If you are an U.S. expat working in the UAE, your earnings are free of foreign tax, but what can you do to minimize your U.S. tax liability? Good record keeping is imperative. Find out more about claiming exclusions and expenses.
For expats, one of the many benefits of living and working in the UAE is the fact that their UAE income are free of foreign tax. However, the U.S. taxes the income of its citizens and residents without regard to where they are working or living, meaning you could have a U.S. tax liability arising from the income you earned in the UAE.
While the U.S. taxes its citizens and residents living and working abroad, it also affords them the ability to exclude all or a portion of their income by claiming the foreign earned income and foreign housing exclusions. These benefits allow taxpayers to remove a portion of their earned income (i.e. wages, service income) from U.S. taxation regardless of whether any foreign tax was paid on those earnings. The amount of these benefits that you will be eligible to claim will depend both on where you are located during the year, your status as a resident in the UAE, and the amount of your housing expenses.
With that in mind, you will want to keep track of the days you spend in the U.S., if any, and the amount of housing expenses you incur during the year. For this purpose, housing expenses include reasonable amounts spent on rent (or the fair rental value of housing provided by an employer), utilities (excluding telephone charges), real and personal property insurance, nonrefundable fees for securing a lease, residential parking fees, and costs associated with renting furniture and accessories. Taken together, these benefits will eliminate the tax liability of many expats living abroad.
However, if your earnings exceed the amount excluded under the foreign earned income and housing exclusions, you may be eligible for other tax benefits to reduce your U.S. tax liability. Our team of trained tax experts is ready to help you to ensure that you don’t pay any more tax than is required.