In our last post, Ann Irons, CPA shared two essential tax breaks for expatriates filing international taxes in Bellingham, MA: the Foreign Tax Credit and the Foreign Earned Income Exclusion. Today, we’ll look at foreign currency gain and reducing the value-added tax.
Foreign Currency Gain
Even the relative value of the USD and your new home country may be subject to taxation. For example, suppose you’re a US citizen residing in Japan, and while there you’ve purchased stock valued at $1,000. Over the next few years, the value of your stock neither increases nor decreases, but the value of the US dollars decreases while the value of the yen increases dramatically. You decide to sell the stock, but you end up with more USD than you paid for the original purchase. This profit must be documented on your income tax forms.
Understanding Value-Added Tax
The concept of value-added tax is somewhat similar to the sales tax you pay on most purchases within the United States. However, it tends to be significantly higher than sales tax as a percentage. For example, the Massachusetts state sales tax is currently 6.25%, whereas VAT in some countries can be up to 25% of a pre-tax price.
A citizen of France traveling to the United States would be required to pay sales tax on purchases like any US citizen. The same is true of expatriates living in VAT countries (France and Great Britain, for example). You’ll pay the VAT on a routine basis. Irons adds that tourists and expatriates preparing to depart a VAT country may be able to have the tax refunded or waived. This is generally an option only for purchases of a significant price; the definition of “significant” varies from one country to another.
Exclusions and Requirements Vary Among Expats
Not all expatriates in a single country will have similar experiences and freedoms. For example, an American who lives in France may not be eligible for the Foreign Earned Income Exclusion if he receives salary payments through an American Account. The foreign tax credit may still be an option, though. If you intend to relocate outside the US for a job, your employer may pay the difference in taxes not covered by exclusions and credits.
Questions about filing taxes as an expatriate? To learn more about international taxes, or to schedule a consultation with Ann Irons, CPA, LLC, contact us at (508) 966-0700. We welcome businesses, individuals, and law practices based in and around Bellingham, Woonsocket, Medway, Milford, and the surrounding areas.