Did you know that you can make a lot more by working overseas and save a significant amount in taxes at the same time? Now that you know, why not work overseas?
The US tax system is not the most lenient by any means. American tax payers shell out effectively almost 50% of their incomes to the Government year after year.
When a US Citizen goes to work abroad, the first ~$90k of income is shielded from income tax by the IRS. Married couples get twice the exclusion at approximately $180,000.
And since a couple can live relatively well-off on just one US salary in most countries, many couples and families find themselves not paying US income taxes at all when working abroad.
Why Would Foreign Companies Hire Americans?
Foreign companies have always desired hiring Western expatriates because of the vision and experience expats bring to the table. Think about it, most economies around the world are developing and emerging today, whereas the West has been there for years now.
As a professional working in the West, you are perceived as having already seen the future of companies in these emerging countries. You know what works and what doesn’t. You can anticipate potential problems that can prove costly for these companies.
When a company in an emerging economy hires a Western expat, the company brings in someone from the future back into the past. Can you think of a more favorable advantage than having seen the future already? Can you see why it makes sense to pay 30 to 40% premium for such experience?
Related: The Best American Life Hack: Taking Advantage Of Canadians
Why Would an American Want to Live and Work Overseas?
Let’s see. Perhaps a better view of the world? More awareness? Memorable life experiences? Something new and different from the routine? Or perhaps 30 to 40% more in salary? A lesser or no tax burden at all and therefore a lot more savings and possibly expedited retirement? Or maybe several semi retirements?
Maybe these are too dull of advantages to be taking about. Let’s talk lifestyle. What about the opportunity to travel to different countries on a routine basis? The USA is geographically placed in a spot from which it is rather difficult to visit most countries due to the length of travel, not to mention super expensive.
Vacation time is scarce in the US, and when people get vacation time, traveling to Asia or Australia is often not at the forefront of their minds, considering that it takes almost 2 days just to get there, not to mention recovery time from jet lag. Heck, even Europe can become an eternal trip from the West Coast, just ask Sam.
Or what about easier day to day lifestyle demands? Maids and drivers available 24/7, at a meager salary of less than $250 a month combined. Door delivery of produce, dairy, groceries, or whatever else you want. I call it life on demand. In the US, the most you have is TV on demand. Air conditioned transportation, malls just like back home and in many cases even bigger and better. The list goes on.
Three Countries To Work Overseas
There are always exceptions to the norm, and I know you are thinking that not all of what I said can be true for all countries. Sure, there are countries that don’t fit the bill, but let me clarify by saying that the scope of this discussion is meant more for emerging markets and those with more favorable employment laws and regulations compared to the USA.
Let’s take these three countries for example: India, Singapore and the United Arab Emirates.
In Singapore, taxes are capped off at a certain ceiling, therefore you have all the incentive to make more money. The lifestyle is amazing, and the country is as developed and advanced as any other that you can think of.
In India, you have all the luxuries one can dream off in a lifetime. True, India has a progressive tax system just like the USA, but it has several legal means to avoid taxes as well. By investing your earnings in certain government sponsored securities, not only do you benefit from interest income and capital growth, but you also get to offset your wage income and shield it from taxes. Very unique and favorable tax planning scheme that I have not heard of anywhere else.
In the UAE, such as Dubai or Abu Dhabi, there is no tax system at all. The Arabs don’t believe in tax (free money). This is considered unjust, or “haram” in Sharia Law (Muslim). This is where the US tax exclusion comes into more meaningful play. If offered a salary above the US tax exclusion for married couples, a couple could shield the first $180,000 of income, and only pay tax on the earnings exceeding the exclusion cap. If a US Citizen couple makes under $180,000, they pay zero tax.
Working in the UAE is particularly favorable for someone who is not a US Citizen. US is one of just a handful of countries that taxes on a global income basis (meaning income earned from anywhere in the world). Let’s say you are a citizen of the Philippines and go to Dubai to work. Because the Philippines doesn’t tax on a global basis, you are only liable for taxes in Dubai, where you work. And because Dubai has no tax system, you keep every bit of your earnings.
Related: How To Legally Evade Taxes
So Why Don’t Many Pursue This Route?
The grass can always appear greener on the other side, doesn’t matter which side you are on. There are some challenges involved in just packing up and moving seven seas across for work. Let’s discuss a few of these.
Fear of uncertainty is likely the biggest factor. Most people don’t like uncertainty. Just think about what happens to the stock market here in the US when there is just a little bit of uncertainty in the air. Can you imagine what must be going through people’s heads when making a decision as big as living and working overseas?
