If you plan on moving to Vietnam or have recently relocated, it is critical to familiarize yourself with the tax requirements you are subjected to as a U.S. citizen, even when living abroad.
Even unintentional compliance failures can subject you to costly civil penalties from the IRS while living in Vietnam. Even if you are confident you completely comply with IRS reporting requirements, you may miss opportunities to take advantage of credits and deductions, such as the foreign tax credit. Our tax accountants can strategically plan your annual return so that you reduce your taxable income as much as possible while also disclosing all necessary foreign financial assets and accounts. Whether you owe back taxes, have questions about the credits and deductions you may claim, are being audited by the IRS, or need assistance with other tax matters, we are prepared to provide taxpayers with nuanced guidance and professional representation.
To learn more about US Tax Help and what our tax CPAs for expats in Vietnam can do for you, call (541) 923-0903 today.
Does the IRS Require Citizens Abroad in Vietnam to File a US Income Tax Return?
Unlike most countries, the United States requires citizens living abroad to file an income tax return (Form 1040). Many expats might be unaware of this after relocating to Vietnam, which could lead to consequences, such as financial penalties from the IRS.
The deadline to file a tax return is normally Tax Day, but if you were or will be residing in Vietnam on that date, you qualify for an automatic two-month extension, which pushes the deadline back to June 15. If you are unable to file your return by June 15, our tax CPAs may further extend the deadline to October 15 by completing and submitting Form 4868 (Application for Automatic Extension of Time to File U.S. Individual Income Tax Return).
If you fail to file a timely return, you will be subject to costly fines. Furthermore, depending on whether the failure to file was deliberate or unintentional, you could even be criminally prosecuted by the Department of Justice. At the civil level, the IRS typically begins by levying a failure to file a penalty against taxpayers. This starts at a 5% penalty for each full or partial month your tax return went un-filed after the due date. This penalty is capped at 25% of the unpaid tax amount. The IRS might also impose a failure to pay penalty, which could be a 0.5% penalty for each full or partial month your taxes went unpaid after the due date. This penalty is also capped at 25% of the unpaid tax amount.
As one can infer from these penalties, failures to file are more serious than failures to pay. If you did not file a tax return in previous years or failed to pay taxes by the due date, you should talk to our tax CPAs for expats in Vietnam about returning to compliance as soon as possible. The longer you wait to address the problem, the fewer paths toward resolution will remain open, and the IRS may be less likely to offer you a repayment plan.
What Our Tax CPAs Consider While Planning Taxes for US Expats in Vietnam
Through tax planning services, our tax CPAs can help ensure expats pay the least amount possible to the IRS while living abroad in Vietnam and remain compliant with all IRS filing requirements for expatriates and taxpayers in general.
If you have recently established residency in Vietnam, you may be eligible for several new tax deductions and perks, starting with the foreign earned income exclusion (FEIE). Since you no longer live in the United States or reap the benefits from paying taxes there, the IRS lets you claim the FEIE to exclude a good amount of your income while living abroad, up to $126,500 per person in 2024.
You might be able to claim the foreign tax credit on income taxes paid to the government in Vietnam, provided you have not already claimed that income toward the FEIE. The foreign tax credit lets expats apply taxes paid to foreign governments to their potential U.S. tax liability, eliminating the possibility of double taxation in many instances.
Our tax accountants can also confirm if you are still eligible for some of the exclusions or credits you claimed while living domestically in the United States. For example, you should still qualify for the child tax credit for eligible dependents and the standard deduction available to all U.S. taxpayers.
Filing IRS Form 8938 While Living in Vietnam as a US Expat
Depending on the foreign financial assets you accrue after moving abroad to Vietnam, you may gain new IRS filing requirements, such as Form 8938. This is an international information return and is not for tax purposes. However, the IRS can financially penalize taxpayers who do not include a completed copy of Form 8938 with their annual tax returns.
