Life as a U.S. expatriate has many benefits, but it’s not always easy. Being a U.S. expatriate means understanding and complying with two different tax systems. U.S. expats living in the United Arab Emirates must often make some extra considerations while paying their taxes, especially if they are military personnel.
In short, expats living abroad must file taxes and pay them in the United States. This applies to all American citizens, including military personnel stationed in the UAE or the surrounding area. Though tax returns are still due by Tax Day, expats and military members can benefit from a two-month extension granted by the IRS. As we prepare your taxes, we can consider ways to lower your overall taxable income, such as by claiming the foreign tax credit or the foreign earned income exclusion (FEIE) and any other tax breaks you are eligible for while living in the UAE.
For assistance understanding your reporting requirements, call the tax CPAs for expats in the UAE at US Tax Help at (541) 362-9127.
US Tax Guide for Expats Living in the UAE
The United Arab Emirates has many draws for American expatriates, whether they travel for work or to explore the country and enjoy the attractions of some of the country’s most beautiful cities, like Dubai. Whatever your reasoning for moving to the UAE as an American, there are several things you should know about your tax liability to the United States, mainly that it continues to exist.
Do You Have to File US Taxes?
Despite living far away in the UAE, you must still report your annual worldwide income to the IRS. In addition to filing Form 1040 to report your income from your foreign employer, you may have additional filing requirements depending on the foreign financial assets you hold abroad. If you work for an American company while living abroad, you must also report all income from that source.
Expats who remain unaware of their U.S. tax liabilities while living in the UAE could fall seriously delinquent on their taxes. If this happens, you could lose your American passport until you settle any outstanding debts with the IRS.
When Do You Have to File US Taxes?
Most expats living in the UAE have to file their taxes by Tax Day, which typically falls in mid-April. The IRS understands how difficult it can be for expats to file taxes from overseas, so it allows an automatic two-month extension for such filers. While this filing extension exists and expats can take advantage of it if necessary, interest begins to accrue on unpaid tax on Tax Day, despite the extension. Our tax CPAs for American expatriates in the UAE can organize the necessary information about your employer, income, dependents, and residency status to submit all required forms to the IRS by Tax Day.
How to Know If You Are a Covered Expatriate Living in the UAE
U.S. citizens living abroad are required to report their income in both the United States and other countries. This applies to U.S. citizens living in any country, including the United Arab Emirates. People considered “covered expatriates” must meet additional tax requirements (also known as the expatriation tax or exit tax).
Covered expatriates are those whose expatriation date was after June 16, 2008, and who meet the following criteria: a net worth of over $2,000,000 on the date of expatriation, the inability to certify with the IRS that all tax reporting requirements during the five years preceding the date of expatriation were satisfied, or an annual net income exceeding a certain amount during the five years preceding expatriation.
US Tax Preparation for Military Personnel in the United Arab Emirates
United States expatriates who relocate to the United Arab Emirates are usually military personnel, which means they have tax obligations that differ slightly from those of civilians.
Tax Deadlines for US Military Personnel in the UAE
Military members living abroad benefit from the automatic two-month extension for filing their United States taxes. Military members serving in a combat zone (which includes the United Arab Emirates, as well as Iraq, Saudi Arabia, Kuwait, Bahrain, Qatar, Oman, Serbia, Albania, and Afghanistan) or other qualified hazardous duty areas that have a post of duty outside of the United States and Puerto Rico, or who are in military or naval service outside of the United States and Puerto Rico, automatically qualify for this extension.
Military personnel who miss the automatic extended deadline for filing their taxes can apply for another tax filing deadline by filing Form 4868 (Application for Automatic Extension of Time to File U.S. Individual Income Tax Return), which will give them until October 15 to file.
Tax Breaks for US Military Personnel in the UAE
Members of the United States military can benefit from certain tax breaks. They can receive combat pay, not counted as income, reducing their tax liability. Enlisted military members may also benefit from other tax benefits, such as being exempt from counting repayments on student loans and bonuses on reenlistments as income. Military personnel in the Federal Reserves can write off travel expenses if they travel more than 100 miles from home.
Preparing FBARs for American Expats Living in the UAE
American expats living in other countries, including the United Arab Emirates, must file certain tax preparation forms. United States residents living abroad must report their foreign income and assets to the federal government, regardless of the country they live in. The United States is unique because it’s one of the only countries that tax based on citizenship, not residence.
To report their foreign income and assets, American expats can file a Report of Foreign Bank and Financial Accounts, also known as an FBAR. U.S. expats must file an FBAR if they have either signature authority or financial interest in any foreign financial account and if the total value exceeds $10,000 at any point in the year. Our tax accountants can help American expats file their FBAR online using FinCEN Report 114 by Tax Day so that they do not incur financial penalties for non-compliance, which could equate to half the contents of their foreign bank accounts.
Using the Streamlined Offshore Procedures While Living in the UAE
Suppose you are an American expat living in the UAE who has been noncompliant with U.S. tax law. In that case, you may be able to avoid criminal liability by participating in the Streamlined Offshore Procedures through the IRS.
This program allows non-compliant taxpayers to resolve their tax liabilities and reduce their chance of penalties or prosecution by voluntarily disclosing their tax information. However, these procedures only apply to expats whose lapse in reporting was accidental, and they can only be used once to come into compliance with U.S. tax law.
US Tax Preparation for American Expats in the UAE
When preparing your American tax return, our tax accountants can assess all potential ways to lower your taxable income and tax liability to the IRS while ensuring you comply with all filing requirements.
Through tax planning and preparation, we can help expats living in the UAE submit thorough tax returns to the IRS. When preparing expat tax returns, we will first establish residency in the UAE. Being a bona fide resident or passing the IRS’ physical presence test will qualify you for tax breaks, like the foreign earned income exclusion and the foreign tax credit.
In 2024, the FEIE lets expats exclude up to $1265,000 of their foreign income from taxation by the IRS. Depending on how much you earn annually while living overseas, you may exclude much or all of your income using the FEIE. We can figure out your FEIE by completing Form 2555 and submitting it to the IRS alongside other tax forms. The FEIE only lets expats exclude foreign income, so if you work remotely for an American company in the UAE, you cannot exclude that income from taxation.
Expats might remain eligible for some tax breaks that they qualified for while living domestically. For example, you may claim the child tax credit if you have dependents in the UAE.
Tax preparation can alleviate considerable stress for expats living in the UAE, whether they recently moved abroad or have lived in a foreign country for many years. In fact, the longer you live in the UAE and acquire foreign financial assets or build up your savings in a foreign bank account, the more likely you are to incur new filing responsibilities, like the FBAR or IRS Form 8938, Statement of Specified Foreign Financial Assets.
Call Our Accountant for US Expats Living in the UAE
Call our tax CPAs for expats in the UAE at US Tax Help at (541) 362-9127 to learn more about your filing requirements while living overseas.