What will I owe in taxes?
Expats receive a $91,400 exemption from the IRS for all income earned while living abroad. Interest from your savings, dividends, pensions, or annuities are not exempt—it must be earned income.
Here’s the bad news: The United States is one of the few countries that taxes its citizens anywhere they live on their worldwide income. Fortunately, the U.S. government has agreements with many countries that prevent expats from paying income tax both to their adopted home and to the IRS. Yes, the only sure things for Americans are death and taxes.
What about foreign taxes?
Taxation abroad can be complex and subject to change. In general, property taxes are very low in Latin America, but capital gains taxes can be hefty. Property taxes in Europe are similar to those in the U.S.
Many Americans are unfamiliar with the VAT, or value-added tax. In Europe a 15 to 21 percent VAT is tacked on to nearly everything you buy, with the exception of such staples as food. Some Latin American countries have similar sales taxes, but they’re often ignored.
As for taxes on income and capital gains, consult a local tax attorney. Let’s say that again: Consult a local tax attorney. Don’t use the Internet—hucksters selling their services are common. Visit the country, talk to expats, and ask for a professional with experience in taxes. In France, for example, you enter a labyrinth of taxation, with higher taxes than Uncle Sam’s. Do your homework.
Do retirees get special senior benefits?
U.S. foreign residents of a certain age—it varies, but can be as low as 45—typically receive the same benefits as local seniors. In Europe, standard senior benefits are similar to those in the United States. (Europeans retire considerably earlier than Americans, though that is changing.) In Latin America, special benefits for foreign retirees—tax breaks and lower import duties on personal belongings, for example—can be generous, with Panama a prime example.
How do I collect my Social Security payments?
Many expats have their Social Security and pension checks deposited into their U.S. bank account and withdraw money at local ATMs (at the most favorable exchange rates) as needed. New federal regulations—part of an effort to track down drug and terrorist transactions—have made it difficult for U.S. expats to open an account abroad, and in some cases to keep their accounts open in the States. The inconvenience has led some expats to renounce their American citizenship, a drastic move.
What residency requirements should I expect?
Generally, the main requirement is proof of income. The government wants assurances that you won’t become a ward of the state, or take away a local job. Your income requirement varies from $600 a month per couple in low-cost countries to as much as $2,000 a month and more elsewhere in Latin America and Europe. You also have to prove you’re healthy and have no criminal record. Each country has its own hoops you’ll jump through to become a legal resident, so study the official government sites and take your leads from local expats. Many hire a local “facilitator” to walk them through the process.