As an American residing in Saudi Arabia or the Gulf Cooperation Council, one of their key concerns as an expat would be paying their US taxes. When it comes to taxation, they’ll need strategies to avoid any liabilities. Fortunately, every foreigner should be familiar with many aspects of tax filing in order to make the process easier for themselves.
Expats who are dual citizens of Saudi Arabia or the Gulf Cooperation Council (GCC) countries or who have relocated to another country must file taxes in their new country, although this does not always imply they will be fined straight away. By taking advantage of incentives, they may be able to save money on their return.
To begin with, the Foreign Earned Income Exclusion and Domestic Tax Credit ensure that their income is not taxed twice if they dwell in countries where income tax is levied.
They can save a lot of money by using this credit instead of paying taxes in America since it reduces the amount of U.S. tax that has to be paid on top of what has already been paid abroad owing to another country’s tax rules.
Even if they are an expatriate, they must be aware of the tax ramifications of living in another country. Many persons minimize their overall responsibility in this regard by avoiding taxation on income taxable in their home country—and FEIE can save them up to $108700K in TY2021!
They might also qualify for a deduction under section 911(b), which exempts overseas real estate from value-added taxes (VAT). If they want to take advantage of this benefit, they must make sure that their Form 2555 appropriately represents the time since they left America. When submitting a form with an effective date, the FEIE will only be used.
For the Foreign Earned Income Exclusion, the Physical Presence Test is required. During an eligible twelve-month period, they must spend at least 330 days in Saudi Arabia or another country. Day counts do not include time spent on land, air, or sea travel that occurs outside of a country’s borders – therefore if their trip includes transiting through many countries, it will not count towards completing this requirement.
Filing for a Dual-Foreign Exemption (FEIE) and reducing their tax liability through the Foreign Erred Trading Company Service can provide them an advantage in international commerce. However, there are several disadvantages to this method that you should be aware of before pursuing it. If they’ve already used FEIE to exempt any income from taxes, they won’t be able to use FTC because that would create yet another saving loophole. The good news is that there are still plenty of methods to avoid these issues by making better decisions or acting sooner rather than later when paying bills becomes onerous.
If they have an asset in the United States, they should be aware that it is not covered by FATCA and hence will not help them save money on taxes.