Another reason is lack of awareness. One cannot pursue what they don’t know. I hope this article touches on at least some of the points that spurs some curiosity in you to look further into similar opportunities.
Many also don’t want to quite give up their civil liberties just yet. It is highly unlikely that one goes to work in a country that is not pro-USA. But even then, as a US Citizen, you are after all a foreigner in another country. And despite the reasonableness of laws and regulations in most countries (such as India which is very much pro-USA and the largest democracy known to mankind today), there are countries like the UAE where the laws are skewed to favor the local Nationals (or citizens) whenever a dispute rises.
Finally, getting such jobs abroad is not easy. Because there are fewer companies and therefore opportunities, companies are looking for the best of the best, the cream of the crop. The positions are simply limited.
So even if you want to, it doesn’t necessarily mean you can. The landscape is more competitive than getting into a high level position at say a Google or a Microsoft.
Concluding Thoughts
Whenever this topic comes up in my circle, I see that there is a lot of interest, but also a lot of questions due to uncertainty. What I always say is that most decisions in life are reversible. One can try working abroad for a bit, and if it doesn’t work out, one can always come back. That is the beauty of possessing a US Citizenship, at least for now.
With the global pandemic forcing us to change the way we view life, I think more people will ask themselves why not work overseas. See the world. Experience new cultures. Make money. Sounds like a great adventure to me!
Related:
The Proper Geoarbitrage Strategy: Your City, Country, Then Abroad
How To Pay Little-To-No Taxes For The Rest Of Your Life
Recommendation For Leaving A Job
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Hi Victoria can you please tell me how you applied? I am also looking to work as a speech therapist in dubai.
I would like to leave a comment that I was recently offered a Speech Pathology position in Dubai , UAE for a private center in Umm Suqeim area of Dubai . I will be transitioning there the end of March 2017. It was nice to read about tax free money for someone making under 90k ! The benefits that I’m offered are amazing: monthly base salary will be paid in Dirhams / AED but converted to USD for this discussion : 7,000 monthly salary USD ,3267.00 USD for housing and 816.00 for transportation , 100% medical insurance paid by my company, malpractice insurance paid , my Speech Therapy DHA license paid which runs around 550.00 USD , paid CEUs to maintain my license 30 days paid time off in the month of July or August while the children are out of school in Dubai. However ,the most meaningful benefit to me is a round trip trip airline ticket home yearly or to anywhere I want to go including Europe or Asia! The largest expense will be my housing I will pay in 2 installments for the year , as most apts. are rented in 2 installments , sometimes 4 and most of them you pay up front yearly. My studio apartment is in the Jumeriah Beach area ,so the rent is fairly high AED 65,000 for the year which is about 17,689.00 USD for a studio apt. The last gas price I heard was 1.50 a gallon . So even though there are many ways to spend your money there with high end shopping and going out to eat ,there are so many valuable assets to working in Dubai. I’m a mature therapist with over 25 years of experience ,so I am looking forward to experiencing another culture and living in a gorgeous city !
Hi Victoria can you please tell me how you applied? I am also looking to work as a speech therapist in dubai.
Great Article! I have the opportunity to work abroad in the UAE and cannot wait to explore my new journey. Reading this made me more sure of my decision and options I will have.
my colleague was looking for IRS TD F 90-22.1 earlier this week and was informed of an online platform with lots of form templates . If you require IRS TD F 90-22.1 as well , here’s a
https://goo.gl/5HMfT7.First, the site is very beneficial for someone looking for employment abroad, how are the jobs for aircraft technicians favor, and how much are you really taxed when you get back to the us –let’s say on a job that’s offering 180k yrly with a bonus ? Any info from someone who has had that experience will be greatly helpful.
The Foreign Earned Income Exclusion is up to $100,800 for 2015 (it will be more in 2016 as it is adjusted for inflation every year) provided that you meet the physical presence requirements. You are that above that amount unless you can claim other deductions or tax credits to reduce your tax burden.
I have a offer from dubai(practically spending a lot of time there these days, travelling). My wife cannot travel due to some other reasons. I am giving it a thought, still have not figured out what to do. The offer is quite enticing, and if I do, it will be me only. I know there is a 99K yearly exclusion limit, but how is it possible for me to take advantage of the spousal part also and hit the 180K joint limit, if my wife is not there with me?
I want to pull the trigger, but dont want to do it, if I have to pay taxes at a premium for the remaining amount, i will be paid?
Any suggestions.
