Starting a business is tough anywhere in the world but for a US expat, there can be more paperwork involved with regard to taxes than operating out of your home country. To make sure you are meeting your tax obligations as a small business owner the following tips will prove helpful.
Employ Complete Transparency
As a US expat, you still need to periodically (typically yearly) provide detailed information about your small business and its operations to the IRS in the United States. This condition is applicable to US expats even if they have not returned to their home country in some time, most of their income is generated from business ventures in another country or if they are paying considerable taxes in the country they are settled in.
The Foreign Earned Income Exclusion clause is one of the procedures through which some of the income generated from business ventures abroad can be excluded from the tax net. Generally, an expat will need to file the relevant paperwork and apply for this provision and will generally need to pass 2 tests namely the Physical Presence Test and the Bona Fide Residence Test. Furthermore, the expat will obviously need to be both living and running a business in a foreign country for the foreseeable future.
US tax deadlines are usually in April or May with late filing such as in October being allowed in certain circumstances so make sure you mark your calendar. American Foreign Tax Credit is a provision that limits the scale of double taxation levied on expats who are taxed both in the country they are operating businesses in and in the US.
FBAR (Foreign Bank Account Report)
If you are operating one or a few foreign bank accounts for your commercial transactions and earnings you need to have them registered with the IRS by filling out the FBAR form and submitting it with the relevant paperwork. You can also engage a tax consultant for US expats to find out about the full spectrum of taxes applicable to you depending on your residence status in the other country and the nature of your business.
Social Security Taxes
Even if you are living and running a small business in another country, you still need to pay medicare and social security taxes to the IRS. If an expat is registered as an employee or partner of any US-based company they need to pay income tax but also if their company has branched to another country while originating in the US. Employees of foreign companies however may not need to pay regular income tax especially if they have applied for a provision or the terms of a tax treaty that allows them an exemption.
FATCA
Foreign Account Tax Compliance Act states that US citizens and US expats living in any foreign country need to fully declare their worldwide assets and file the correct information in the US. If you own one or a few small businesses abroad you will need to provide their financial information and bank statements and so forth to be evaluated for tax calculations.
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