You may not have to file Form 8938 until you have lived abroad for several years, as the reporting thresholds for expatriates are relatively high. Our tax accountants can review your various foreign financial assets to see if they were valued over $200,000 on the last day of the tax year or $300,000 or more at any point during the tax year. If you file your annual return jointly with your spouse, the reporting threshold form for submitting Form 8938 and disclosing foreign financial assets doubles.
The due date for Form 8938 is also Tax Day, and we can submit it to the IRS attached to your tax return and other necessary forms. You will not be taxed based on the information you give the IRS in Form 8938, but you could be fined $10,000 for each year that you fail to disclose the necessary information to the IRS.
Do I Have to File an FBAR if I Live in Vietnam? What Are the Penalties if I Don’t?
Over the past few decades, Vietnam and the United States have made huge strides to mend relations and cooperate with one another on international affairs. As a result, Vietnam has become an increasingly popular destination for Americans from all walks of life, many of whom settle around major urban centers like Ho Chi Minh City, Hanoi, and Da Nang.
However, another consequence of this increased cooperation is that the Vietnamese and U.S. governments are sharing more information about taxpayers. The IRS is cracking down on businesses and individuals who fail to disclose their income and assets to the U.S. government more frequently.
If you have income or assets in Vietnam, you may be subject to mandatory disclosure laws. More specifically, you must file an FBAR (Report of Foreign Bank and Financial Accounts) if you have signature authority over, or financial interest in, a Vietnamese bank account or financial account whose value exceeds $10,000 at any point in the reporting year.
Like failing to file a tax return, failing to file an FBAR also carries considerable penalties. Unintentional failures to file can result in penalties of $10,000 per violation. In contrast, “willful” failures are subject to penalties of up to $100,000 per violation or 50% of the account balance – whichever figure is greater. Willful FBAR violations can lead to criminal prosecution, which may result in fines of up to $200,000, up to five years of incarceration, and a permanent criminal record.
Avoiding Consequences for Expats Unaware of Their US Tax Liability
The State Department can revoke passports from expats who are seriously delinquent on their U.S. taxes, and the IRS might even initiate criminal investigations into expatriates who were previously unaware of the U.S. tax liabilities. To mitigate the consequences of your failing to file taxes in the past, our tax CPAs can help you participate in an IRS program called the Streamlined Offshore Procedure.
According to the IRS, this invaluable program “enables non-compliant taxpayers to resolve their tax liabilities and minimize their chance of criminal prosecution. When a taxpayer truthfully, timely, and completely complies with all provisions of the voluntary disclosure practice, the IRS will not recommend criminal prosecution to the Department of Justice.”
Too many taxpayers living abroad assume the IRS will pass them over for criminal prosecution because there are “bigger fish to fry.” Unfortunately for taxpayers with this mindset, the IRS has become increasingly vigilant and proactive in its investigations of suspected tax evasion, tax fraud, and other acts of noncompliance. In particular, in recent years, the IRS has increased its efforts to investigate American expatriates and other U.S. taxpayers holding undisclosed offshore accounts with foreign financial institutions (FFIs).
Passing IRS Residency Tests as a US Expat in Vietnam
To use expat-specific exclusions and credits, such as the FEIE or the foreign tax credit, you must meet certain criteria. We can gauge if you pass either the bona fide residence test or the physical presence test, which would allow you to lower your taxable income from abroad.
To be a bona fide resident of Vietnam, you must live there for an interrupted period that covers an entire tax year. To otherwise qualify for these credits and exclusions, you must be physically present in Vietnam for at least 330 full days over a consecutive 12-month period. Because residency requirements exist to qualify for the foreign tax credit and the FEIE, not all taxpayers are eligible immediately after expatriating to Vietnam, and we can notify you when you qualify and find otherwise to comply while lowering your taxable income in the interim.
Call Our Tax Accountants for More Information About US Taxes for Expats Overseas
For more information about US Tax Help and how our tax CPAs for expats in Vietnam can assist you, call (541) 923-0903 today.