Is the US tax exclusion for foreign income earned in UAE only for those that move there for that time? I an taking an eight week consulting job and am trying to understand the tax implications (Qatar).
I think the foreign inclusion exclusion limit is 99k for 2014 for a single earner. even if that earner is married and filing jointly the exclusion limit does not change (ie it does not double to 198k). Only way to double the exclusion is if your spouse also works.
Obviously the exclusion cannot be more than your income, so both earners would have to earn right at 99k for the max benefit.
in 2013 if I
1) maintain a property in the US (in joint tenancy with my wife)
2) move to Qatar in March (<335 days) and earn income there (over 90,000… say 150000) by my wife earns income ($15,000) in the US
3) in 2014 I move back (or someplace else)
4) all my income is reported to a bank in Qatar
what's the impact on my US taxes?
US income taxes on what? 75K, joint? 60K/25K separately? or 25K joint (150K shelters), or what?
self employment on my 60K, or 150K?
also, what is the story about FBAR and foreign banking. I've heard stories of 'patriot' (games) act threatening terrorism 'person of interest' if you bank offshore? Is it better to just get all the money deposited in a US bank directly (by a foreign employer), work to maintain sweep accounts to just push the money to a US bank below the 10KUSD limit, or file the TD F 90.22.1 form?
Hello!
I just graduated from University here in Colorado (USA) with a Bachelor of Science in Biology. Is it possible to find jobs in the UAE in my field (lab..etc)? I really need advice.
Thank you!
How do people go about relocating to another country? If your open to living anywhere…do you find a job first (how do you find legitite ones), and how do you find a reliable place to live? It’s like if you wanted to find a hotel at the beach and you look them up on the internet…pictures might look good but when you get there it might not be as good as pics.
Research, visas, and more research once you land
I like having an Internet business that can be run from anywere
How do you start an internet business? As you can tell, I am open to any new
experiences. Just looking for something new.
Good article and good comments. I read through them all and was hoping someone would mention BEST WAYS OF FINDING JOBS ABROAD as a US Citizen. I am a US Citizen and would love to work in Europe, UAE, Singapore or Australia. Any ideas or help will be appreciated. Thanks guys!
I would like to know more about Saudi Arabia if any one has lived and worked their my husband has been asked to work and live there we have 2 kids we just don’t know that much about it yet we would like some input on the matter.
I am a 51 year old former business owner (automobile dealership) now working as a mobile field tech for a technology company, I am also a veteran of the U.S. Army. How do you find these wonderful overseas opportunities. I have applied for many overseas positions only to be told that I am over-qualified and the pay is exactly the same as in the U.S. So, where are these high paying wonderful careers everyone here keeps talking about. My experience is: if you are over 50, well-educated, vast experience, etc….. you are over-qualified. Help!
Thanks for this overview. I too think that earning overseas is the way to go. Despite what people, say the US/EU econ. will not get better for the average joe. However, finding good work is hard to come by. If you are interested in long-term travel I have found you need a job that you can do in a lot of different locations, so most people might advise multi-national corp., teaching english, travel blogging or some other kind of job that makes money online.
I have been selling timeshares for the past few months, and you can also do that long term and actually make money at it. Timeshares are in 100 different countries and it is fairly seasonal, so you could do 4 months in one beautiful spot in high season then go to another for their high season when the season ends. Here is my latest blog post on how to get a timeshare sales job if you are so inclined. good luck.
https://aroundtheworldin80jobs.com/how-to-find-a-timeshares-job/
best,
Turner
Any good websites that post jobs for US Citizens to work overseas such as in India?
I seem to keep reading positive comments about how an American married couple living abroad do not have to pay taxes on $180K of their foreign income. What I’m not reading is that the $180K is already being taxed abroad.
In some foreign cities, making over $180K for a married couple is very plausible and even necessary to have a decent home, etc. I don’t like the idea of being taxed twice (home country and US) and believe many other expatriates are in the same position. Are there ways to limit this tax liability on top of the $90k individual or $180k married couple limits?
I am even wondering if my wife who is a permanent resident of the US should apply for citizenship if there is a chance it will cause tax headaches down the line, though since we currently file jointly, it might be a mute point.
Any help is appreciated!
If I were you, I wouldn’t let your wife become a US citizen. She will experience global taxation. However, if she doesn’t plan to work that long, then sure, why not. Proud to be an American.
You are right, even if the first 90K isn’t taxed the American rate, I think it is taxed the local rate i.e. 15% in HK. Now that I think about it ,the first $90K is only taxed around 15% effective Federal US anyway.
Someone help clarify!
