News
What austerity looks like around the world
In the National Review, Veronique de Rugy argues that many European countries are relying too heavily on tax increases rather than spending cuts to rein in their deficits. (This mainly seems to describe Austria, Italy, Belgium, and the Netherlands.)

Ireland-bound Eaton is latest to end US corporate citizenship
The spinoff of Sara Lee Corp's international coffee and tea business into a Netherlands-incorporated company will likely help the company's rate too. Dutch companies pay a tax rate of 20 percent. Last year Sara Lee paid an effective tax rate of 31

Europe's Wrongheaded Austerity Policies
When taxes are raised even further, the economy begins to contract. A typical example can currently be seen in the Netherlands. The country's economy has not grown in the last three quarters. Pressured by the European Union, austerity policies were

Taxes and Uncle Sam


US citizens must deal with two tax systems

Uncle Sam's Worldwide Tax Reach

The United States is one of the only countries that continues to impose tax on the worldwide income of its citizens and residents (e.g. green card holders) who live and work in another country. If you are resident in the Netherlands, you are normally also subject to Dutch tax on your income. This presents a problem since both countries want to get your tax dollars (or euros) based on the same income.

Don’t Worry, You Won’t Pay Double!

It wouldn’t be fair to actually pay tax on the same income in both countries, so there is a system of exemptions and tax credits available to US citizens and residents who are living abroad. These exemptions and credits are designed to avoid taxpayers paying tax on the same income in both countries. For example, the United States will allow you to exclude up to $82,400 for 2006 (plus certain housing costs) if you qualify for the Foreign Earned Income Exclusion. If your income is higher than this amount, there is a system of Foreign Tax Credits that allows you to take a credit for your Dutch taxes against the US taxes on the same income. For non-earned income such as interest, dividends and capital gains, the treaty decides who gets the “first” right to tax this income.

Do You Need To File?

There is a common misconception among expats that you do not need to file a tax return in the US if you earn less than $82,400. This is not true! If your “gross” income (before taking into account the Foreign Earned Income Exclusion) is as low as $3,300 (Married Filing Separately) you may have to file a US tax return and report your worldwide income.

If you are interested in finding out more about the taxation of US citizens and residents living abroad, you can find a lot of information on the IRS web site: www.irs.gov. Some of the key forms and publications are:

Publication 54: Tax Guide for US Citizens and Resident Aliens Abroad
Form 2555: Foreign Earned Income Exclusion
Form 1116: Foreign Tax Credits
Form TDF 90-22.1: Report of Foreign Bank and Financial Accounts

David Colvin, CPA
Partner - TaXpat BV
www.TaXpat.com

David Colvin is a US Citizen and has been a resident of the Netherlands since January 1998.