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I’ve heard that there is a provision in the US Tax Code that allows a Us Resident to live abroad and be able to earn up to 70,000.00 US Dollars and not have to pay US taxes on that income, is this true?
I’ve also heard that to qualify for this provision, I would have to spend no more than 30 days, combined, in the US in one calender year, or something close to that.
I have a business in the US that is currently being run by Key employees and I would like to consider moving here to CR and needed to find out the ins and outs of this IRS code and how it would effect me.
Would my business be able to pay me as a consultant for this income? Or just how would I be able to legally get paid from this business and not have to pay these taxes on that income?
Any input on this would be appreciated as this would be very important on my decision to move here.
Thanks,
PhilComplicated tax question that. Go to the IRS’s website and read about foreign income. It’s $82,000 now, but there are very strict guidelines as to how you get paid, your time abroad, etc. It sounds simple, but it’s really not unless you meet a long list of criteria.
Hi chariotdriver, while I am absolutely no expert in any why on this subject I do know that C.R. does have provisions for you to bring a business to C.R. if it includes employment of local residents. Also there is something about you having a some form of a limited liability corp..and then the company pays you corp and your corp pays you. So long as your intent is to do things the right way, legally you should get local legal advice and tax advice on how to do this. But I do believe you can put this together
Terry From TexasI believe it is now $84,000 for the wife and also the same for the husband if it is legitimate income. This ‘income’ does not apply to investment income and yes! You would definitely need expert tax advice.
Scott Oliver – Founder
WeLoveCostaRica.comThanks for the info,
I will contact my CPA in the States and get them to look into the particulars for me.
I did not know if this was for income produced OUTSIDE of the US or if it could be from within the US.
Will look into it deeper.
PhilI’m pretty sure the IRS terminology is “foreign earnings”, not “income”. Point is, I think you have to actually work outside the U.S. and receive a salary or wages for the exemption to apply. If not, you can bet we’d be claiming our pension and investment incomes.
The difficulty I see arises in Costa Rica’s restrictions on non-citizens competing for work with Costa Ricans. If you are compensated for services performed and thereby qualify for the tax exemption, you may be in violation of the “no competition” law.
I am replacing this and directing to ava….yes you can get residency and there are tons of things on this site to guide you on this topic. Your income has nothing to do with getting rentista…that has to do with placing $60,000 on doposit and withdrawing $1,000 per month to show proof to C.R. that you are financially stable. See all the messages under search….This is per person…
Terry From TexasEdited on Jun 25, 2007 12:29
Edited on Jun 25, 2007 12:34
The scenario I’m referring to would be consulting for my business that is located in the USA, and would be consulting to it via the internet and telephone and would be paid from that business while here in Costa Rica.
Would either being a resident or not being a resident cause a issue either way?
I would not be keeping any Locals from working as this would be a preexisting job that only I could perform.
Of course I plan on consulting with my CPA but would like any insight onthis while I’m here from anyone that has info.
PhilEdited on Jun 25, 2007 12:03
I’m not sure that is a viable scenario, unless you were paid IN Costa Rica. My husband worked in the Caribbean for a year but to qualify for the tax break he had to be PAID by the resort (St James Club) IN antigua. There are very specific rules governing this income so I’d either read the very long article on the IRS website or consult with your CPA.
Chariotdriver,
I feel your pain… I was in your position years ago while contracting for a Venezuelan oil company… My wife and I completed a 2 year offshore contract and legally avoided US income tax. No doubt a good tax accoutant is essential to pulling this off headache free… Go for it…
PS
You may want to vote for Ron Paul in 2008… He’s looking to abolish the IRS. Bless him!The key here is that you were working for a Venezuelan oil company. Chariot wants to work for his own US company and live in CR. BIG difference.
Maravilla, Maravilla, Maravilla…
As long as Chariotdriver meets certain criterion that I will list below, he can live in Costa Rica, run his business, and be paid in the U.S. FROM HIW OWN COMPANY. And, the “Earned Income” exclusion for Chariotdriver and, if applicable, Ms. Chariotdriver, is $85,700 each for 2007. Here are the rules and a link to the law…
In order to qualify for the exclusion, you must pass three tests:
Your tax home (place where you work) must be in a foreign country
You must have foreign earned income (does not include lodging, meals, fringes)
You must pass either the “bona fide” residence or “physical presence” test in a foreign country.
The “bona fide” residence test is passed if you have a home in a foreign country for at least one uninterrupted tax year. Generally, the tax law anticipates that you have moved to this country with the intention of staying there for a long while. Most people claim the physical presence test instead.The “physical presence” test is passed if, during any 12-month period, you were present in a foreign country for any 330 days. They need not be consecutive, nor does the 12 month period have to be concomitant with a calendar or other tax year. For instance, if you were present from July 1 to June 30 the next year, and you only left the country for a couple of weeks at Christmas, you pass the test.
There is a limit on the amount of foreign earned income that can be excluded. The limit in 2007 is $85,700 (inflation-adjusted thereafter). If the bona fide residence or physical presence tests are only passed for part of a year, it must be pro-rated. For example, our taxpayer above who qualified beginning on July 1 could take an exclusion for that year of $42,850 (since 6 of the 12 months were qualified exclusion months). The pro-ration is calculated down to the day.
You must file a timely return in order to claim the exclusion, and claiming the exclusion means that any tax advantages to income (like IRA contributions) are disallowed to the extent that earned income is excluded. Taking the exclusion also disqualifies you from the earned income credit.
In addition to the foreign earned income exclusion, taxpayers can also claim an exclusion for a foreign housing allowance. Congress has restricted the amount that can be claimed. The limit on the foreign housing exclusion is the following formula:
(30% of your own foreign earned income exclusion – 16% of the greatest possible exclusion)
If you are self-employed, you can deduct any foreign housing costs not already excluded by the earned income exclusion or the housing exclusion.
Amounts your employer gives you for lodging are not taxable, so they also cannot be excluded or deducted from income.
Any exclusion or deduction of housing naturally means that you cannot claim mortgage interest deductions or other tax advantages on that housing. No double benefit is allowed.
One of the biggest changes Congress has made in these rules is the so-called “inclusion amount.” Under the prior law, the income and housing exclusions would be taken off of gross income, and whatever was left would have taxes owed.
Now, the amount of income that is left must be taxed as if the excluded income was never excluded. That means that fairly moderate-income taxpayers will face very high marginal tax rates on fairly low amounts of income.
The details can be found here at: http://www.irs.gov/publications/p54/ch04.html
I hope this helps clarify this issue. It is a WONDERFUL thing…
Sincerely,
Jerry
You’re right, and now I need to grill our accountant who told me we might not qualify for that $80,000+ exemption even though we have similar circumstances. Nothing like a confusing tax code.
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