DougDougDoug

Hi all,

I am looking for new employment overseas (middle east / far east) and have a load of questions concerning taxation, domicile and health insurance.

Here are the details.

I am UK/US citizen and have two completely seperate lives in each country with seperate banking, taxes etc... its complicated but I have good reasons for it mainly releated to my job field and I only found out recently (due to the UBS/swiss bank problems) that I was supposed to declate foreign accounts. I dont have any income in UK but I do have accounts (Trading/ISA/Checking) that I fund from my US accounts. I am sure it would raise a red flag now if I declared it and I dont need to be audited.

Currently I am living in US and married with kids (wife/kids all US born).
We own properties in NY, NC and SC but both have lots of family in US and UK (she is half English like myself).

I live and work in NY, but am NC resident but file NY state tax return.
My wife is NY resident stay at home mother, we file jointly.
My company provides health insurance (I contribute $600/month towards it), when I leave (or my contract ends) I will have to provide my own insurance coverage since I earn more than the limit for state coverage (this will then cost $1500/month for a family in NY).

My goal is to find employment in the Middle East or Far east as a British citizen, have a health insurance plan that covers my family in NY and myself overseas.

From what I see, health plans for expats coverage is about $8k/yr for USA but since my wife/kids are US would they be considered expat or will the insurance company find a way out of coverage?

If I dont show the income on a US return but do on a UK return we would qualify for Healthy New York insurance coverage at little or no cost.

If I am working in Middle East/Far Eeast as British citizen, how will this affect my US income tax return? Do i show no income or do i declare part of the income up to $86k that would then be tax free? How will this affect the deductions of all the properties in the US? What to i need to do in the UK?

Currently I get about $15k a year refund from the IRS because of the properties and mortgage interest deductions. How is this affected if my income is tax free?

Any lawyer or accountant i have talked to only knows on side of what needs to be done and my setup seems a little complex since the family will be split between countries.

Any input would be appreciated.

Doug

fatbrit

I really don't understand how you can separate your US and UK taxes. A USC is taxed on their worldwide income.

Bluegrass Lass

Sounds like you need to have a consult with a CPA that has experience in international taxation. Your questions sound way to complicated for the knowledge level of a forum.

The only thing I know for sure that a USC is taxed on worldwide income, and therefore has to declare all income, not just the part up to $86k. And by the way, depending on where you get paid in the Middle East, there may not be a tax treaty between the US and that country. I don't see how working in the ME as a UKC will allow you to partake in the US/UK treaty since the income is technically from a ME country, not the UK. That $86k is for the tax treaty between the US and UK only. Then again, I guess I could be wrong. Look up a CPA and save yourself from possibly getting bad laymen's advice.

Peter Newton

You have a complex situation which even an experienced CPA would have to research.

Based on what you said I have a couple of thoughts:

- Declaring your overseas bank accounts doesn't necessarily mean you will be taxed on them, but the IRS will want to know where the money came from. If you paid your US salary into a UK bank account you will have already paid US tax. Your problem might not be with the IRS but with HMRC as you remitted funds to the UK. That said there are US penalties for not declaring foreign bank accounts.

- Double tax treaties generally don't care about the citizenship of a person, they are only concerned with the persons tax residence. From what you have said it sounds like you are a US resident for tax purposes even though you have dual nationality.

Good luck
Pete

Duncan Roberts

You can't pick and choose what citizenship you are. Wherever you are, whatever you are doing, the UK government will consider you a UK citizen and the US government will consider you a US citizen. Well, unless you are in either the US or Uk and then things get weird. Kind of.

lansbury

Only if they have more than a certain amount in them. I think it is an average over the year of $10,000 but you need to double check that.

I have three accounts in the UK and my CPA only declares one, as the others have too small an amount in them.

DougDougDoug

In the countries i am looking at, the majority of companies are UK based and the visa to work is easier to get as a UK citizen because of existing agreements between the countries. I would then be (possibly) working for a UK company but based in Middle/Far East.

I dont see any taxation agreements between Bahrain, Qatar, Saudi Arabia and the US/UK. So does that mean I have any exemption from taxes or would i be expected to pay full tax amount on that income?

I will do some more research and ask the people i know in Bahrain/Qatar/Saudia Arabia for information (Brits/Italien)

Thanks

Doug

Michael

The 86k is for all expats but certain critieria must be met. It can only be used against foreign earned income and not against investment income.

