After you give up your citizenship you are still required to file with the IRS for the following ten years, correct? (Assuming you ever want to enter the US again.) What are your tax obligations during that time, though?
> After that you only file income tax returns if you have income from US sources or you become a US resident.
Example: So your US corporation "pays" your Ireland corporation, who than pays you in the EU? Would that avoid the income from being considered US sourced?
The US taxes you on wages only if you are within the borders when you do the work. So a noncitizen doing work outside the USA and getting paid by a US customer or employer is not taxable in the USA on those wages.
You would not need that intervening corporation in Ireland for income tax reasons but there are probably good business reasons for putting a layer between you and the US company.
If you are a US citizen you are taxed on your wages no matter where you are on Planet Earth. Some relief is possible (first approx $100k not taxable, for instance).
@deciplex - you are right if you live in a country with an income tax.
If you live in a country with no income tax then your US income tax is a net cost to you -- making you poorer compared to that British coworker who makes the same salary as you but pays no UK tax. Look around Dubai. Count Americans and count British people. Tax is part of the reason.
>If you are a US citizen you are taxed on your wages no matter where you are on Planet Earth. Some relief is possible (first approx $100k not taxable, for instance).
Correct me if I'm wrong, but after that $100K deduction you're essentially paying the higher of the local tax, or the US tax?
you are paying BOTH - another reason this is an issue.
expats pay tax on full amount to host country, plus tax on amount over $92k to US. So the money over $92K is double taxed - making it "pointless" (not completely, obviously) to earn that extra
If the US source income has tax withheld at the correct amount (default is 30%) then no tax return is required.
The magic is in understanding the metaphysics of the definition of US source. Just because the money comes from a US customer doesn't mean that you have US source income.
If I hire a web developer in Canada and he designs my site whilst sitting in a chair in Vancouver, the income he ears from me is not US source. Weird I know. For services, income is sourced where the human body who did the work is physically located. God what an awful sentence.
Ah, that makes sense, actually. What about someone in Canada, selling a product on a website hosted in the US, with a customer billing address in the US?
My intuition says "not us source" because the production and administration of the product was in Canada.
There are also categories of income which are exempt from witholding, such as royalties. For instance, Canadian authors receive royalty cheques from Amazon with no witholding if they submit a W-8BEN. Is their income "non-US source" because the owner is not resident in the US?
The income tax treaty can reduce US tax on income paid to Canadians down to zero, depending on the type of income. That's what you are seeing with the W-8BEN.
For selling stuff across borders, source of income is where ownership changes hands from seller to buyer. If the buyer owns the item as soon as it goes into a DHL pouch in Canada, then it is Canadian-source income and the US can't tax it.
I guess my question was: is a return required on US source income that has been reduced to zero? e.g. royalty payments, where the receiver is in Canada, and sales of products were made in USA.
Assume the income is from licensing, and the license was granted from a Canadian source.
Thanks for answering all these, I should have been more precise with my earlier questions.
Correct. If you are "rich" ($2 million net worth or $157k average tax bill over the previous five years) then you pretend you sold everything. The first $680k of gain is tax free but you pay tax on everything above that. Bad things happen to your retirement plans and IRAs.
After that you only file income tax returns if you have income from US sources or you become a US resident.
The 10 year rule was repealed in 2008.