American by Accident and What the IRS May Have to Say About It

Guest post by I. J. Zemelman, EA, Taxes for Expats
 

Default Citizenship by Birth

Thanks to the US Constitution’s Fourteenth Amendment, any person born in the United States is automatically a US Citizen – despite the nationality of his/her parents or the length of time spent in the US. Conversely, children born outside of the United States can also receive automatic US Citizenship, provided at least one of the biological parents is a United States Citizen and had spent at least 5 years in the US or a US Territory prior to the birth of the child. The only exception to the laws of citizenship at birth is that of a child born to a foreign diplomat while serving official duty in the United States.

Taxation of Worldwide Income

Having default American Citizenship may seem like a great gift to offer a child with immigrants for parents; but if the child winds up living and working in another country as an adult and never enters the United States, an unfair tax burden will be placed on the individual: A requirement to file an annual US expat tax return and reporting his worldwide income. This requirement is imposed on every United States Citizen no matter where in the world he/she is living. Not only will the individual be responsible for personal income taxes in the United States, he/she will also be liable for any estate taxes which are owed by parents or other descendents if they passed with any tax liability.

How to Legally Avoid Filing a United States Tax Return

If an individual was born with a default US Citizen status and does not wish to live or work in the United States or be responsible for US taxes, the individual has an option to give up his/her United States Citizenship. This can be done in one of 2 ways: Relinquishment or Renunciation of citizenship.

Relinquishment of United States Citizenship

Relinquishment of United States Citizenship isn’t necessarily easy, but it’s an option for an individual who’s lived his/her life in another country and has taken patriotic steps as a citizen of that country such as having enrolled in foreign military, taken an oath of allegiance, or has otherwise accepted foreign citizenship. Upon turning 18 years of age, a default US Citizen who has lived his/her entire life in another country may voluntarily relinquish all the rights and liberties of United States Citizenship and, therefore, be free of all US Citizen responsibilities of filing US taxes.

In order for the relinquishment of citizenship to be formally recognized, an individual must have completed one or more foreign patriot acts including those which were previously mentioned) defined in the Immigration and Nationality Act, Section 349. If the individual had lived and worked in the United States for any portion of time, simply relinquishing his/her status will not be sufficient. If any money was earned by the individual living and working in the US as a Citizen, an exit tax will be assessed, and steps to renounce citizenship must be taken.

Renunciation of United States Citizenship

While a relinquishment of US Citizenship is limited to those who have spent their entire lives (or a considerable amount of time) living as a citizen of a foreign country, voluntary renunciation of US Citizenship can be performed by any United States Citizen as long as all tax liabilities are met. In order to satisfy United States tax liability, one must have met all of his/her obligations as a taxpayer for the previous 5 years. Additionally, a person renouncing his/her citizenship will be required to pay estate taxes on property or other valuables as if the items had been sold. This imposition is part of what’s known as an exit tax: The final taxes the IRS imposes onto its expatriating Citizens officially and permanently renouncing their citizenship.
 

If an individual had earned over a specific threshold in the 5 year period preceding expatriation, he/she may be subject to additional taxes as part of the exit tax. Additional penalties may be assessed on individuals who have not sufficiently proven and stated to the IRS that all tax obligations for the preceding 5-year period had been met. In order to ‘prove’ that an individual has met all tax obligations for the previous 5 years, he/she must complete a very detailed form and send it to the IRS with a final tax return. The information required on the form includes a certification under penalty of perjury that all taxes (income, gift, estate, etc) have been paid and there is no outstanding tax liability.

There are circumstances in which an expatriating US Citizen can avoid being charged an exit tax. If the individual had spent a period of 10 years or longer out of the 15 year period preceding expatriation living as a citizen in a foreign country and had not accrued any US tax liability for a period of 5 years or more, he/she may be able to expatriate without having to pay an exit tax, unless property or other valuable assets are held within the United States. Find out more about voluntarily renouncing US Citizenship.

If you are an individual with dual citizenship and you have never taken steps to relinquish or renounce your US Citizenship, you may be interested in taking the time to make sure that you are current on your US expat tax obligations and take the steps to free yourself of future tax liability. If you are in debt to the IRS for not having filed previous years’ returns, Taxes for Expats can help get you on track and may be able to help you avoid paying excessive fees and back taxes.

