect to debt

 

obligations guaranteed or insured by that Government, shall be exempt from tax in the first-mentioned

 

Contracting State. For the purposes of this paragraph, the term ?Government? means:

 

a) in the case of Thailand, the Government of Thailand and shall include:

 

i) the Bank of Thailand;

 

ii) the Export-Import Bank of Thailand;

 

iii) the local authorities;

 

iv) such financial institutions, the capital of which is wholly owned by the

 

Government of Thailand or any local authority as may be agreed from time to time

 

between the competent authorities of both of the Contracting States; and

 

in the case of the United States, the Government of the United States and shall

 

include:

 

i) the Federal Reserve Banks;

 

ii) the Export-Import Bank;

 

iii) the Overseas Private Investment Corporation;

 

iv) the states and local authorities; and

 

v) such financial institutions, the capital of which is wholly owned by the

 

Government of the United States or any state or local authority as may be agreed from

 

time to time between the competent authorities of both of the Contracting States.

 

4. The term "interest" as used in this Article means income from debt-claims of every kind, whether

 

or not secured by mortgage and whether or not carrying a right to participate in the debtor's profits,

 

and, in particular, income from government securities, and income from bonds or debentures, including

 

premiums or prizes attaching to such securities, bonds or debentures, as well as all other income that is

 

treated as income from money lent by the taxation law of the Contracting State in which the income

 

arises. However, the term, "interest" does not include income dealt with in Article 10 (Dividends).

 

5. The provisions of paragraphs 1, 2 and 3 shall not apply if the beneficial owner of the interest,

 

being a resident of a Contracting State, carries on business in the other Contracting State in which the

 

interest arises, through a permanent establishment situated therein, or performs in that other State

 

independent personal services from a fixed base situated therein, and the debt claim in respect of which

 

the interest is paid is effectively connected with (a) such permanent establishment or fixed base, or with

 

( business activities referred to under subparagraphs ( and © of paragraph 1 of Article 7 (Business

 

Profits). In such cases the provisions of Article 7 (Business Profits) or Article 15 (Independent Personal

 

Services), as the case may be, shall apply.

 

6. Interest shall be deemed to arise in a Contracting State when the payer is that State itself, a

 

political subdivision, a local authority or a resident of that State. Where, however, the person paying the

 

interest, whether he is a resident of a Contracting State or not, has in a Contracting State a permanent

 

establishment or a fixed base in connection with which the indebtedness on which the interest is paid

 

was incurred, and such interest is borne by such permanent establishment or fixed base, then such

 

interest shall be deemed to arise in the State in which the permanent establishment or fixed base is

 

situated.

 

7. Where, by reason of a special relationship between the payer and the beneficial owner or

 

between both of them and some other person, the amount of the interest, having regard to the debtclaim

 

for which it is paid, exceeds the amount which would have been agreed upon by the payer and the

 

beneficial owner in the absence of such relationship, the provisions of this Article shall apply only to the

 

last-mentioned amount. In such case the excess part of the payments shall remain taxable according to

 

the laws of each Contracting State, due regard being had to the other provisions of the Convention.

 

8. The provisions of paragraphs 1, 2 and 3 shall not apply to an excess inclusion with respect to a

 

residual interest in a United States Real Estate Mortgage Investment Conduit.

[tko]

"I have always thought that the Foreign Earned Income Exclusion exists to keep people from getting double-taxed by two governments, as I can't understand why the US govt would give me a tax break like this without strings attached."

 

 

 

Actually no. There's another, second form that covers being double taxed. The Foreign Earned Income Exclusion is apparently because you did not receive the "benefits and services" of the US government while living overseas. Things like US police forces, transportation networks, etc.

 

 

 

Though I've not lived in Thailand, when I worked overseas I filed both the Foreign Earned Income Exclusion and the form to reduce my taxes due to the HIGH income taxes I paid in Europe.

 

 

[Guest]

All-

 

 

 

The Exclusion break is nice if you can get it... I have for the past three years.. The only "issue" that has been raised by the IRS with me is "how many days were you in the USA this year"...

 

 

 

That's why I keep an excel spreadsheet with all my flight info so I know (with flight manifests to back me up) where I was everyday of the year.. Mess it up by even ONE day and you're OUT!

 

 

 

---UPSer

 

[Guest]

The history of the Foreign Earned Income exclusion was designed so U.S. corporations could compete effectively with their own personnel. Countries like UK, Austr. and others don't tax the overseas earnings.

 

 

 

Since expat type housing for execs is a real cost for those who have to maintain a house in the USA, the tax breaks help equalize the payment of an expats housing since by tax law is part of an individuals income.

 

 

 

The most recent addition to the expat tax code was about 5 years back where they now consider moving personal items at the beginning and end of an assignment, not part of their income.

 

 

 

All things considered, in most countries the corporations hardly pay any tax since all the taxes by local countries count as Foreign Tax Credit.

[ThaiHome]

Actually the housing exclusion is in addition to the regular foreign income exclusion. You could be right that the whole thing came about because the Brits, Aussies, and Canucks do not pay domestic income tax if a foreign resident.

 

I do know it sure saves me a chunk in taxes every year.

 

TH

[Guest]

kwazywabbit,

 

 

 

i don't know if this helps, but i read this info on the Phuket gazette website. The topic was "taxes on income earned outside thailand". The question was when does a foreigner's worldwide income (ie. interest income) becomes taxable in Thailand.

 

 

 

The response from Chief of the Phuket Revenue Office was; "Foreigners staying in Thailand for a total of 180 days or more in a year must pay tax on income received from worldwide investments and brought into Thailand. This applies even if the 180 days are not consecutive."

 

 

 

So, maybe the safe answer to "b" is "Yes". I plan to do the same as you (live off savings) and was a bit startled to read this info. But in reality, the amount of tax paid to Thailand would have to be minimal in comparsion to the USA.

 

 

 

If you find the answer to this question, please post the info for others like me to learn from.

 

 

 

Good luck