US Expat Taxes in Europe: Everything You Need to Know
Understanding US expat taxes in Europe is not easy. Sifting through and getting a handle of the United States tax code can feel a lot like wading in the Pacific Ocean in that you can easily drown in the multitude of technicalities. When you’re an American expat living in Europe, the information can become even more complex and confusing as heck. However, regardless of how daunting the US tax code is, what you always have to remember when you’re wondering “do US expats have to pay taxes?” is that Americans who moved abroad to European countries like Spain, Italy, Germany, and France still have to pay US expat taxes to the Internal Revenue Service (IRS). Find out more from Taxes for Expats about what you should do to stay compliant.
A Complete Guide:
Everything expats in Spain, Italy, Germany & France
should know about US taxes
US citizens, as well as permanent residents, are required to file expatriate tax returns with the federal government every year regardless of where they reside. Along with the typical tax return for income, many people are also required to submit a return disclosing assets that are held in bank accounts in foreign countries by using FinCEN Form 114 (FBAR).
The United States is one of the few countries that taxes foreign income received by citizens and permanent residents living abroad. There are, however, certain safeguards in place to prevent double taxation. There are some of them:
– The Foreign Earned Income Exclusion: This exclusion allows one to exclude USD $107,600 (this amount is for 2020 taxes) in earned income from foreign sources.
– A tax credit allowing a tax on remaining income to be reduced based on the taxes paid to foreign governments.
– Exclusion on foreign housing that allows additional exclusions from their income for some amounts paid to cover household expenses due to living abroad.
American tax laws for expats differ from one European country to the next and understanding the intricacies of each will make sure you’re complying with your tax obligations.
Tax Guide for Americans in Spain
For years now, expats have been drawn to Spain because of its rich history, natural beauty, and culture. But what happens to your US expat taxes if you live in Spain? This article will clarify how Spain will tax you when you are living there.
1) Who qualifies as a Spanish resident?
A person can qualify as a Spanish resident if he or she is in the country for over 183 days in the calendar year. A taxpayer must prove they have tax residency elsewhere if they have sporadic absences from Spain. It can also be a person who has economic or business interests in the country. A person’s spouse or minor children can also be classified as tax residents in Spain — unless other tax residencies can be proven.
2) What are the Spanish tax rates for expats?
Spanish tax residents pay tax on their income worldwide at the personal tax rates, which are progressive. Non-residents pay a flat 24% tax rate. Rates are:
|19%||On||EUR 1 – EUR 12,450|
|24%||EUR 12,450 – EUR 20,200|
|30%||EUR 20,200 – EUR 35,200|
|37%||EUR 35,200 – EUR 60,000|
|45%||Over EUR 60,000|
There are no state or regional income taxes in Spain, although the country does have property taxes. Capital gains get tax imposed at a rate of 19% up to a gain of EUR 6,000. Gains over EUR 6,000 get taxed at 21%. Tax residents of Spain are eligible to take some deductions, including:
–Investment in a principal residence
–Credits for foreign taxes
–Savings accounts for businesses
3) Does Spain and the US have a tax treaty?
Between Spain and the United States, there is a treaty that helps decide which country to pay taxes to and when such taxes must be paid. This treaty will ensure that you pay your taxes to the correct country. For assistance in interpreting the treaty, it is often best to seek the advice of a competent tax advisor.
4) When must you pay Spanish taxes?
The Spanish tax year is the same as the US tax year, running from January 1 to December 31. Between the 1st of May and the 30th of June, tax returns must be submitted. There are no deadline extensions available. Tax payments can be made in conjunction with the filing of a tax return, or they can be charged in two installments: 60% at the time of filing and 40% before November 30th.
5) Does Spain tax US social security benefits?
Unless they obtain a coverage certificate from their home country stating that they are continuing to make contributions to that system, foreign employees in Spain must pay taxes to the Spanish social security system. Contributions made by Spanish citizens can be deducted from their income. Contributions cannot be deducted from non-residents. A totalization deal for social security exists between Spain and the United States. This agreement determines to which country a taxpayer can pay his or her social security taxes, based on residence status, the amount of time the taxpayer spends in the United States or in Spain, and whether the taxpayer was hired by a Spanish or US corporation abroad or at home.
Tax Guide for Americans in Italy
Beautiful scenery, ancient ruins, delectable cuisine, and a lively social scene abound in Italy. It’s no surprise that Italy continues to be a popular vacation spot for both expats and visitors, many of whom never want to leave! So, as an American expat living in Italy, how does this affect taxes in Italy? Continue reading to find out.
