iTHINK Financial logo

Working and Paying Taxes Oversees

If you're considering a move abroad, it's imperative that you explore all visa requirements beforehand and stay on top of your tax obligations once you arrive.

1040 and W-2 tax forms.

Moving to an exotic foreign locale and finding a rewarding job is a dream for many people. Yet making that fantasy a reality requires navigating unfamiliar bureaucratic systems -- while also keeping the tax collector happy back home.

To help you seamlessly negotiate this process, let's take a closer look at what you need to know about working and paying taxes while you're living overseas.

How to find legal work overseas

Working in another country isn't as simple as picking up, moving and looking for a job. In most cases you'll need a visa in order to live and work in your new location. The rules and requirements governing work visas can be quite complex and vary from jurisdiction to jurisdiction.

For example, residents of European Union nations can live and work freely in all member states. Residents of the United States, on the other hand, need to apply for work visas in most European countries. Additionally, variables such as the amount of time you can spend working in a country or the types of jobs you can do are all governed by the terms of visas.

It should also be noted that many countries require those applying for a work visa to either have a job offer in hand, proof of income or savings. There is one way around these requirements, however: working as a "digital nomad."

If you're a freelancer who works online -- and you don't employ or work for anyone else -- you can work while on a tourist visa. This lifestyle has grown increasingly popular as online work becomes more prevalent and expats seek ways to reduce expenses by working in areas with low costs of living.

Paying taxes while overseas

While you might work thousands of miles from home, you should always be aware that you're still well within arm's reach of the taxman. When working overseas, you still must pay all relevant taxes. For example, U.S. residents are still on the hook for income taxes. If you're a U.S. citizen who freelances overseas, you're still obligated to pay self-employment taxes as well.

There are some exceptions to ease the burden. If you're a U.S. resident working overseas, you can exclude some of your taxable income if you meet certain IRS requirements. Generally speaking, you can exclude up to $100,000 if you spend the full year abroad, a figure that goes down on a sliding scale based on how much time you spend overseas.

Don't forget that you'll also be subject to the taxes of your host nation. The U.S. offers a foreign income tax credit that allows you to deduct the value of foreign taxes paid from your domestic tax bill. The goal here is to avoid double taxation.

Ultimately, satisfying your tax burdens is often a complex challenge that can vary significantly depending on the laws of both your home country and the jurisdiction in which you now live. If you have any concerns, it's advisable to meet with a professional who can give you informed advice tailored to meet your needs.

The Takeaway

Living and working overseas is something that many of us dream about. Yet the reality isn't as simple as buying a plane ticket and relocating. If you're considering a move, it's imperative that you explore all visa requirements beforehand and stay on top of your tax obligations once you arrive.