Internationally renowned for its rich history of fine art, architecture, and cuisine, picturesque Belgium is one of Europe’s top destinations for U.S. expatriates and citizens abroad. However, Belgium’s popularity among expatriates has also brought scrutiny from the IRS, which has become increasingly aggressive in enforcing compliance with U.S. tax requirements in foreign countries in recent years.
If you are an American expatriate living in Belgium or plan to relocate there soon, ensuring total compliance with IRS reporting requirements is essential. For example, in addition to filing an annual tax return and reporting your worldwide income to the IRS, you may also have to submit a Report of Foreign Bank and Financial Accounts (FBAR). Tax returns and FBARs are due on Tax Day, though expats qualify for automatic extensions, which our tax accountants can help them utilize. Failing to file an FBAR or tax return when necessary could lead to expensive financial penalties, whether you live in the United States or abroad in Belgium, and our lawyers can help you avoid such consequences through careful tax planning and preparation.
To learn more from our tax CPAs for expats in Belgium, call US Tax Help today at (541) 362-9127.
Determining US Taxpayer Status as a Covered Expatriate in Belgium
If you expatriated on or after June 17, 2008, and any of the following statements describe you, you are considered a “covered expatriate.” Unfortunately, status as a covered expatriate means that gifts and inheritances you leave U.S. citizens and residents may be subject to a tax rate as high as 40% per 26 U.S.C. § 2001(c).
You may be a covered expatriate if you cannot certify that you complied with all U.S. tax requirements to which you were subject for the five years before your expatriation date to Belgium using Form 8854 (Initial and Annual Expatriation Statement).
You will also be a covered expatriate if your net worth was $2 million or greater on the date you expatriated to Belgium or terminated your residency in the United States or if your net income for the five years before expatriation was more than the specified amounts set by the IRS, which our tax CPAs can explain.
Being a covered expatriate has additional tax implications, such as paying an exit tax, so finding ways to avoid this status is often important. Bringing your net worth below the $2 million benchmark before expatriation and lowering your income tax liability in the years preceding the termination of your U.S. residency could help you avoid being classified as a covered expatriate by the IRS.
Planning Your Taxes as a US Expat in Belgium
When planning your taxes while you live overseas, our tax accountants can identify beneficial exclusions and credits specifically for expatriates, designed to help them legally lower their tax liability to the IRS.
Even though your worldwide income is taxable if you move to another country, you can exclude a large portion from taxation using the appropriate exclusions. If you work and live abroad, you can use the foreign earned income exclusion (FEIE) to deduct up to $1265,000 for the 2024 tax year. If you expatriated to Belgium with your spouse and file a joint tax return, you can exclude up to $253,000 of your joint income from IRS taxation, which might be most or all of it.
Apart from the FEIE, there is the foreign tax credit. You may have to pay income taxes to Belgium while living and working there. The IRS understands this could lead to double taxation, so it lets expats credit income, war, and excess profits taxes paid to Belgium toward their U.S. tax burden.
After relocating to another country, you may still be eligible for some of the same tax credits you claimed while you lived domestically in the United States. For example, expats can continue to claim the child tax credit for eligible dependents after moving abroad and the standard deduction.
You might also have to file a state tax return depending on how long it has been since your move and if you still own property or have ties to your previous state of residence. Our tax CPAs can confirm whether or not this is true in your case so that you do not unintentionally fail to file a state tax return from Belgium, resulting in unnecessary financial penalties.
Which Expats in Belgium Must File an FBAR (Report of Foreign Bank and Financial Accounts)?
FBAR, or the Report of Foreign Bank and Financial Accounts, is an IRS reporting requirement designed to prevent offshore tax evasion by making the disclosure of foreign bank accounts mandatory – and by imposing debilitating fines on those who do not report.
Reporting thresholds for the FBAR are relatively low, especially for expats who live overseas and have most of their money in foreign banks. After moving abroad and transferring savings to a foreign account, you may be required to file an FBAR without even knowing.
Suppose you are a U.S. person with signature authority over or financial interest in a bank account or other financial account in Belgium (or any other country). Or, say that the value of a foreign bank account or accounts exceeded $10,000 at any time during the reporting year. In either case, you must submit an FBAR to the Financial Crimes Enforcement Network, and our tax accountants can help you do this online.
Like your annual tax return, FBARs are due by Tax Day. If you need more time to submit this information and other tax documents, you may qualify for an automatic two-month filing extension because of your status as an expatriate.
Civil and Criminal Penalties for Expats Who Fail to Submit FBARs
Unfortunately, a lack of awareness of their reporting obligations does not excuse taxpayers from substantial financial penalties for failure to file an FBAR. For example, if the IRS finds that you committed a non-willful failure to file for which you did not have a reasonable cause and did not correct by filing any delinquent FBARs, you can be fined up to $10,000 per violation.
For taxpayers who commit willful violations, the penalties increase ten-fold – or more. They may receive a civil penalty of up to $100,000 per violation or 50% of the balance in the account – whichever amount is larger. The very real risk of criminal prosecution may be of greater concern, potentially leading to fines of up to $250,000 and/or a prison sentence of up to five years. The IRS applies an incredibly broad definition of what constitutes “willful” conduct, enabling the agency to prosecute and fine overseas taxpayers, especially if they fail to report foreign bank accounts on other tax forms.
It is extremely important to emphasize that, as is true of any tax matter, avoidance and procrastination will only make the situation worse. If you are concerned about a failure to file an FBAR or other tax documents, the best way to get in control of the situation is to contact our knowledgeable tax CPAs immediately for assistance.
What if You Failed to File US Tax Returns While Living in Belgium?
If you were previously unaware of your continued U.S. tax liability upon expatriating to Belgium, you might be facing IRS penalties that will only grow with time. The sooner you file back taxes with the IRS, the better, and our tax CPAs can help you mitigate consequences in these situations.
The IRS assesses financial penalties for failure to file and failure to pay, even against expatriates unaware of their U.S. tax liability. Over the years, expat taxpayers might become seriously delinquent, and at this point, the State Department might revoke their passports until they settle their outstanding debt with the IRS.
It is important to file any past-due returns with the IRS as soon as possible, and our tax accountants can help filers overseas gather the necessary information to satisfy the IRS. Suppose it has been over three years since a return’s due date. In that case, you may be unable to claim exclusions and deductions that would lower your tax liability or claim tax refunds for previous years. Because of this, you should not wait to initiate this process after learning of your delinquency.
The IRS automatically gives expats a two-month tax filing extension, and they may request an additional six months from the original filing date to submit their taxes to the IRS from overseas.
Call Our Tax Accountants for Help with Your Taxes While Living in Belgium
To learn more from our tax CPAs for expats in Belgium, call US Tax Help today at (541) 362-9127.