I.J. Zemelman, EA is the founder of Taxesfor Expats. She may be reached at: +1-646-397-2887
Email: questions@taxesforexpats.com
Web site: www.taxesforexpats.com

Saudi Arabia: Work Panic

"The Labour Office has changed its rules in a way that will affect you, so you need to finish your iqama transfer quickly or you will not be able to renew your iqama next time, or maybe you will not even be able to stay till your iqama expires. Make the transfer quickly and make sure you transfer to a company that complies with Saudisation requirements."

This was the message my husband recently received from his former employer. It caused distress because not only will he have to look for a company to hire him, he will have to look for a company that promotes Saudisation.

After the message of the Minister of Labour a few days ago saying that, all expatriate workers within the Kingdom will have a six-year cap on their work visas, many expats have been pretty stressed up. The Minister of Labour, Adel Fakieh, threw more light on this issue, reasuring expats that this does not apply to all of them.

According to the Ministry of Labour, companies will be placed in 3 categories:

Green:Those that comply with the Saudisation policy.
Yellow: Those that have not reached Saudisation quota of employment.
Red: Those that have completely disregarded Saudisation rules.

If you are working for a company in the green list, you are safe. Your iqama (residence permit) does not have the six-year cap.

If you are working for the yellow-listed guys, and have been working for 6 years or more, your visa will not be renewed. If you have been working for less than 6 years, your visa would be renewed, but bear in mind that you will have to say goodbye to Saudi at the end of your 6 years. Nice for someone who has amassed enough to go on retirement, right?

If you are working for a red-listed company, forget about renewing your visa with your company.

The good news is that, employees working for the yellow and red-listed guys, would have the liberty to join a company that falls in the green category, as their employers would not have the power to stop them from transferring to another company. That leaves a smile on the face of the guy who was always working under constant threats from his employer. On the other hand you should be darn lucky to find yourself among the estimated 50% who would get a job in a green-listed company. So what happens to the other half? Packing their bags and preparing to go home earlier than planned? Not a good end for someone who has not yet achieved his goal in Saudi Arabia.

When is this going to come into effect? In two weeks. Waoh! That's pretty tough. Lets hope for the best. We pray that many Saudi employees will learn when it is time to come to work, and how to make the difference between working and sitting all day long drinking tea/coffee and/or smoking cigarettes during working hours.

Below, you will find the links to some companies that promote Saudisation:

Balubaid Group of Companies

Saudi Arabian Basics Industries Corporation

Al Tayyar Travel Group

NAMA Chemicals

Abdul Latif Jameel Group

AM Batterjee Group

For more information, see the Ministry of Labour Nitaqat programme. Please be informed that the information at present is given in the Arabic language only.

Inflation on the Rise in Saudi Arabia

It was just last month when we went out for our big monthly shopping that I had the impression that prices had gone up again. If you live in Jeddah and are very observant, you must have noticed this too.


To the average expatriate family who lives in Saudi Arabia, it is difficult to make ends meet with this slight increase in the cost of living. It is even harder when the family has children of schooling age in their household. A typical average expatriate family has a yearly income of about 72,000-96,000 SAR (local source) which is just enough to survive during these hard times.


Transportation is another issue too. I hire a driver to take me around as my husband is out of the town nearly all the time. Within the last 3 weeks I changed 3 drivers. Know why? They were asking for more pay and were arguing that the cost of living had increased. Waoh! I have to endorse this? 


It does not end there. We are having another landlord. This is the third one we would be having in 3 years. The owners of our building just keep changing and each new one comes with an increase in rents and a new policy to pay electric bills. 


The increase in the cost of living can be felt by us all. Even the little guy who goes to school would notice that what he had the habit of buying at 1 SAR now costs 1.5 SAR. International economy analysts are predicting that the prices would rise again during the forthcoming months. According to the Arab News, John Sfakianasi, chief economist at the Banque Saudi Fransi in Riyadh, said, "Inflation seems to be on a gradual yet increasing path. The downward base effects are now winding up and headline inflation will be more accentuated."


We should expect more as we get closer to the Ramadan when the prices of basic commodities reach their highest. Disturbances in the country's political system with increasing demands of women's rights, elections, and the release of some prisoners might even make the condition worse...read more.


We hope for the best even when we expect the worst. Whatever be the case, we have to be financially prepared for the coming months.