Aya A. Takriti, Enrolled Agent
Tax Manager | US Tax Specialist in U.A.E
✔ IRS qualified Enrolled Agent (EA)
✔ Degree in International Accounting
✔ Registered US Tax Agent in U.A.E
Meet Aya…
I have joined Expat US Tax as a Tax Associate 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 (FBAR) is a filing requirement for US citizens or residents who hold a bank account outside the United States. A “foreign bank account” refers to any account held outside of the US, and if the highest balance of one or more accounts exceeds a total of $10,000 in a calendar year, then the account holder is required to file an FBAR form.
It is a common misconception that banks will file the FBAR on behalf of their customers. However, FBAR filing is a personal responsibility and must be met by the account holder. While banks may request information from their clients, such as a social security number or proof of citizenship, this does not exempt the account holder from meeting IRS filing requirements.
The FBAR forms are usually due by April 15, with an automatic extension until October 15. It is important to note that the FBAR is only a reporting requirement and does not involve paying taxes on the highest balance. However, any income generated by a foreign bank account would be expected to be reported on the US tax return and taxed accordingly.
Joint accounts with spouses or other family members are also subject to the FBAR reporting requirement if the US person has the authority or is a joint owner of the account. Similarly, if a US person has signature authority over a foreign bank account, such as when given authority over a company’s financial accounts, the account must be reported on the FBAR.
Therefore, if a US person has signature authority or control over a foreign bank account, they are required to report it on their FBAR form,
learn more about Foreign Bank Account Reporting (Fbar)..
Do I need to file a tax return if residing in UAE?
When it comes to the world of expat tax, it can often feel like a tricky maze, regardless of where on the globe you find yourself. A good number of US citizens and permanent residents find themselves scratching their heads over tax obligations with the Internal Revenue Service (IRS). It’s not uncommon to find people unaware that they are required to file, especially when their earnings come from outside the United States.
So, the question is, who’s on the hook to file a tax return with the IRS?
If you hold a US citizenship or a green card, you’re subject to tax on your income worldwide, even if you’ve set up shop outside the US. Take this scenario, for instance: you’re a US citizen or green card holder residing in the United Arab Emirates (UAE) and you’re making money there. You still have to report that income to the IRS.
Even if you’re pulling in a salary from the UAE and racking up interest income back home in the US, you’re still obliged to report both the UAE salary and the US interest income. The specifics of your tax return filing requirements and obligations hinge largely on your filing status and the income thresholds set by the IRS. Bottom line, getting a handle on these key details is a must to make sure you’re in line with tax laws and sidestep any penalties.
For single folks, the income threshold stands at $12,950, while for married couples filing jointly, the figure goes over $25,000. Here’s the surprise: a married US citizen or green card holder who chooses to file under a separate tax status only faces a threshold of $5. …
learn more about filing tax return if residing in UAE..
UAE Corporate Tax Rate
Understanding corporate tax can be a bit of a hurdle, no matter where you’re at. This direct tax, also known as corporate income tax or business profit tax, gets applied on the profits and net income of corporations and other business entities.
On January 31, 2022, the UAE’s Ministry of Finance announced a game-changing move: the introduction of a new federal corporate tax system. This system, kicking off from June 1, 2023, once again shakes up the tax scene in the region. What’s notable is the UAE’s move to implement the lowest corporate income tax rate in the GCC region, clocking in at just 9%.
With its design geared towards reducing businesses’ compliance burdens, the UAE’s corporate tax system takes a cue from the best practices observed worldwide. Further, the country’s plan to adopt the OECD’s Two-Pillar approach for revamping its International Tax Framework sets the stage for a minimum corporate tax rate from 2023.
In the realm of corporate tax in the UAE, it’s crucial for entities operating under a license in the region to take stock of how the impending regulations will affect their operations and act in accordance. The UAE Tax Authorities have been clear: any noncompliance will invite severe penalties.
The tax rates are laid out in the following manner:
Taxable income up to AED 375,000 faces a 0% tax rate
Any taxable income over AED 375,000 gets taxed at a rate of 9%
Large multinationals with consolidated global revenue exceeding EURO 750 million will face different tax rates based on specific criteria.
The UAE’s goals with this corporate tax include reinforcing its standing as a top-tier global business and investment hub, accelerating its development and transformation, and continuing to meet international standards for tax transparency.
In terms of scope, the corporate tax applies to commercial license holders, businesses operating in free zones, offshore companies, banks, and real estate companies. It’s important to note that there are certain exemptions from corporate tax. For instance, businesses involved in natural resource extraction, UAE businesses owning qualifying shareholdings, and qualified intra-group transactions and reorganizations can all benefit from exemptions. Individuals earning a salary or interest from bank deposits, foreign investors, and individuals investing in real estate are also exempt from corporate tax.
