Are you an American staying and earning in Thailand? Then this Tax Checklist for US Expats in Thailand is something that you will need now. Tax season is approaching and very soon it will be the time to declare your income in Thailand to pay taxes.
To start with, let us update you with a change in the current tax year!
For low online electronic payments of more than $600, the IRS granted a one-year extension to the deadline for the issuance of 1099-Ks by third-party payment systems including Paypal, Zelle, Venmo, Uber, e-Bay, and others. Yet, US expat taxpayers still have to record business income on their returns in 2022, despite the one-year delay in 1099-K issuance.
Hopefully, this update was insightful for you. This article aims to provide you with the details of all the forms that you need to know to save yourself from over-taxation or double taxation. Go through this and consult with a reliable tax lawyer or consultant in Thailand to get the maximum benefits.
- FinCEN 114—Report of Foreign Bank and Financial Accounts (FBAR)
- Form 2555—Foreign Earned Income and Housing Exclusion
- Form 1116—Foreign Tax Credit (FTC)
- Should you take the Foreign Earned Income Exclusion (FEIE), or use the Foreign Tax Credit (FTC)?
- Statement of Foreign Financial Assets – Form 8938
- Information Return for Passive Foreign Investment Company (PFIC) – Form 8621
- Information Return of U.S. Person with Respect to Certain Foreign Corporations – Form 5471
- Form 8992 U.S. Shareholder Calculation of Global Intangible Low-Taxed Income (GILTI)
- Return of a U.S. Transferor of Property to a Foreign Corporation – Form 926
- Information Return of U.S. Persons with Respect to Certain Foreign Partnerships – Form 8865
- Annual Return to Report Transactions with Foreign Trusts & Receipt of Certain Foreign Gifts – Form 3520
- Information Return of Foreign Trust with a U.S. Owner – Form 3520-A
FinCEN 114—Report of Foreign Bank and Financial Accounts (FBAR)
You must report all foreign financial accounts, even if some have zero or negative balances, each year to the U.S. Department of the Treasury. This is mandatory if you own or control one or more foreign financial accounts. These accounts can be bank accounts, brokerage accounts, mutual funds, unit trusts, or other types of financial accounts. This is applicable only if the total value of all your foreign financial accounts was over USD 10,000 at any point during the year. On the BSA E-Filing System website, you can submit this form online.
The FBAR may not require the reporting of foreign bonds that are not in a foreign bank account. Nonetheless, investors can use Form 8938 to declare this kind of investment. There is no harm in reporting it on the FBAR as well, given there are few FinCEN guidelines regarding FBAR reporting.
Schedule B for Interest and Ordinary Dividends
You must file Form B in addition to reporting interest and dividends if you have a foreign bank account, signatory authority over one, received distributions from a foreign trust, or were a trustee of a foreign trust. If any of those situations apply to you, submit the schedule and tick the “Yes” box in Part III 7a. This is necessary, per the schedule’s instructions, even if you are exempt from submitting the FBAR or FinCEN Form 114 mentioned above.
Form 2555—Foreign Earned Income and Housing Exclusion
Use this form to potentially exclude or deduct housing expenses as well as up to USD 112,000 in overseas earned (salary) income for 2022 if you are eligible. The typical annual cap on housing costs for 2022 is USD 33,600. The maximum standard housing exclusion for 2022 is USD 15,680 after removing the USD 17,920 base housing expense. Yet, if you reside in a high-priced city in 2022, you might be eligible for larger deductions. In places like Bangkok, the deduction is USD 59,000.
Form 1116—Foreign Tax Credit (FTC)
You can seek credit against any U.S. taxes payable by submitting this form. This will be possible if you have paid international taxes on foreign income. This foreign income can be from your salary or investments. Additionally, you haven’t excluded the income from your U.S. taxes.
Should you take the Foreign Earned Income Exclusion (FEIE), or use the Foreign Tax Credit (FTC)?
If you have a high income and live in a country with a high local tax rate, like Thailand, you can save more money on US taxes. You can do so by employing the FTC alone rather than the FEIE and FTC together. This is even more true now that the tax rate is low; even if the FEIE has increased in value in US dollars, the savings in US taxes are now smaller because lower US marginal brackets are in effect. To determine whether FTC could be a better option, it can be beneficial to compute your US tax burden under both FEIE and FTC. Please keep in mind that you can only reissue the FEIE for another five years if you receive IRS clearance.
