International Tax Services
Foreign Tax Credit:
The foreign tax deduction is one of the itemized deductions that may be taken for taxes paid to a foreign government, and are typically classified as withholding tax. The foreign tax deduction is usually taken in lieu of the foreign tax credit if the deduction is more advantageous to the taxpayer than the credit. The IRS allows you to take a credit for foreign taxes paid which reduces your tax liability, or allows you to take a deduction which reduces your taxable income.
Foreign Income Exclusion:
The rules for filing a United States tax return generally apply to you if you are a U.S. citizen or resident alien (Green Card Holder) and you live and/or work in a foreign country. The foreign earned income exclusion is voluntary. You can choose the foreign earned income exclusion and the foreign housing exclusion by completing the appropriate parts of Form 2555. Earned income includes amounts paid to you as allowances or reimbursements for the following items: Cost of living, overseas differential, Family, Education, Home leave, Quarters, Moving, etc.
Foreign Account Disclosure:
Under FATCA, certain US taxpayers holding financial assets outside the United States must report those assets to the IRS on Form 8938, Statement of Specified Foreign Financial Assets. There are serious penalties for not reporting these financial assets. This FATCA requirement is in addition to the long-standing requirement to report foreign financial accounts on FinCEN Form 114, Report of Foreign Bank and Financial Accounts (FBAR)
Report of Foreign Bank and Financial Accounts
If you have a financial interest in or signature authority over a foreign financial account, including a bank account, brokerage account, mutual fund, trust, or other type of foreign financial account, exceeding certain thresholds, the Bank Secrecy Act may require you to report the account yearly to the Department of Treasury by electronically filing a Financial Crimes Enforcement Network (FinCEN) 114, Report of Foreign Bank and Financial Accounts (FBAR).
Certificate of Foreign Status of withholding exemption
Certificate of Foreign Status of Beneficial owner for US Tax withholding is used by a foreign person to establish both foreign status and beneficial ownership and to claim income tax treaty benefits with respect to income other than compensation for personal services. The Certification allows the foreign individual to be exempt from the 30% tax rate on the income he/she earns.
- If you live in a foreign country and receive a pension/annuity paid by a US payer, you may claim an exemption from withholding of US Federal Income Tax under a tax treaty by completing form W-8BEN and delivering to the US payer.
- If the foreign government and/or the foreign withholding agent refuses to honor the treaty claim, make the treaty claim on your income tax return.
- You may be able to claim a Foreign Tax Credit on your US Federal individual income tax return for any foreign income tax withheld from your foreign pension or annuity.
- A foreign Student who is a Non Resident Alien should file a form W-8BEN with US Bank. Individual account holders that do not document their status may be deemed recalcitrant and may subject to 30% withholding on certain payments. Foreign individuals can avoid being classified as recalcitrant account holders by filing foreign status certificate.
- You may also be required to submit form W-8BEN to claim an exception from domestic information reporting and backup withholding for certain types of income such as Broker proceeds, Short-term OID, Interest, Dividends, Rents, Royalties, Premiums, Annuities, Compensation for services performed, substitute payments and gains, profits or income that are not subject to foreign-person withholding rate of 30%.
- Provide the W-8BEN to the withholding agent or payer before income is paid or credited to you otherwise, the payer may withhold 30% from the payment.
- Do not send form W-8BEN to the IRS, instead give it to the payer.
- Validity of W8 form: Once submitted, the form generally remain valid for three years; after that period, the financial entity that requested the form from you might request a new form. W-8BEN submitted before Dec 31, 2014 need to be re-submitted with changes, if any.
- Form w-8BEN-E: Documents the status of those foreign entities for US income tax, tax treaty benefits and FATCA purposes.
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