1) Who qualifies as a resident of Italy?
If a taxpayer is in Italy for more than 183 days, they are considered an Italian citizen. If an individual meets any of the following criteria, they are considered an Italian resident for tax purposes.
–Classified as an Italian resident (i.e., has an established abode)
–Classified as domiciled in the country (i.e., has an established center of interests and business)
–Registered in the country’s records (i.e., Resident Population)
2) What is the tax rate in Italy?
Italy income tax rate is levied at a national level at progressive rates.
|23%||On||EUR 1 – EUR 15,000|
|27%||EUR 15,001 – EUR 28,000|
|38%||EUR 28,001 – EUR 55,000|
|41%||EUR 55,001 – EUR 75,000|
|43%||Over EUR 75,000|
At the local and state levels, there is also an income tax. Municipal tax rates range from 0.1 percent to 0.8 percent, depending on the municipality. Tax rates in the region vary from 1.2 percent to 2.03 percent.
3) What are the available tax deductions?
There are some deductions available to be applied against income. These include:
–Contributions to social security
–Medical expenses greater than EUR 129.11 (19%)
–Interest paid on principal residence loans (19%, and limited to a maximum of EUR 4,000)
–Tuition expenses for secondary education (19%)
A 20 percent flat tax rate applies to non-qualified dividends, interest, and capital gains. Capital gains and dividends that are considered “qualified” (i.e., investments of more than 25% in an unlisted company) are taxed at the normal rate (based on 49.70 percent of the amount).
4) What is the US Italy tax treaty?
The United States and Italy have a tax treaty in place. The treaty’s main aim is to eliminate double taxation for Italians residing in the United States and US citizens living in Italy. This treaty is crucial in determining where taxes should be paid. Since every case is unique, it’s best to consult with an experienced tax advisor.
5) When are Italian taxes due?
In Italy, the bulk of taxes are levied at the point of income. A taxpayer would not need to file an annual tax return if there is no extra income to record. If you do need to file a “Modello 730” — the federal employee return — you must do so between May 1st and June 30th. If you owe taxes, you must pay 40% by May 31st. The remaining balance is due by November 30th. In Italy, there are no extensions available, and penalties for late filing are serious. Penalties vary from 120 percent to 240 percent of the amount due if taxes are not filed within 30 days of the due date.
Tax Guide for Americans in France
France has a romantic atmosphere, breathtaking scenery, and delicious food, making it a popular destination for visitors, retirees, and expatriates alike. If you are a US citizen living in France, you are subject to French taxes for foreigners.
1) Who qualifies as a French resident?
There are three criteria that decide whether or not an expat is considered a French resident. To qualify as a tax resident, you must meet all of these criteria.
–The primary home of the family is within a territory of France, or if there is no family home the primary residence location is within French territory. The further definition is spending over 183 days within France, or having spent more of their time within France than another foreign country.
–The primary professional activity or employment is derived in France. If there are professional activities taking place in several countries, a person is a French resident when most of their activities occur in France.
–A person’s center of activity for economic purposes is in France.
“Family units” are levied in France. A joint return is expected for married couples.
2) What are the taxes for an American living in France?
Under French law, all income will be subject to tax unless the tax authorities specifically exclude it. The tax rates in France are progressive. The tax rates are:
|0%||On||Less than EUR 6,011|
|5.5%||EUR 6,012 – EUR 11,991|
|14%||EUR 11,992 – EUR – 26,631|
|30%||EUR 26,632 – EUR 71,397|
|41%||EUR 71,398 – EUR 151,200|
|45%||EUR 151,200 and up|
The traditional exclusion is not available to non-residents. Their tax rate is also set at a minimum of 20%. There is, however, a special provision for foreigners working in France on a temporary basis.
An individual must not have been considered a French resident in the five years prior to their arrival, and they must not have been on an assignment in France for more than six years. This clause can’t be used for more than 5 years, either. In France, all extra benefits or compensation, including relocation expenses and accommodation allowances, are tax-free. However, before beginning work in France, these items must be expressly mentioned in the person’s employment contract. Additionally, instead of the itemizations listed above, people who have been hired by a French company can select a 30 percent tax exemption.
3) Is there a tax treaty between France and the USA?
