Tax information: Leaving the U.S.A.
Welcome to your tax guide on leaving the USA, produced by Deloitte. Looking for tax information about going to the USA, Click here
This document has been prepared based on the legislation and practices of the country concerned as at 01 April 2009. Tax legislation and administrative practices may change, and this document is a summary of potential issues to consider. This document should not be used as a substitute for professional tax and immigration advice which should be sought for the country of arrival and departure in advance of moving in order to discuss your specific circumstances.
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Before/once you depart Q. Should I complete any tax documentation prior to leaving the US?
A. If you are not a US citizen or a green card holder then before leaving the US, you should file a Form 1040-C (US Departing Alien Income Tax Return). Unless your employer guarantees in writing that all taxes will be paid, you must compute and pay all US income tax due before departure. Certain individuals, such as short-term visitors, are exempt from this requirement.
US citizens and Green card holders do not need to file any tax forms when departing.
Q. Is it beneficial to open an offshore bank account in comparison to retaining an account in the US?
A. Offshore accounts do not provide tax benefits for US purposes; however it may be advisable to open an offshore account in order to benefit from tax reliefs in the country that you are going to.
Q. Will I be regarded as not resident in the US during my period overseas?
A. A U.S. citizen will continue to be treated as a U.S. resident during a period overseas. This generally will also apply to Green card holders.
A resident alien is generally presumed to remain resident until the last day of the tax year in which his or her residence is terminated (i.e. December 31). If your tax home is in a foreign country and you have a closer connection to that foreign country you may overcome the above presumption (although in some cases, it might be more beneficial not to). If you wish to rebut the presumption then you cease to be resident in the US on either (1) the last day in the tax year during which you are physically present (in the case of a person who meets only the substantial presence test) or (2) the first day in the tax year in which you are no longer a lawful permanent resident of the US (in the case of a green card holder) then a special statement will need to be attached to your return. The statement confirms the date of residency termination and must include facts sufficient to establish your tax home in, and closer connection to, the foreign country, that lawful permanent residence was abandoned or rescinded, and the date permanent residence ceased.
If an alien of the US continues to make return visits to the US after departure it would be necessary to apply the Substantial Presence Test in order to determine whether they may continue to be regarded as US resident. Please note that a special rule known as the ‘no lapse rule’ prevents a resident alien taxpayer claiming to have ceased residency in one calendar year if they are shown under the substantial presence test to have re-established this in the following year.
Q. Will I still need to complete a US tax return after my departure?
A. The U.S. taxes every U.S. citizen on his or her worldwide income regardless of residence or the source of the income. Accordingly, a U.S citizen who moves abroad continues to be subject to U.S income tax on worldwide income and is required to continue to file a US tax return.
Non-resident aliens are taxed on their income from US sources only, and on certain “effectively connected” income—that is, income that is effectively connected with a US trade or business. Individuals who receive income for services performed in the US are subject to tax unless (1) the services are performed for a foreign employer; (2) they are present in the US for not more than 90 days during the tax year, and are regarded as non-US resident and ;(3) their income attributable to such activity is not more than $3,000. Therefore if you generate income from US sources (e.g. US savings or investments, or effectively connected income) you may continue to be
Q. Will I have to pay US tax in respect of the employment income I will earn overseas?
A. A U.S. citizen who moves abroad continues to be subject to U.S. income tax on worldwide income. However, certain exclusions and credits are available to alleviate the potential double tax burden that could otherwise arise. These include the foreign earned income and housing exclusions and the foreign tax credit.
To claim the exclusions, you must be “qualified”. A qualified individual must maintain a tax home in a foreign country and meet either the bona fide residence test or the physical presence test.
The foreign tax credit may also be claimed against income relating to non-US workdays, where exclusions are also claimed then a double benefit is denied by disallowing the portion of the credit allocable to excluded income.
Q. Will I have to pay tax in respect of US investment income earned while overseas?
A. A U.S. citizen will continue to remain subject to tax on US investment income whilst overseas.
A. Generally a non resident alien will also be required to pay tax on US source savings and investments at a rate of 30%. Special rates of tax may apply if the taxpayer is resident in a country which has a tax treaty with the US. Certain types of investment income, e.g. Portfolio Interest, may also be tax exempt when received by a non-resident alien.
Q. Will I remain liable to State tax while overseas?
A. Each State’s treatment of the situation will vary depending on the facts and circumstances. Some expatriates may continue to be liable for state income taxes even though residing abroad. Depending on the state, if you retain a permanent home in that state, you may continue to be subject to state taxation. Days of work in the state or other income from sources within that state, e.g. rental income, during a period overseas may also generate a state tax liability even as a non resident.
Q. I plan to sell my US property while overseas. Are there any capital gains tax implications?
A. From a US tax perspective, you may exclude up to US$250,000 of gain (US$500,000 if married filing jointly) on the sale of a principal residence if the home has been owned and occupied for at least two of the five years directly preceding the date of sale. This is a permanent exclusion, not just a deferral or rollover of gain until a later time. The exclusion may be claimed only once every two years. If the taxpayer seems to have failed to meet the two-out-of-five ownership test, due to health reasons, job relocation or other unforeseen circumstances, pro-rata portions of the exclusion may still be available.
Please be aware that the Housing Assistance Tax Act of 2008 made changes to the amount of gain eligible for the exclusion. If taxpayers sell a property at a gain after 1 st January 2009, and there are periods of qualified and unqualified use, the portion of the gain relating to the period of unqualified use is no longer eligible for exclusion and must be included in gross income.
You should also confirm any tax implications generated by such sales in your country of destination.
Q. I have a number of US company shares. Will I remain liable to US capital gains tax if I sell any of these while outside the US?
A. U.S. citizens remain taxable on worldwide income and gains.
Under US law, capital gains are sourced to where you are resident, therefore capital gains realised by a non-resident alien are exempt from U.S. tax unless effectively connected with a U.S. trade or business or from the sale of U.S. real estate. Further, simple stock sales are generally not considered effectively connected with a U.S. trade or business or from the sale of U.S. real estate. Aliens who sell US stock in a period of non residence and do not spend 183 days or more in the US in the calendar year of sale should not expect to US tax on any capital gain.
Q. Can I continue to contribute to my employer's pension scheme?
A. You must remain employed by your US employer in order to remain in their 401(k) retirement scheme.
Q. Can I continue to contribute to my personal pension plan?
A. You may continue to contribute to a non-deductible IRA plan while outside the US.
Q. What Social Security contributions will I pay when abroad?
A. U.S. citizens and resident aliens working outside the United States are not, as a general rule, subject to U.S. social security (FICA) tax unless they are performing services for a U.S. employer.
A “totalisation agreement” may exist between the U.S. and the country you are going to. This may allow you to remain in the U.S. social security system during your period overseas, depending upon the particulars of the agreement and your employment overseas.
