At Expatax Albania, our aim is to simplify complex tax issues for expatriates and retirees. This detailed guide focuses on US citizens – be they expats or retirees – residing in Albania. While this country has no Double Taxation Treaty (DTT) or totalization agreement with the US, it is still a very attractive destination from a tax perspective, having very low tax rates of its own, a reasonable cost of living and an appealing, Mediterranean lifestyle. US residents in Albania are afforded a number of tax credits that generally nullify one’s tax burden in the United States. Here, we also highlight the critical aspects of US tax compliance, exclusions, and credits available. Let’s dive in!
Table des matières
Understanding US Expat Tax Duties in Albania
American expats face a unique set of challenges when it comes to US tax compliance.
- Mandatory Filing: All US citizens, regardless of residency, must file annual tax returns with the IRS, reporting global income.
- Additional Reporting Requirements: Depending on your financial situation, forms like IRS Form 8938 (Statement of Specified Foreign Financial Assets) and FinCEN Form 114 (FBAR) may be necessary.
Whether you end up paying tax in the US as well as in Albania depends on what exemptions you will avail yourself of (more about this below) and on your total income while residing in Albania.
Risks of Non-Compliance With IRS Guidance
Failing to comply with these obligations can have severe consequences. Detection by the IRS is highly probable due to international data sharing, and ignorance of the law is not a valid defense.
Consequences and Penalties
Not filing or late filing can lead to penalties. The maximum total penalty can reach up to 47.5% of the owed amount, emphasizing the importance of compliance.
Seeking “Forgiveness” from the IRS for Non-Compliant US Expats
Expats unaware of their tax obligations should know about the IRS’s “Streamlined Filing Compliance Procedures.” These procedures can help avoid penalties by certifying unintentional ignorance of the laws. To comply, file the last three years of income tax returns and submit FBARs for the past six years. The procedure can also help claim refunds or clear tax debt. Use the links below to complete the process.
Foreign Assets Must Be Regularly Reported To The IRS
The FBAR requirement applies to U.S. residents who own or control foreign financial accounts, including joint accounts. If the total value of your foreign accounts exceeds $10,000 at any time during the year, you must file an FBAR. You can file this form online without needing a special account.
IRS Provisions for Expats in Albania
Several IRS provisions can help reduce your tax burden:
- Foreign Earned Income Exclusion: For 2023, up to $120,000 can be excluded.
- Foreign Housing Exclusion/Deduction: This provision allows for the exclusion or deduction of certain foreign housing expenses.
- Foreign Tax Credit (FTC): Credits for taxes paid to the Albanian government can offset your US tax liability.
Eligibility Criteria for Exclusions
To qualify for these benefits, you must have foreign earned income, your tax home must be in a foreign country, and meet one of the following criteria:
- Bona fide resident of a foreign country for an entire tax year.
- Physically present in a foreign country for at least 330 full days within a 12-month period.
Practical Tax Implications for US Expats in Albania
As a rule of thumb, the combination of the foreign income exclusion, housing exclusion, and Albanian tax credits means that you would likely need to earn above USD 150,000 in 2023 to owe any US tax. Again, this is rough guidance and you’ll need to have your calculations done properly anyway in order to file in the US – and don’t forget, you’ll need to file in Albania too, even if you pay little or no tax there. Specialists versed in both Albanian and US tax are available to help through this process.
Conclusion
Navigating the US tax system from Albania can be daunting, but understanding your obligations and the benefits available is key to avoiding penalties and minimizing your tax liability. At Expatax, we provide the expertise and resources to help you stay compliant and make informed decisions about your tax situation.
Sources d'information
IRS tax guide for US citizens resident abroad
IRS Streamlined Filing Compliance Procedures
IRS guide: how to file Streamlined Filing Compliance Procedures