Statement of Foreign Financial Assets – Form 8938
If your filing status is Single, Head of Household, or Married Filing Separately and you had more than USD 200,000 in total specified foreign assets on the last day of the year or more than USD 300,000 at any point during the year, you must submit Form 8938 for the tax year 2022. If your total specified foreign assets were USD 400,000 or USD 600,000 at the end of the year, you must submit Form 8938 if you are a married U.S. expat filing jointly. Specific foreign assets include, for instance:
- Savings, deposit, checking, and brokerage accounts held with a bank or broker-dealer
- Any interest in a foreign-issued insurance contract or annuity with a cash-surrender value
- Stock or securities issued by a foreign corporation
- A note, bond, or debenture issued by a foreign person
- A partnership interest in a foreign partnership
- An interest in a foreign retirement plan or deferred compensation plan
- Real estate that is owned through a foreign entity, such as a corporation, partnership, trust, or estate
- An option or other derivative instrument with respect to any of these examples or with respect to any currency or commodity that is entered into with a foreign counterparty or issuer
- An interest in a foreign estate
Information Return for Passive Foreign Investment Company (PFIC) – Form 8621
Foreign-domiciled mutual funds, offshore investment plans, foreign money market funds, and resident country tax-deferred funds like Thai RMFs, SSFs, and LTFs are examples of passive foreign investment firms (PFICs). If you directly or indirectly own shares in a PFIC, you must normally submit Form 8621 annually for each PFIC you own if the total value of all your PFICs at year’s end exceeds USD 25,000, or USD 50,000 for joint filers.
Your PFIC may occasionally give shareholders a “PFIC Annual Information Statement.” This declaration enables you to select qualified electing fund (QEF) status on Form 8621, resulting in taxation in the United States that is comparable to a mutual fund with a U.S. domicile. Your options are to choose “mark-to-market” treatment or to fall back on the stricter “excess distribution” standards, which results in the maximum amount of U.S. tax owing if your PFIC does not offer this statement. The tax calculations and PFIC laws are intricate; it is best to seek assistance from a seasoned tax preparer who is familiar with the form.
Information Return of U.S. Person with Respect to Certain Foreign Corporations – Form 5471
Shareholders of controlled foreign corporations (CFCs) are required to complete this form together with any necessary schedules. If you possess 10% or more of the shares or have control over 10% of the voting rights of a foreign firm, it is typically categorized as a CFC. American expats who have major ownership shares in bars, restaurants, or other enterprises that are registered abroad may be required to complete this form. Be aware that starting in 2018, Form 5471 has been updated to reflect a number of changes brought about by the Tax Cuts and Jobs Act. Even more complicated are the requirements for filing Form 5471, as well as the form itself, as well as the various mandatory schedules and footnotes.
Form 8992 U.S. Shareholder Calculation of Global Intangible Low-Taxed Income (GILTI)
The Tax Cuts and Jobs Act mandates that U.S. taxpayers who are 10% or more owners of CFCs pay current year tax on specific types of income from their CFC, regardless of whether the revenue is distributed or repatriated, in addition to the 2017’s Section 965 “Transition Tax” described below. Form 8992 is used to calculate the GILTI tax. Similar to Form 5471 and the Section 965 Transition Tax, is difficult to understand. Shareholders in CFCs may want to speak with a professional tax advisor.
Section 965 – One-time Transition Tax for Shareholders of foreign corporations
The Tax Cuts and Jobs Act includes a one-time “transition tax” on the business’s undistributed retained earnings as of December 31, 2022, for US taxpayers who control 10% or more of a foreign corporation. Further supporting information and statements pertaining to the transition tax were required to be provided in the 2022 1040 filing and the tax, or at least a portion of it, was scheduled to be paid in 2023. If you neglected to do this, you might want to review your 2022 and later tax filings by speaking with a certified tax professional. If you decided to pay the tax over an eight-year period, don’t forget to make the annual installment payments.
Form 926—Return of a U.S. Transferor of Property to a Foreign Corporation
You have to submit this form must often in the year that you make any transfer. It can be the transfer of money, assets, or other types of property (tangible or intangible) to a foreign firm. Moreover, U.S. citizens will need this form who are just starting out and providing startup capital to a foreign business. Additionally, this is applicable for firms that add new capital or assets to an established business.
Form 8865—Information Return of U.S. Persons with Respect to Certain Foreign Partnerships
You will have to file this form to report income and transactions between you and any partnership. Additionally, this is necessary only if you are in a foreign partnership with five or fewer U.S. partners. Moreover, this applies if your foreign partners own 10%+ equity and collectively hold more than 50% of the partnership.
Form 3520—Annual Return to Report Transactions with Foreign Trusts and Receipt of Certain Foreign Gifts
You can use this form to disclose any business dealings you may have with foreign trusts. Additionally, you can declare significant gifts ($100,000 or more) you may get from foreign individuals, corporations, or partnerships. Please note that the value should be greater than USD 17,339 for 2022.
Form 3520-A—Information Return of Foreign Trust with a U.S. Owner
You must submit this form if you are the owner of a foreign trust in order to provide details about the trust, any U.S. beneficiaries, and anyone who is an owner of any share of the trust. While completing Form 3520-A does NOT automatically extend the due date for the taxpayer’s extended tax return, it is mandatory. Alternatively, submit Form 7004 to ask for a Form 3520-A filing extension.
More paperwork gets mandatory depending on your scenario. However, the Tax Checklist for US Expats in Thailand never deems to be exhaustive. However, failure to file the relevant paperwork was unintentional, there may still be severe penalties.
For advice specific to your circumstance, please consult tax professionals in Thailand who are proficient in dealing with expat taxation. Therefore, email us your requirement at [email protected] to get complete tax assistance.