The Federal Tax Authority (FTA) shoulders the responsibility of administering, collecting, and enforcing the corporate tax. For businesses operating in free zones, while they’ll be subject to corporate tax, they can continue to enjoy current corporate tax incentives provided they meet all regulatory requirements.
Foreign entities and individuals are subject to corporate tax only if they engage in regular or ongoing trade or business in the UAE. Moreover, foreign investors’ returns from dividends, capital gains, interest, royalties, and other investments are typically exempt from corporate tax in the UAE.
learn more about UAE Corporate Tax Rate..
What are the difference between Foreign Tax Credit vs. Foreign Earned Income Exclusion
When it comes to US citizens living abroad, there are two deductions that can help minimize their tax liability: Foreign Earned Income Exclusion (FEIE) and Foreign Tax Credits (FTC). The FEIE is an annual exclusion that allows a maximum income exclusion of approximately $120,000 for the 2023 tax year, provided that the individual has been living outside the United Arab Emirates (UAE) for 330 days in a 12-month period, established residency in a foreign country, and has foreign-earned income. If an individual’s foreign-earned income exceeds the exclusion amount, they may also claim a housing deduction based on what they pay for rent and utilities, which can vary depending on where in the UAE they live.
On the other hand, the FTC applies when a US citizen establishes residency in a foreign country and is subject to taxation on their worldwide income by that country. This can result in double taxation, which can be avoided by claiming the income tax paid in the foreign country as a credit on their US tax return. Unlike the FEIE, the unused FTC can be carried forward for up to 10 years, making it a better option for those who pay income tax in their country of residence.
learn more about Foreign Tax Credit..
Foreign Corporation from a US tax perspective
From a US tax perspective, owning shares in a foreign corporation can have different filing requirements for US citizens or green card holders (US persons) compared to owning shares in a domestic corporation. However, the specific tax obligations for US shareholders of a foreign corporation depend on the ownership stake in that corporation.
For instance, if a US person owns 25% of a foreign corporation, while non-US individuals own the remaining 75%, the US person is required to file Form 5471 with the IRS. This form includes information about the foreign corporation, such as its address, shares, and their value.
However, filing requirements become more complex if a US person owns more than 50% of the foreign corporation or if the majority of shareholders own more than 50% of the corporation. In this scenario, the entity is considered a controlled foreign corporation, which means that the US shareholders would be taxed on the net income of the entity.
If a US person owns more than 60% of the shares in a foreign corporation, then the US person’s shareholding percentage of the corporation’s retained earnings is taxable, even if they do not withdraw the money from the foreign corporation.
The tax filing process can become complicated depending on the ownership stake in the company.
learn more about self-employment tax..
Tax Filing for Your End-of-Service Income
While the United States and other countries provide social security and pension income, the United Arab Emirates (UAE) does not have a comparable system. Nevertheless, there is a similar form of financial support in the UAE known as “end of service income.”
While many countries, including the United States, provide social security or pension income to their citizens, the United Arab Emirates (UAE) does not have a comparable system in place. Nevertheless, there is a form of financial support in the UAE that serves a similar purpose, known as “end of service income.”
“End of service” refers to the compensation paid by an employer to an employee when their employment is terminated. In the UAE, this is a common form of financial support provided to employees. However, if you are a US citizen receiving end-of-service income, it is important to note that this amount cannot be fully excluded from your tax return for the year in which you received it. You are required to report this income and pay taxes on it as per the US tax laws.
It is important to note that the end-of-service income received by a US citizen cannot be fully excluded from the tax year in which it was received, as a portion of this income is based on services performed in previous years. As such, part of the income does not fall under the current tax year in which it was received or the year in which it is being filed for. Therefore, US citizens cannot benefit from the current tax year’s exclusion for the full amount of their end-of-service income.
When it comes to end-of-service income, a special calculation is required to determine the tax implications for US citizens. The calculation involves examining the total amount received, as well as the start and end dates of the employment period. This enables the calculation of how much of the income is attributable to each year of employment. By analyzing the income received, it is possible to determine the portion that falls under the current tax year being filed, and how much may be excluded from taxation.
As such, the tax filing process for end-of-service income can be complex and requires careful consideration.
We advise clients to contact us before they receive their end-of-service income to ensure they maximize their benefits from a tax perspective. By doing so, we can provide guidance on how to efficiently file their taxes for that year, which can be beneficial in the long run.
By reaching out to us in advance, clients can avoid potential issues with their tax returns and ensure they are making the most of their end-of-service income. This can help them achieve the best possible outcome when it comes to tax efficiency and overall financial planning.
learn more about end of service benefits..
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. In Expat US Tax we have a dedicated team of tax accountants who work exclusively with US expats earning and investing in other countries. Partnering with a specialist expat accountant can help you navigate complex tax regulations and optimize your tax situation.