US is basically the only country in the world which taxes its non resident citizens… forever. If you are making decent money ( say, usd 200,000 per annum) in zero tax country, US citizen will be taxed on everything above the exclusion level, unlike his non US friends. The exclusion level applies only to earned income! No exclusion in dividends, capital gains, pensions, etc.
Does anyone know about anything about not receiving additional pay (uplift/or any other known name) for working in Kuwait. By this I mean in addition to your salary or hourly wages. I was under the impression that working in Kuwait as an American you automatically receive additional pay outside of your salary?????Can any one help with this question.
Do you need more info?
Such as!
Question?
I’m going to work in overseas hired by US company and heard pay no tax.
I would like to know how to go by without paying tax.
Departure is in October this year for 18 month.
No idea about your specific issue without further detail eg are you a US citizen?
Thanks!
Yes I’m a U.S citizen
yes I am a US citizen
I see this thread is several months old, but I hope I can still get some advice! All these comments have been very helpful… Here is my situation:
I just graduated as a medical laboratory scientist. Basically I’m $90k in student debt and would love to work in a hospital overseas for a year to pay most of it down and see the world. My fiance has worked for the gas company for 8 years doing new construction and distribution. My questions are:
Would we be able to find work together even though our fields are so different?
Would it be frowned upon in any particular regions because we’re not married yet and are interracial?
What are some reliable resources we can use to find jobs that will pay living expenses?
Thanks!
Great article. I’ve done some English teaching abroad, but never for more than a few months at a time. Now I’m married, have a house, and am in grad school again, so I may be staying put for a few more years. You mention the UAE as a good place to work, but is that still true if you’re female?
Jess, most definitely. The UAE is by far the MOST advanced Arab nation. my wife and I have dedicated a comprehensive website about it that you may find helpful. we have also published a comprehensive guide on how to land a job in Dubai / Abu Dhabi, since the entire process is very much different than what most are used to in the west. you can access the website at the following link:
This is exactly why I come to this site over others. The level of information I gained from reading just the comments section is more than most blogs give in their articles. Kudos to a great blog and some really savvy readers. Thank you all, I am learning a lot.
you are right, as the Author of this blog post, I learned several facts that I didn’t know about the topic I wrote on. it only enhances my perspective further.
I would imagine cost of living is typically lower in many foreign countries. I’ve thought about going somewhere in Central or South America after I’ve made a few hundred thousand and just live like a kind in a country where they median annual salary is equivalent to about $5,000 USD
It most definitely is Kevin, but the concern is not often the day to day cost of living, rather affordable and accessible healthcare, political stability, civil liberties and the distance away from loved ones
Actually, for me, working overseas will cost you more. You need to pay for an apartment and other stuff. In shor,t, you will be paying for everything you do in your life when you are overseas. Plus, other countries req
Randy, what is it that you will be paying for overseas that you won’t be paying state-side? As it pertains to an apartment or any other residence, even after you own your property free and clear, you still pay a healthy sum in annual taxes in the USA
Randy,
My employer in Singapore pays for my apartment.
Mike,
I’ve been in Singapore for 8 years, enjoying similar benefits to you.
Hi Andrew,
Where are you located? In Thailand the best English teachers are only making $4-5k a month so it will take them some time to make a million…
Having a good job out here running businesses, I’ve earned twice as much in the past 5 years as the 10 years before. And because costs of living here are much lower (including total tax burdens) I’ve been able to save a good portion of that.
I would love to come back to the USA but it seems like there are few good opportunities out there and the experience I’ve gained has not been successful to leverage into something else. Also it seems like it would be hard to match where I am, even in the Bay Area. I know Sam says tons of people are making money with no issue but when I looked around Director level positions at small start ups are paying $80k – $150k a year… seems hard to save up much living there with that level of salary. Better to stay out in Asia then…
With the high wage inflation for employees (in China in particular but that tends to drive the region), as long as you perform you have a good chance of riding this wave. I guess enjoy it while you can.
-Mike
Curious – what are the social security laws like? If you are expecting any, will you still receive it while overseas in retirement? If so, what are the nuances/limitations?
Do you benefit from the local retirement/pension laws where you are (if applicable)?
I am born and raised in the USA but moved out to SE Asia 5 years ago. Since I moved out there is no more contribution to social security or unemployment- so during this period no benefits are accrued. There is a local provident fund where you can put in 3% of your money tax free and the company matches up to 3% depending on years of service. When you retire or separate from the company you get a lump sum. Not really a proper retirement program.
