What the Trump tax reform bill may mean to US expats overseas

Published:  18 Oct at 6 PM
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Although the mystery surrounding Trump’s latest attempt to cosset his supporter base won’t easily be revealed to tax-paying mere mortals, one thing’s for sure – the UK tax code won’t ever be the same again.

US expats overseas aren’t exactly waiting with bated breath to hear whether or not residence-based taxation will replace the vastly unpopular citizen-based taxation, as most are cynical enough to know the likely answer. As it stands at present, the nine- page initial draft doesn’t address either the citizen-based issue or the Foreign Tax Credit and Foreign Earned Income Exclusion issues. No surprise there, then, that FATCA is mentioned nowhere in the nine pages in spite of desperate appeals by Republicans Overseas and other concerned bodies.

Many American expats suspect the onerous filing of numerous documents in addition to the annual Federal Tax Return was made especially tricky in order to ensure enough genuine mistakes were made to justify fining the innocent, thus increasing tax revenues. Avowed Republican determination to reduce the burdens of US taxpayers generally doesn’t seem to extend to those living outside the USA’s borders. The present document emphasises simplification, terrirorialisation and reduction but, presumably, not if you’re an expat.

There are, however, a few tax-reduction elements in the total package which may affect US expats, but only the wealthier ones. The proposed cut to the highest marginal rate from 39.6 per cent to 35 per cent is a clear gain for those living on high incomes in cheaper countries in South America and Asia. Everyday expats will gain from the Alternative Minimum Tax‘s elimination,, mostly due to the burdensome reporting for those claiming foreign tax credits. However, the vast majority of less-than-wealthy US expats might well prefer more tax relief over less paperwork.

In the end, the biggest wildcard of the Trump tax reform incentive is the remote chance it may lead to a territorial taxation model. This is mentioned, but only with reference to multinationals, with little chance in spite of lobbying expat groups that it might be extended to individuals. Sheer speculation, according to the experts, but at least it gives something expats can hope for.
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