U.S. Entrepreneur Abroad

As a self-employed entrepreneur living overseas, the first thought that should enter into your mind is how will the U.S. government tax me.

Similar to employees, the United States government taxes self-employed people on their worldwide income. The self-employed person must maintain detailed books and records, and keep track of all business revenues and expenses on an annual basis. The net earnings from self-employment income is subject to a 15.3% tax, also called Self-employment Tax (SE Tax). SE Tax is comprised of Social Security and Medicare taxes.

The foreign earned income exclusion and/or foreign tax credits can be used to offset U.S. income taxes generated by self-employment income. These double tax prevention mechanisms, however, do not affect the SE Tax, leaving the self-employed person exposed to the gripping 15.3% tax.

Luckily, if you live in 1 of the 26 countries listed below, the United States has social security agreements, also known as Totalization Agreements, ensuring that the individual is covered under one social security system. This ensures that you will not be subject to paying double social security.

If a U.S. citizen/resident is conducting or investing into a business through a foreign entity organized and/or incorporated outside the United States, such as a foreign corporation or a foreign partnership, technical informational reports may be required, such as:

• Form 5471 (U.S. Persons With Respect to Foreign Corporations)
• Form 5472 (25% Foreign- Owned U.S. Corporations or Foreign Corporation Engaged In U.S. Trade or Business)
• Form 8858 (U.S. Persons With Respect to Foreign Disregarded Entities)
• Form 8865 (U.S. Persons With Respect to Foreign Partnerships)

All the aforementioned areas should be discussed with our International Tax Experts.

XPAT 1040 specializes in international tax compliance for U.S entrepreneurs relocating or living abroad.

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