However I did contribute to social security for 10 years and the annual statement says even if I put nothing else in I would get $1200 per month at the age of 65 (some 27 years from now…). IMHO I think it is better to under contribute to Social Security as you get a better return on total pay in compared to maxing it out every year. As an example over the 10 years I put in $42k and my employer matched $45k so a $14K a year payout (even 27 years in the future) is a pretty good ROI on putting in under $90K. That’s what people seem to miss- they think they paid in and deserve the pay out. Most don’t check the math on what exactly they put in and compare what they are getting to a fixed annuity.
Since I don’t have a good pre-tax retirement plan, I just have to crank up the rate of after tax savings- my 401k is only about 10% of my total net worth. Another 10% is the residence, the balance is in stocks and cash.
that’s a good point. the law of diminishing returns definitely works in the case of social security. your return does seem attractive however
You should double check with Social Security and see if that statement is true or not. I initially read the SS statement in a similar way, but then I read it again and again, and I think there’s a portion that said something like “if you continue to pay X, you will get Y at age Z”. Maybe I’m wrong, but it would make absolutely no sense if you could get $1,200 at age 65 until perpetuity if you no longer contributed for a couple decades, esp since the system is in need of funds.
It says if I continue paying into the system at my current rate (which is zero) then I get $1200 per month at age 65…
Of course there is the disclaimer stating that the social security fund will run out of money and there are no guarantees the scheme won’t change, etc etc.
I’m happy to try and take control over my own situation by saving more.
@Money Reasons
Hey Mike,
There are many teachers (as an example) living overseas who are millionaires in their 40s and 50s. Fewer American teachers are in that club at such a young age. I’ll come to your defense if you get mauled online. You are right.
Sunil, it’s not just for younger individuals and singles. Our school typically hires teachers in their 30s, 40s and 50s. There are people who live and work overseas their entire careers, raising their children in the process. I would argue that it provides a far better education—a much broader one, for example.
Andrew – yes – teachers totally skipped my mind. As global demand grows (due to expat movement and thus their kids), so does the demand for teachers. I know some that fit in the club you talk about. very true.
Wow, I’ve never heard of such great details around this area.
I remember hearing that working overseas have some benefits when I was in college, but I didn’t know the exact details, plus I assumed it would be for less money. I guess I was too much into “USA is number 1” mode, so there was little desire to even consider such an option.
This is a great topic to bring to light, especially for a younger person without an establish family with kids!
MR – you are right, younger / single individuals are in the best position to take advantage of this opportunity.
The US is still #1, though the landscape is leveling off faster than ever before. Time will tell if we continue to remain on top
Sorry to be a party pooper but the US is not #1 in terms of value for money spent…
There are pockets in the USA where there are still very nice opportunities (Bay Area, Washington DC, etc) but the rest of the world offers some very nice opportunities for people (hence the title of this submission)…
The US is a great place to spend money but not so much to earn it.
The healthcare dilemma also weighs heavily, out here you can get very good healthcare with no waiting time for 1/10 – 1/4 the cost in the USA.
I’m sure I’m going to get flamed but those living in the USA wouldn’t know of the levels of opportunities unless you actually spend time outside the country and look in.
You are right on Mike. We don’t know what we don’t know, and I feel exactly like you when you made the following statement:
“I’m sure I’m going to get flamed but those living in the USA wouldn’t know of the levels of opportunities unless you actually spend time outside the country and look in.”
I am with you. When I made the #1 statement, I was speaking in a global sense on all levels. I do agree that it is not the best place in terms of value received for money spent, though the world (particularly the orient) seems to be visiting us of late to shop as if they are in Disneyland.
Did you mention where you are from? I am either blind or . . .?
I’m sure you are right, I was coming from the “USA is #1” viewpoint as a naive young college student back then.
Sam,
I think the way to do it is have a bunch of passive income generating $90k a year for each member of the couple, have it in non-US sources and then collect $180k per year tax free.
Only catch is you have to stay out of the USA 335 days a year. Shuttling between Southern Europe and SE Asia would be the way to do it.
Can you explain more? So, if I have $4 million cash in a US bank earning 4% and $160,000 a year in interest income, are you saying if I lived for 336 days a year in Thailand, and that’s my only income, I still have to pay taxes on $160,000, even though as a couple, we can get $180,000 tax free in earned income?
And, the solution would be to transfer my $4 million to a Thai bank yielding probably 6% interest income, and earning money that way to pay no taxes? If that is the case, that is exactly what I’ll do, and I’ll be surprised if more people don’t do that!
