International & Expat Strategy

US Citizenship-Based Taxation

The United States is one of only two countries (along with Eritrea) that taxes citizens on worldwide income regardless of residency. US citizens and green card holders living abroad must file US tax returns and potentially pay US taxes — forever, unless they renounce citizenship.

This sounds onerous, but the practical reality for most expats: between FEIE, FTC, and tax treaties, few actually pay double tax. The burden is primarily compliance complexity rather than additional tax liability.

us_tax_liability = worldwide_income - FEIE - foreign_tax_credit - deductions

Filing Requirement: US persons abroad must file Form 1040 annually if income exceeds filing thresholds (~$13k single), regardless of whether any US tax is owed. Non-filing can result in penalties even when no tax is due.

Foreign Earned Income Exclusion (FEIE)

The FEIE allows qualifying expats to exclude up to $126,500 (2024) of foreign earned income from US taxation. This is the primary tax benefit for most expats.

FEIE Qualification Tests (Choose One)

Bona Fide Residence Test

RequirementFull tax year abroad

IntentIndefinite stay

US visitsBrief trips OK

Best forLong-term expats

Physical Presence Test

Requirement330 days/12 months

IntentDoesn't matter

US visitsMax 35 days

Best forDigital nomads

Earned Income Only: FEIE applies only to wages, salaries, and self-employment income. Investment income (dividends, capital gains, rental income) is NOT excludable and remains taxable to the US.

Foreign Tax Credit (FTC)

The FTC allows a dollar-for-dollar credit for taxes paid to foreign governments, preventing double taxation. This is often more valuable than FEIE for high earners or those with investment income.

effective_rate = max(us_rate, foreign_rate) — you pay the higher of the two, not both

High-tax countries (UK, Germany, France): FTC often eliminates US liability entirely; excess credits carry forward
Low-tax countries (UAE, Singapore, Hong Kong): FEIE more valuable since little/no foreign tax to credit
Investment income: FTC is the only relief available (FEIE doesn't apply)
Self-employment: Must still pay US self-employment tax (Social Security + Medicare) — no exclusion or credit

FEIE vs FTC Decision: In high-tax countries, FTC usually wins. In low-tax countries, FEIE usually wins. You cannot use both on the same income — elect one or the other. The election is binding for 5 years.

Foreign Account Reporting (FBAR & FATCA)

US persons with foreign financial accounts face two overlapping reporting requirements. Penalties for non-compliance are severe — up to $100k+ per violation.

Reporting Thresholds

FBAR (FinCEN 114)

Threshold$10,000 aggregate

What countsAll foreign accounts

Due dateApril 15 (auto ext.)

Penalty$10k-$100k+

FATCA (Form 8938)

Threshold$200k-$600k

What countsFinancial assets

Due dateWith tax return

Penalty$10k-$50k

PFIC Nightmare: Foreign mutual funds and ETFs are classified as Passive Foreign Investment Companies (PFICs) and face punitive US taxation — up to 50%+ effective rates. US expats should generally hold US-domiciled funds only.

Social Security Totalization

The US has totalization agreements with 30 countries to prevent double Social Security taxation and allow credit portability:

Coverage rule: Pay into one system only (typically where you work, not citizenship)
Credit combination: Years worked in both countries count toward eligibility in each
Benefit calculation: Each country pays proportional benefit based on credits earned there
Countries covered: Most of EU, UK, Canada, Australia, Japan, South Korea — but NOT China, India, Brazil

40 Quarters Rule: You need 40 quarters (10 years) of US coverage for Social Security eligibility. Totalization agreements let you combine foreign credits to reach 40, but your US benefit is based only on US earnings.

Retirement Accounts Abroad

US retirement accounts (401k, IRA) work differently for expats:

Contributions: If using FEIE, you may have no US taxable income — can't contribute to Traditional IRA (no deduction benefit) or Roth IRA (need taxable compensation)
Existing accounts: Keep and let grow. Distributions are taxable but may be offset by FTC if you're in a high-tax country
Roth advantage: Roth withdrawals are tax-free to US AND often to foreign country (treaty-dependent)
Foreign pensions: May or may not be US-taxable depending on treaty; reporting requirements vary

Brokerage Access: Many US brokerages (Vanguard, Schwab) restrict or close accounts for non-resident addresses. Interactive Brokers and some others serve expats. Transfer before moving.

Currency & Repatriation Risk

Long-term expats face currency risk on both earnings and accumulated assets. This is the most underappreciated expat planning issue:

Match Liabilities to Assets: Hold assets in the currency of your future spending. If you'll return to the US, keep investments USD-denominated. If you're staying abroad permanently, local currency assets reduce currency risk. If uncertain, split the difference — currency diversification is valuable when the future is unknown.

real_return = nominal_return + fx_gain_or_loss - local_inflation

Earning in foreign currency: USD-denominated expenses (US debts, US retirement) fluctuate in local terms
Returning to US: Foreign savings lose value if USD strengthens during your absence
Currency hedging: Hold assets in currency of future spending; diversify if uncertain
Tax on FX gains: Currency gains on personal transactions over $200 are technically taxable to US

Informational Only

Chubby doesn't yet model FEIE, FTC, or international tax treaties. This page explains concepts only.