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Posted by L K Williams on October 27, 2006, 10:55 pm
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aleigh2715@excite.com wrote:
> I am a US citizen considering an employment offer to work in
> China for a foreign (Dutch) company. I would receive 100% of
> my salary in chinese
>
> RMB currency, no salary would be paid in USD. I expect to
> pay about 30% in various taxes to the Chinese govt.
>
> Can anybody give me some insight about how does the US
> determine my tax liability for my income? Do I get "double
> taxed" on the same income, or does the IRS have some formula
> such as I would normally owe 35% tax on so since I already
> have paid 30% to China, then I only need to pay the
> difference of 5% to the US?
>
> Also I am aware of the Foreign Earned Income Exclusion for
> people who maintain a physical presence outside of the US.
> This will apply to me, and actually I expect to be able to
> declare my tax home (bona fide residence) to be in China. So
> when we look at the threshold of the first 80k of income
> being excludable, is this from my pre-tax income or income
> received after paying chinese taxes?
>
> Any replies (or suggestions for further reading) will be
> appreciated.
If you meet the requirements (and it sounds like you
probably will) you would qualify for the foreign earned
income exclusion. You would report your gross salary
(before Chinese taxes) and then take the exclusion. If you
cannot exclude all of your Chinese income, you could claim a
credit for the Chinese taxes paid on that portion of your
income that is not excluded.
The rules relating to foreign income can appear to be
relatively simple but actually applying them to a real
situation is not always easy. Particularly in the first
year or two, the computations can be quite complex. It is
not usually a "do-it-yourself" project.
I strongly recommend that you consult a professional who is
experienced in expat tax matters.
Lanny K. Williams, CPA
Nawarat, Williams & Co., Ltd.
Income Tax Services for Expatriate Americans
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