Thx, Sam
Right – the 335 day rule is a stinger. I know someone who went over by a day, and that one day cost him tens of thousands in tax dollars.
Yes, the source has to be non US, in your case Thailand. Comes down to your risk appetite I suppose. FDIC insurance Thailand version? Or at all?
What about setting up a Thai corporation and having it own a US based LLC with your 4M pot? Haven’t looked into the feasibility of this, but I am guessing it’s too good to be true.
Sam / Sunil,
Actually you can transfer the hypothetical $4 million to any bank outside the USA.
Interest rates here are pretty poor- 1.5% or so. Say you parked it in Australia where you can earn 7% a year. Actually in this case, Australia will apply a withholding tax for foreigners which will be around 30% or so per year over a very low level.
But there must be a place where there is no withholding taxes and you can pull this strategy off.
Remember the US treats foreign income separate to domestic income. It can come from anywhere: Thailand, Australia, Brazil, Russia, China, etc.
The 335 day rule is one way to satisfy the test for foreign residency. There are other ways to do it, such as showing your principle employment source is overseas. But since we are talking retirement this may not work.
Thailand has no property taxes but foreigners can’t own land unless through a company, however foreigners can buy condominiums and rent them out. That could be another strategy for the aspiring retiree.
Many people also set up ownership in Hong Kong where there is no corporate tax.
Using the HK ownership structure you can own shares of a US LLC.
So if you are a bit clever you can minimize your tax liability while being totally legal.
Great follow up Mike – very in depth. The Middle East is another jurisdiction that doesn’t tax/withhold due to cultural/religious practices. They have also opened up property ownership to expats as of late
Actually, it is 330 days for the residency rule.
Source:
Sunil – I was thinking, perhaps one great way to retire if you are a high income earner is to just take a lower income job i.e. $90,000 and work overseas since you don’t pay any income taxes? If you and your wife can each make $90,000 overseas from making $250,000+ in the US… it may almost be comparable, and perhaps better since the cost of living might be lower, and the work less stressful!
Thoughts?
Sam,
many think along those lines. some factors to consider:
1) is healthcare going to be just as good and accessible where you will be?
2) how feasible would it be to find a job paying the equivalent of US 90k and have a relatively low cost of living to make the financial equation work?
3) being away from family and friends, especially as one gets older and less physically able/capable
i’m sure i’ve left off several considerations…it is possible – and as we can all likely see, involves lots of thought and planning
seems as though that you’ve thought this through? i know your goal is to retire by 45. what are your thoughts on this matter?
Sunil,
I also live and work in Singapore, and agree that it’s a fabulous place to live as an expat.
Andrew,
I love Singapore. I have banking/financial services background and Singapore was a heavy consideration some years ago. If I ever pursue that path again, it will certainly be on the list. I love that it is a short flight away from most paradise-like destinations in Asia/South East Asia.
What if you are the single earner and head of household- can you take the $85k exemption for both yourself and another $85k for your spouse? I’ve never been able to do that!
The advantage of working overseas is you don’t have to pay state, local, social security, medicaid or unemployment insurance taxes. Of course you don’t get to receive social security benefits during the time abroad. You cannot contribute to a 401k unless you incorporate yourself and do a SEP IRA.
For foreign taxes paid that are in excess of the US federal tax liability you can carry these over and accumulate them for when you get a nice off-shore bonus payment that incurs no local taxes but has US tax liability.
Ex-pat tax exemptions are favorable but consider this: The USA is one of 3 countries to impose a tax on worldwide income when living abroad for citizens and permanent residents. The other two countries that do this are North Korea and Libya! Bad company to keep, don’t you think?
-Mike
Mike – good question. In my experience i have seen both. i know some relatives who get the exclusion for each spouse, and in other cases such as my father in law, i have seen him claim only the single exclusion. i will have to dig into this to understand the nuances.
many employers are now establishing something similar to the 401k realizing that expats from the USA at least expect this kind of an arrangement. another thing they have is pension which accrues for each year’s service. you get it in lump sum when you leave your employer. there is also the foreign housing exclusion which can apply to some.
i agree on the worldwide taxation issue, and I don’t like it. that’s why jurisdictions that tax less or don’t tax are favorable. this way you get the foreign tax exclusion, and have no local tax liability either.
Sunil,
I think I figured it out. For both people in the couple to each take the exemption I think the returns have to be married filing separately.
I will check both options when I run my tax numbers this year.
good point – i too have a couple emails out and will update as soon as i hear.
