Aya A. Takriti, Enrolled Agent
Tax Manager | US / Saudi Tax Specialist
✔ IRS qualified Enrolled Agent (EA)
✔ Degree in International Accounting
✔ Fluent in English and Arabic
Services:
✔ US Tax Compliance
✔ ITIN (W-7) Application
✔ Filing an FBAR
✔ Reporting FATCA
✔ Renouncing US Citizenship
The Complete US Tax Guide in Saudi Arabia
Get in-depth information on how US taxes work in Saudi Arabia. Download the full 27-page guide today.
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Meet Aya…
I have joined Expat US Tax as a Tax Manager in our Dubai office.
I hold a degree in International Accounting and I am fluent in Arabic and English. I have completed my internship in Financial Services with KPMG in Germany.
I focus to provide great customer service and I have passion for helping Arab-American dual nationals understand complexities of the US tax system.
Understanding the Foreign Bank Account Report
The Foreign Bank Account Report, often known as the FBAR, is a necessary document for US residents, citizens and Green Card holders who maintain a bank account in a foreign country. The term “foreign bank account” includes any account outside the United States. If the highest balance of one or more such accounts exceeds $10,000 at any point within a year, the account holder is obligated to file an FBAR form.
This includes all financial accounts held in Saudi Arabia and the United Arab Emirates.
There’s a common misunderstanding that ?? KSA and ?? UAE banks automatically file the FBAR for their clients. This is NOT true. In reality, the account holder must fulfill this requirement. While banks may request information such as a social security number or proof of citizenship from their clients, it doesn’t relieve the account holder from complying with IRS filing rules.
Banks are responsible for FATCA reporting.
Individuals are responsible for filing their own FBAR.
The FBAR forms are typically due by April 15, with an automatic extension until October 15. It’s crucial to remember that the FBAR is strictly a reporting requirement and doesn’t involve paying taxes on the highest balance. However, any income generated by a foreign bank account should be reported on the US tax return and taxed accordingly.
Joint accounts shared with spouses or other family members are also subject to the FBAR reporting requirement if the US person has control or is a joint owner of the account. Likewise, if a US person has signature authority over a foreign bank account, like having control over a company’s financial accounts, the account must be reported on the FBAR.
Consequently, if a US person has control or signature authority over a foreign bank account, they must disclose it on their FBAR form.
To schedule a consultation, please visit our website or book here: https://www.expatustax.com/consultation/
Individual Taxpayer Identification Number (ITIN)
The Individual Taxpayer Identification Number (ITIN) is a unique identifier issued by the Internal Revenue Service (IRS) in the United States. It is assigned to individuals who need a U.S. taxpayer identification number but are ineligible for a Social Security Number (SSN).
ITINs are required by various groups, including non-resident aliens filing U.S. tax returns, U.S. resident aliens filing tax returns, dependents or spouses of U.S. citizens or resident aliens, non-resident alien students or researchers filing tax returns, and individuals with federal tax obligations but without an SSN.
- ITINs are issued by the IRS to individuals who do not have a Social Security Number (SSN) and need a taxpayer identification number for U.S. federal tax purposes.
- ITINs have expiration dates, and individuals are responsible for renewing their ITINs before they expire.
- To renew an ITIN, individuals must complete a new Form W-7 and provide required identification documents.
- Renewal applications can be submitted by mail, through an IRS-authorized Certified Acceptance Agent, or at an IRS Taxpayer Assistance Center.
- ITINs can be used to file tax returns, but ITIN holders may have limitations on certain tax benefits.
Claiming dependents using an ITIN is possible, but the dependents must also have an ITIN, SSN, or Adoption Taxpayer Identification Number (ATIN). Various criteria must be met, including the relationship, age, residency, support, and other factors outlined by the IRS.
We are an official acceptance agent for processing ITINs.
Request your ITIN here:
https://www.expatustax.com/irs-itin/
FATCA Compliance for U.S. Citizens Living Abroad
The Foreign Account Tax Compliance Act (FATCA) was enacted in 2010 to help the IRS track down U.S. citizens and residents who have foreign financial accounts. FATCA has two primary provisions that impact U.S. citizens living abroad:
Foreign banks and investment institutions are now required to report account information for U.S. citizens to the U.S. Treasury. This means that the IRS can now cross-check the information reported on FBARs with the information reported by foreign financial institutions. This helps to ensure that all U.S. citizens with foreign financial accounts are complying with their tax obligations.
U.S. citizens living abroad must file IRS Form 8938 if the cumulative value of their foreign financial assets exceeds $200,000 at any point during the fiscal year. Form 8938 is an information return that provides the IRS with details about your foreign financial accounts. This information helps the IRS to ensure that you are paying all of the taxes that you owe on your foreign income.
It is important to note that if you meet the account thresholds for both the FBAR and Form 8938, you are required to submit both forms. Failure to comply with FATCA requirements can result in significant penalties from the IRS.
If you are a U.S. citizen living abroad, it is important to understand your FATCA obligations. You can find more information about FATCA on the IRS website or by speaking with a tax advisor who is familiar with FATCA compliance.
