Thailand is an ideal destination for most US expats seeking opportunities to work or reside. With its warm sandy beaches, exquisite cuisine, and low cost of living, you might consider making it your new home.
However, there are many factors to consider when moving to Thailand as a US expat, and taxes are among them. Most people need help understanding the nuances of the taxing system and how it applies to US expats living in the country.
Here is a complete guide on what you need to know as a US expat living in Thailand and how to minimize your liabilities.
Taxation eligibility criteria
According to American tax laws, any American and permanent resident who meets the minimum income reporting requirements must file a federal US tax return every year, even if they live abroad.
However, a US expat may find themselves subject to double taxation. This is because an individual who has stayed in Thailand for 180 days or more is required to pay taxes according to Thai taxation laws.
While the US/Thailand tax treaty prevents double taxation in theory, the savings clause allows the US to tax American citizens living in Thailand as if the agreement didn’t exist. However, the IRS offers tax breaks for Americans abroad, such as the Foreign Tax Credit and the Foreign Earned Income Exclusion.
Tax credits for US Expats in Thailand
The US tax code offers two main tax credits for US expats in Thailand. The tax credits include:
Foreign Tax Credit(FTC)
FTC provides expats with dollar-for-dollar credits on any income taxes paid in Thailand. As an expat, this enables you to subtract what you pay in foreign income taxes from what you owe the IRS. Your taxes must be legal, income-based, and specifically made out to you to qualify.
Foreign Earned Income Exclusions(FEIE)
This allows expats to exclude a certain amount of foreign-earned income from taxation, up to $126,500 per person in tax year 2024. The figure can either increase or decrease depending on the tax year. IRS will always post the changes on its website.
You must pass the Bona Fide Residence or Physical Presence Test to qualify. You can also write off eligible housing expenses via the Foreign Housing Exclusion or Deduction.
This enables them to minimize the risk of double taxation.
Reporting obligations for US ex-pats in Thailand
In addition to tax credits, you might need to file various tax-related reports such as:
- Foreign Bank Account Report(FBAR) – US expats with $10,000 or more must file an FBAR with FinCen.
- Form 8938 – FATCA requires US expats with foreign assets worth $200,000 on the last day of the tax year or over $300,000 at any time during the year to report them to Form 8938.
Consequences of Non-Compliance with US Expat Tax Regulations
Non-compliance with tax regulations for US ex-pats in Thailand may lead to the following consequences:
Penalties and fines
Failure to file US tax returns, FBAR, and Form 8938 can result in several penalties. Fines up to $10,000 are imposed on non-willful violations, and an additional $50,000 penalty is imposed for continuous failure to file after the IRS notification. Willful non-compliance is also subject to criminal indictment. A 40% penalty is also imposed for tax understatement due to non-disclosed assets.
Criminal investigations
Failure to comply could result in criminal investigations by the Department of Justice and the IRS, possible legal action against you, and incarceration.
Loss of tax credits
US expats who fail to file tax returns may not be eligible for tax credits, which enable them to mitigate double taxation.
Denial of Services
Failure to comply with tax regulations can also result in denial of services such as passport renewal or issuance of a new one. The IRS can share your information with the State Department.
Asset Seizure
In extreme circumstances, non-compliance can lead to the seizure of assets in Thailand. This, however, occurs in cases of tax evasion and fraud.
US expats in Thailand need to understand their tax obligations and file on time to avoid the consequences of non-compliance with the US tax laws for Expats.