Bluegrass Lass

Ahh, interesting. I always thought that $86k amount only pertained to the UK/US. Thanks for correcting me.

Michael

You may claim the Foreign Tax Credit for taxes paid in a foreign country. However, you may not claim a tax credit for taxes paid on any income which has been excluded from US taxation using the foreign earned income exclusion or the foreign housing exclusion. In this Tax Guide, you will find information on:

General Rule

You may claim a tax credit or an itemized deduction for taxes paid to foreign countries. You do not need to live or to work in that foreign country in order to claim this benefit. For example, you can claim the credit or deduction if foreign taxes were paid on your behalf from a mutual fund. There are no time requirements like there are for the income exclusions. You can claim either the deduction or the tax credit, but not both, for all foreign taxes paid.

Foreign Tax Deduction

You may claim an itemized deduction for foreign taxes. This generally provides the least tax benefit. However, if you cannot claim the foreign tax credit, deducting foreign taxes would be the only alternative.

Foreign Tax Credit

A tax credit reduces your US tax liability on a dollar-for-dollar basis, and so is generally more valuable than a deduction which reduces your taxable income.

http://taxes.about.com/od/taxhelp/a/ForeignTaxCred.htm

Michael

A USC can always deduct taxes paid (unless exempt from US taxes) to a foreign country from US taxes (foreign tax credit or foreign tax deduction) but in some cases the US has tax treaties with other countries where the foreign tax is completely exempt from US taxation.

There can be a major advantage to a tax treaty in that a USC may not have to pay any taxes on the income (possibly didn't pay taxes in the foreign country and won't pay taxes in the US). Without a tax treaty, the income becomes part of the US income and therefore is taxed at the highest marginal and the foreign tax deducted would make it 100% taxable on US returns if no tax was paid to the foreign country.

Without a tax treaty, the income is generally taxed at the highest marginal rate of either country (ex. Foreign tax on income is 20% and US tax is 35% and therefore the total tax paid for both countries will probably be 35%).

The above is not 100% correct but is the basic concept of US taxation.

fatbrit

There's no tax liability for the UK if you work and live in one of these places. You only become liable for UK tax when you become resident there.

But there is always US liability because you are a USC.

I believe one of the methods used to avoid it is to pay you up to the $85k limit as salary and anything else over that is paid as a per diem which can avoid US taxes. But you'll have to do your own research. The important and lengthy research is for avoiding Uncle Sam, not Mr Brown. Avoiding UK tax is easy -- don't live there, don't get taxed there! All you need to know is the maximum number of days you can spend there in any period to avoid this.

Your US status is the one that requires work.

Michael

Actually the way that US taxes are avoided is that after the 86k is deducted from your reported US income and all taxes above that amount on your foreign salary (taxed at a higher marginal tax rate) is deducted from potiential US taxes (at a lower marginal tax rate since the US income is starting at 0 above the 86k) therefore usually requiring no US taxes to be paid.

For 7 years, I lived in Europe and my salary exceeded the exemption and I never paid any US taxes. The only time I paid any US taxes is when I had unearned income.

However, state taxes could possiblly cause problems if you still maintain a US state tax residence since foreign tax credits, deductions, and exemptions usually aren't allowed against state taxes.

The biggest problem I see with the OP is the properties and investments that he has in the US as well if he leaves his family in the US. He will need to seek the advice of a tax attorney concerning those issues. They may or may not be a problem.

Michael

Tax laws in all countries are complex. Before I met my ex (a UKC) in Switzerland, she was living in Switzerland and owned rental property in the UK and was paying about 35% in UK taxes on the income from the UK property.

She didn't like paying that much tax so she went to a bonehead Swiss tax attorney that suggested that she include that income on her Swiss tax return. He said that the Swiss government would reduce her taxes since she paid so much taxes in the UK. So she had the tax attorney fill out her Swiss taxes.

Suprise, suprise, the Swiss increased the taxes that she owed. The Swiss don't recognized the taxes paid to a foreign country as a credit/deduction but do include the income. Since tax evasion is not a criminal offense in Switzerland, she would have been much better off not claiming that income since it was unlikely that the Swiss would ever find out about it.

Bob

As a yank, there's no benefits to working in a tax free country, you'd just be paying uncle Sam.