I’ve passed on some international assignments primarily because we have young kids. But some of my colleagues who have worked in Switzerland, Dubai, etc. – it’s worked out great for them. Funny timing mentioning working in the Middle East though. Country by country is folding to public fury over the monarchies and despots that had previously had absolute power. Say hello to Twitter, Facebook and protests! So, I wouldn’t want to live in an unstable country. Dubai is probably the safest and most progressive over there, but nobody over there is immune to this spreading chaos.
Darwin,
I agree that Dubai is probably the most stable – I’d throw Abu Dhabi in there too.
With what just happened in Wisconsin, are we immune to it here in the USA? Was having a discussion with a friend today and he mentioned that he can see such riots trickling over our mighty mother land. Your thoughts?
Honestly, I don’t get why anyone’s comparing Wisconsin to Egypt.
Egypt was overthrowing a dictator and regime that systematically stole and tortured.
Wisonsin is about Unions extorting taxpayers and being pissed it’s coming to an end.
We have a democracy in the US; they can vote out politicians. In Egypt, revolution was the only way.
I used to be too scared to work overseas but now that I have more work experience and have traveled to more places I think it’d be a great opportunity. Sure there are a lot of luxuries living in the States but there are countless gems abroad too and the 90k tax free perk – wow count me in
What places are you considering Charlie? I agree with you – the world is just too beautiful not to see it
I think it would be amazing to live in Paris but there are countless possibilities. There are so many countries I still have on my travel wish list in Asia and South America.
Great article, but I’m not sure I agree that the US has one of least lenient tax policies. For personal taxes, there are a billion deductions available if you itemize. I’m not 100% familiar with how other countries do it, but there seems to be a lot of ways to reduce taxable income here. Plus, most Americans would fall into the 25% tax bracket, meaning their effective tax rate would be way lower. How did you arrive at 50%?
As a follow up, I did some quick Googling. I didn’t realize the US was one of the few countries to base taxation on citizenship rather than residency. I guess that does make it less lenient. ;)
Ryan,
Curious – how much in terms of percentage does your itemization really go over your standard? Example: a married couple gets 11k right off the bat in standard deductions. How much can a couple itemize after all to make a significant dent into the effective rate (bearing no extra ordinary circumstances such as a high medical bill in the given tax year).
As for the reconciliation, let me give you an example to consider:
Base Federal tax rate 33%
State Income Tax 4%+
FICA/FUTA/Medi 7%+
City (if work is in downtown for example) 2%+
Effectively 47%+
It is not quite 50%, but it is not far off. I also understand that for the majority this number is lower. However it is much higher than what most think (since most view taxes with a single focus lens)
forgot to mention – somewhat related but unrelated topic.
most people get super excited about the mortgage interest deduction, so much as justifying buying a home because of it. in my own friends and family circle as i have seen it however, most are better off taking the standard. those that itemize barely surpass the standard and therefore the incremental benefit is so low to almost not matter IMO.
I see what you mean. While itemizing itself might not save everyone money, deductions can also help out. The limit for 401K contributions is $16,500. That’s a decent amount of money to not pay taxes on. Of course, only high earners (or the extremely frugal) can put that much away, but still.
My brother has been living and working in UAE for 5 years and came back recently with his family to make the move back to the US. However, after only a few months they’ve decided they want to move BACK to UAE. Not only is his salary non-taxed, he had a maid and nanny to help out with the kids. They really miss that. ;)
great point little house – the package I was being offered included an SUV, fuel card, a driver (so I don’t have to drive) as well as maid allowance. the company imported the maids (india, pakistan, philippines and sri lanka) for their management. maids and nannys are a given, and very much economical. also, you don’t get out of your car to fill gas. the gas station folks do it for you while you are listening to the latest arabic tunes.
it totally is a pretty good gig, and I can definitely understand the root pulling factor. it is much easier to make the transition for someone like your friend’s dad
You know, it’s amazing…. I always thought only about the first $80-90,000 tax shield working abroad. I never though about the spouse’s $80-90,000 tax shield as well! HOLY MOLY! Not paying taxes on $170-180,000 of your income would be sweet!
Singapore is particularly friendly with its 20% highest marginal tax rate. I would consider working there. Too bad it’s hot as hell and quiet sterile in terms of activity. Good for family though.
I would sadly never work in India. Been there several times (all over), and I just don’t think I’d enjoy living there. Maybe for one year, but not longer.
Nice post Sunil! You mentioned you are from Singapore right? How do you feel paying US taxes?