A treaty between France and the United States clarifies which country a taxpayer must pay particular taxes to and when such taxes must be charged. While this treaty is fairly clear, it is still a good idea to seek professional tax advice.
4) When are French taxes due?
French taxes, like those in the United States, are calculated on a calendar year basis. However, when taxes must be paid is determined by the taxpayer’s residence status, venue, and filing method. Residents who file paper returns have until May 30th to send them. Residents who file electronically must submit their returns by one of three dates in June: the 9th, the 16th, or the 23rd, depending on the taxpayer’s address. The deadline for non-residents to file their taxes is June 30th.
5) Does France tax foreign income?
A taxpayer’s worldwide income is taxed if they are a tax citizen of France. Since the tax treaty excludes some categories of income, also excluded income must be considered when deciding the French tax rate to be applied. Non-residents are only taxed on income derived from French sources.
Tax Guide for Americans in Germany
Thousands of Americans live in Germany, therefore it’s crucial to understand how their taxes in the United States are affected. Several people are lured to the country’s business-friendly setting, which includes many corporate headquarters, a major US military presence, and a welcoming culture. Regardless of where you live in Germany, you must be aware of your tax duties in both Germany and the United States, as they are intertwined. In both countries, you will have to pay taxes.
1) Who qualifies as a resident of Germany?
When an expat plans to stay in Germany for more than six months, they are considered a resident. A person can prove residency by having a permanent address in Germany or by being present in Germany in a way that indicates they intend to stay for an extended period of time. Leaving Germany without any ties (such as a dwelling, financial accounts, or any sort of link) will also result in the loss of tax residency status. Being a German citizen isn’t enough to establish residency for tax purposes. When it comes to taxes, a person who leaves Germany is not considered a resident.
2) What are the tax rates in Germany?
Germany’s tax rates are high when compared to those in the United States for expatriates. An expat will initially pay a higher amount to the German government, but they will eventually save money on their US expatriate taxes when they submit their return with the IRS. Taxable income in Germany is earned income after the standard deduction and any other deductions have been made. The taxation starts at EUR 8,004 and goes up from there (single individuals). The filing threshold for joint returns for married couples rises to EUR 16,008. Tax rates are progressive, and they are as follows:
|14%||EUR 8,131 – EUR 52,881|
|42%||EUR 52,882 – EUR 250,730|
|45%||EUR 250,731 & more|
In Germany there are no regional taxes, although church tax is applied to members of churches. This tax rate varies, and is usually around 8%-9%. There is also a 5.5% tax on tax paid for the solidarity surcharge.
3) What are the available tax deductions?
The EUR 920 standard deduction is one of the income deductions. Unreimbursed business expenses can be itemized (with receipts) and deducted from income. The amount of personal deductions is capped at EUR 6,591. Monthly deductions are also possible for allowances given to children, starting at EUR 184 for each kid (2 children) and capped at EUR 215 for each child (2 children) (4 or more). For each dependent kid, a baseline deduction of EUR 2,184 is available (EUR 4,368 for married couples filing joint returns).
4) When are German taxes due?
In Germany, the tax year corresponds to the calendar year, which runs from January 1 to December 31. For obvious reasons, this simplifies matters by allowing both German and American taxes to be filed at the same time.
If a taxpayer lives in Germany, he or she must file an unrestricted return. Otherwise, presuming their employer was not compelled to withhold German taxes, they will file a restricted return.
Tax returns must be submitted by May 31st. The deadline is automatically extended to the 31st of December if the return is prepared by a professional. A further extension is available until February 28 of the following year, but it requires a written application.
Tax payments are due one month after the Ministry of Finance issues an income tax notice. Late filing penalties are ten percent of taxes, up to a maximum of EUR 25,000. Any outstanding debt is subject to a late payment penalty of 1% per month. In addition to the penalty for late submission, an interest of 12% per month is charged.
5) Is there a US-Germany tax treaty?
A pact between Germany and the United States serves to clarify situations in which taxes must be paid to which country. The majority of instances are determined by the person’s residency status: is he or she a German or a US citizen? Where does the taxpayer go to work? What country did the money originate from? Is the taxpayer’s employer headquartered in Germany or the United States? Each of these considerations is taken into account when deciding where to pay taxes.
As you can see, filing taxes as an American expat living in Spain, Italy, Germany and France can be quite a daunting task. However, you can help yourself by seeking assistance from the professionals at TFX (Taxes for Expats).