US Capital Gains Tax Guide for Saudi US Dual Citizens
The US tax system taxes its citizens on their worldwide income, including gains from certain investments, regardless of where the investor resides. It focuses on whether they need to pay taxes in both countries and how they can avoid double taxation.
This is one of the tax obligations of Saudi-US dual citizens, even those who have never worked in or visited the United States.
Capital Gains on Stocks and Shares
When you sell shares for a profit, you incur capital gains, which are taxable on your US tax return. However, the tax treatment depends on how long you’ve held the shares:
- Short-term capital gains: If you hold shares for less than a year, any profit is taxed at your marginal tax rates, which are determined by your total income.
- Long-term capital gains: The gains are typically taxed at a lower rate, around 20%, for shares held over a year. Additional taxes, such as the net investment income tax of 3.8%, may apply depending on your income level.
Capital gains on cryptocurrencies
The taxation of cryptocurrencies follows similar principles to stocks, with the challenge often lying in determining the cost basis for tax calculation.
Unlike US brokerage accounts, some crypto exchanges do not provide detailed purchase histories, which complicates the calculation of gains or losses. This is why it’s essential to keep track of your crypto investments’ purchase and sale details for accurate tax reporting.
Investments in mutual funds
Investments in non-US mutual funds introduce another layer of complexity. These are often treated as Passive Foreign Investment Companies (PFICs), requiring separate filing on Form 8621.
The tax treatment of PFICs can be harsh, and several calculation methods are available depending on the duration of the investment.
The decision to invest in PFICs should be made with caution. Although some investors may accept the higher tax rates for specific investment opportunities, it’s important to be fully aware of the tax consequences before committing.
For US citizenship holders in Saudi Arabia, whether dealing with stocks, cryptocurrencies, or mutual funds, being informed and keeping detailed records can help simplify everything. In fact, consulting with a tax professional experienced in expat tax issues is highly recommended to optimize your tax strategy.
Planning to invest in stocks, shares, or crypto? Let’s check the best strategy for your tax situation.
Foreign tax credits and exclusions
There are a number of tax credits and exclusions available to reduce hefty taxes and mitigate double taxation for Saudi-US dual citizens.
- Foreign Tax Credit (FTC): This offsets US taxes dollar-for-dollar for income taxes paid to a foreign country like Saudi Arabia.
- Foreign Earned Income Exclusion (FEIE): This allows Saudi-US dual citizens to exclude up to US$130,000 (2025) of foreign-earned income from US taxation.
- FBAR & FATCA compliance: Dual citizens with US$10,000 and above in Saudi bank accounts need to report their income to avoid penalties for unreported foreign accounts.
US-Saudi Arabia tax treaty
Unfortunately, there is no tax treaty between the US and Saudi Arabia, which has fewer implications for reducing tax burdens for dual citizens.
US citizens living in Saudi Arabia are required to file US tax returns, including income thresholds and specific forms like FBAR and Form 8938. So, securing professional tax advice can be a significant advantage in navigating complex tax situations and ensuring compliance with US and foreign tax laws.
Aya Takriti, an IRS Enrolled Agent with 11 years of expat tax experience, specializes in US tax preparation, tax planning and tax advice for US citizens and Green Card holders living and working in the Middle East. *Schedule a consultation with Aya today.
*30-minutes US$247.