Singapore is one of the more lenient tax jurisdictions, however it cuts into your benefit as a US citizen. What you don’t pay there, you pay in the US (beyond the tax exclusion amount) thanks to the global income tax law the US imposes on its citizens. I am surprised you found Singapore as a “slow” place. I can understand reservations about India, and many feel that way. Some of the best expat packages are currently being awarded in India however.
I am Indian, and was born in the Philippines (places where you pay NO tax if you are well connected or have some candy to hand out), so the US taxes certainly hurt. That said I understand there are costs to run a country like ours at levels we have been.
Many might already be aware – the US tax brackets are @ all time highs today. When Japan reduces its corp tax rate this summer, we will officially be the highest taxing jurisdiction. how that is “capitalist” I still don’t understand ? ? ?
Are US corporate taxes really the highest now? Guess we will have to follow the world lower then! I’m an optimist.
Singapore is a slow place compared to Beijing, Shanghai, Kuala Lumpur, Bangkok, Jakarta and everywhere else frankly. Dull lifestyle is great for family though!
How about Hong Kong? 17% highest tax rates, no capital gains or investments gains tax, negligible property taxes too. Golf is much more difficult there since you have to drive a bit (worst if you have to take buses etc) but tennis should be no problem there, though you might hit your balls off roof decks! :)
Is it 17% or 16%? Either way, taxes are great in HK but the quality of life is a MAJOR downgrade compared to San Francisco.
No golf, rent and property prices are literally 100%-200% higher than SF, lots of pollution, and there’s nowhere to go except fly away!
Maybe for 1-2 years, but not longer. HK sux.
It could be 16% but close enough for our discussion :)
I totally agree that HK is not a very good place to live now, but it could be nice if you like the connectedness of everything. SF and Manhattan comes close, but not quite the same. HK is a great place for someone young to experience, but it definitely goes down hill as you age, especially if you have children.
But then again, HK salaries for youngsters are extremely low, so maybe there’s just no good age to be in HK anymore!!!
I love HK – to visit that is. I don’t like waking up early morning in a high rise and seeing nothing but smog. Great shopping in Chiungking (sp?) though!
I love to travel for two or three weeks, but it is a huge leap to be willing to live in a country for a year or two. The taxes are an incentive, but not enough to overcome all the other negatives of being away from family. If I were single, I think the experience would be wonderful. I missed out on the College junior year abroad, although I spent four months in Europe as a 10 year old. It was a great experience!
Right on Krant – In fact in one of my niche websites http://www.dubai-information-site.com, I talk about why I am still in the USA, and the reason is mainly family. Just a few years back I was offered a salary 45% more than what I was making in the USA, and add to that tax savings (my effective tax rate was very high). If it wasn’t for my family, I would have pulled the trigger many times over on the spot. I also enjoy my civil liberties here – and there is a price tag to that “commodity” as well
We’ve lived and worked in the Middle East for years, including Saudi Arabia, Kuwait and UAE. Great experiences and great memories, but if we were thinking about going back abroad after the kids leave the nest, it might be another destination, like Europe or East Asia. We’re about done with the “sandy bits”. A word of caution: although the tax bite is reduced or nonexistent, the lifestyle can get expensive if you’re not focused on saving, especially in party central Dubai.
101 Centavos: I’ve heard similar things about Dubai – you get paid more, but you are pressured far more than you are here to spend your money.
Dan – Dubai is lavishly beautiful and expensive @ the same time. You are right in that there is peer pressure, but where is it not? In the last two years, cost of living has drastically reduced due to corrections in every sector you can think off (retail, housing, tourism, hotels, etc)
101 – It does come down to self discipline. One can say that even about the USA. For example, if one is living and working in NYC and makes a move to TX, the cost of living is significantly reduced. However, if one gets carried away (i.e. purchasing season tickets to watch America’s team at a stadium the size of planet Mars, and similar indulgences), the savings can be significantly eroded.
Sunil – undoubtedly we could say this about anywhere. Except that as an
expatriate, the compensation package frequently includes a nice house with all utilities paid and
a car (usually a nice one). This frees up more discretionary income for exotic activities
which wouldn’t necessarily be available in Dallas, like vacations in Bali and Thailand,
or trips to the gold souk (market).
True – which is not always a bad thing :) one of the disadvantages we have in the US is that we are soooo far from such vacation destinations that taking a week off to go to Asia just seems unreasonable for most many times. recovering from the lag alone can take a few days. your point is well noted though
Do you have any recommendations on how to get my foot in the door on working the 6 mos contract civilian jobs on base overseas? I’m hitting a lot of different sites that are just not helpful. Any suggestions would be beneficial.
Thanks