Need help with FATCA Reporting?
If you are a U.S. citizen living abroad and you need help with FATCA reporting, we can help. We have a team of experienced tax advisors who can help you understand your FATCA obligations and ensure that you are compliant with the law.
To schedule a consultation, please visit our website or book here: https://www.expatustax.com/consultation/
Differentiating Between Foreign Tax Credit and Foreign Earned Income Exclusion
For US citizens living overseas, two deductions can help reduce their tax liability: the Foreign Earned Income Exclusion (FEIE) and the Foreign Tax Credits (FTC). The FEIE is an annual exclusion allowing a maximum income exclusion of about $120,000 for the 2023 tax year. This is granted if the individual has lived outside of Saudi Arabia for 330 days within a 12-month period, established residency in a foreign country, and has foreign-earned income. If an individual’s foreign-earned income goes beyond the exclusion amount, they can also claim a housing deduction, which varies depending on their location in the Saudi.
Conversely, the FTC comes into play when a US citizen establishes residency in a foreign country and is subject to taxation on their worldwide income by that country. This can lead to double taxation, which can be sidestepped by claiming the income tax paid in the foreign country as a credit on their US tax return. Unlike the FEIE, any unused FTC can be carried forward for up to 10 years, making it a preferable option for those who pay income tax in their country of residence.
Foreign Housing Exclusion for Riyadh, Jeddah, Abu Dhabi, and Dubai:
Riyadh, KSA US$40,000
Jeddah, KSA US$36,000
Abu Dhabi, UAE US$49,687
Dubai, UAE US$57,174
Remember, you can’t claim the whole amount.
For tax year 2022, $14,040 is deducted as a standard cost of living. If you’re living in Riyadh, your maximum claim is $25,960 ($40,000 – $14,040)
For tax year 2023, $20,400 is deducted as the standard cost of living. If you live in Jeddah, your maximum claim is $15,600 ($36,000 – $20,400).
To schedule a consultation, please visit our website or book here: https://www.expatustax.com/consultation/
Foreign Corporation from a US tax perspective
Owning shares in a foreign corporation presents different filing requirements for US citizens or green card holders compared to owning shares in a US corporation. However, the exact tax obligations for US shareholders of a foreign corporation depend on the ownership percentage in that corporation.
For example, if a US person owns 25% of a foreign corporation while the rest is owned by non-US individuals, the US person needs to file Form 5471 with the IRS. This form contains information about the foreign corporation, including its address, shares, and their value.
Filing requirements become more intricate if a US person owns over 50% of the foreign corporation or if the majority of shareholders own more than half of the corporation. In this case, the corporation is deemed a controlled foreign corporation, implying that US shareholders would be taxed on the entity’s net income.
If a US person owns more than 60% of the shares in a foreign corporation, the US person’s share of the corporation’s retained earnings is taxable, even if they don’t withdraw any money from the foreign corporation. This makes the tax filing process more complex, depending on the ownership stake in the corporation.
To schedule a consultation, please visit our website or request a quote here: https://www.expatustax.com/request-a-quote/
End-of-Service Income in Saudi Arabia
Unlike countries like the United States that provide social security and pension income, the Kingdom of Saudi Arabia (KSA) does not have a similar system. However, Saudi Arabia does offer a comparable form of financial support called “end of service income.”
This term refers to the compensation an employer pays an employee when their employment is terminated. In the Saudi, this is a standard form of financial support for employees. However, if you are a US citizen receiving end-of-service income, it’s important to understand that this income cannot be fully excluded from your annual tax return. You are required to report this income and pay taxes on it in accordance with US tax laws.
Bear in mind that the end-of-service income received by a US citizen cannot be completely excluded from the tax year in which it was received, as part of this income is attributed to services performed in prior years. Hence, a portion of the income does not fall within the current tax year in which it was received or the year being filed. Therefore, US citizens cannot leverage the current tax year’s exclusion for the entire amount of their end-of-service income.
When dealing with end-of-service income, a special calculation is needed to figure out the tax implications for US citizens. This calculation involves taking into account the total amount received, the start and end dates of the employment period, and determining how much of the income is attributable to each year of employment. By breaking down the income received, one can identify the portion that falls under the current tax year being filed and how much can be excluded from taxation.
Given the complexity of tax filing for end-of-service income, it’s a good idea to reach out to us before receiving your end-of-service income. This will ensure that you optimize your benefits from a tax perspective, and we can guide you on how to file your taxes efficiently for that year. Planning ahead can help you avoid potential issues with your tax returns and ensure you’re maximizing your end-of-service income, leading to the best possible outcome for your financial planning.
To schedule a consultation, please visit our website or book here: https://www.expatustax.com/consultation/
Why partner with a specialist Expat accountant?
Living outside of the US can make your tax filing requirements complicated. To ensure you pay the minimum amount of taxes, it’s critical to work with an accountant who understands every aspect and avenue for reducing your tax liability. Expat US Tax provides dedicated accountants who help expats optimize their tax situation by navigating complex tax regulations and optimize your tax situation.
