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Phuket Business: You can run, but you can’t hide

Legacy Phuket Gazette

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Phuket Business: You can run, but you can’t hide | The Thaiger
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PHUKET: In light of the ongoing ‘federal fiscal fiasco’ in Washington DC, the US tax regime is looking to grow its global revenue pool, with American expats residing in places like Phuket high on the list to be scrutinized.

Recently a group of American taxpayers gathered in Phuket for an informative yet dreaded update seminar about the latest income reporting and tax filing requirements for US citizens earning income abroad.

Sponsored by the Phuket chapter of the American Chamber of Commerce (AMCHAM) at the Holiday Inn, Patong, the seminar was presented by international tax specialist John Andes, a US CPA and Thai-American partner with the Bangkok-based accounting firm KPMG Phoomchai Tax Ltd.

Mr Andes reiterated that all American citizens, regardless of their domicile or residency status, are required to file US income tax returns annually, report worldwide income and disclose certain information about foreign investments.

Americans residing overseas who have earned income – no matter how or where they were paid – have two primary options to consider when trying to reduce their US tax obligations.

Foreign Earned Income

Qualified individuals can claim the foreign earned income (FEI) exclusion by filing form 2555, which is filed with Form 1040. Almost all US taxpayers residing outside the US will need to file paper returns.

The IRS center in which to send the forms will differ depending on whether there is a payment due or not.

This information is explained in the form 1040 instructions, or through the tax software or tax preparer.

In order to elect the FEI exclusion, US citizens or permanent residents (green card holders) must qualify by meeting three criteria.

The first is to pass either the bona fide residence test, or alternatively, the physical presence test.

To pass the bona fide residence test, a US taxpayer must have lived in a foreign country for an uninterrupted period that includes an entire tax year (January 1 – December 31).

This test also requires that the taxpayer did not claim to be a non-resident of the foreign country of residence for its tax purposes.

Slightly more flexible, the physical presence test requires the taxpayer to be physically present in a foreign country (or countries) for 330 full days during any consecutive 12-month period – though not necessarily in the same calendar year.

In addition to passing one of the above tests, the taxpayer must have changed his tax home from the US to the foreign country, and if the foreign country has an income tax, the taxpayer’s earned income must be subject to that country’s income tax.

Mr Andes noted that the annual ceiling – the maximum amount of FEI that can be excluded – is $95,100 for the 2012 tax year, and will increase to $97,600 for the 2013 tax year.

He went on to address the so-called statute of limitations on how far back the IRS is authorized to conduct a tax audit.

“There is a three year statute of limitations for the IRS to audit a tax return. The statute of limitations is six years if the taxpayer omits additional gross income in excess of 25% of the amount of gross income stated in the tax return filed with the IRS.

“The important thing to remember is that in order to evoke the statute of limitations, you need to file the required tax return and information returns.”

“If you fail to comply [by not filing] and they [the IRS] decide to investigate you, then there is no statute of limitations to be evoked. This means that the IRS can audit you as far back as it wants.”

Foreign Tax Credit

Another option for American taxpayers to consider when looking to reduce their US tax obligation is to claim a foreign tax credit for foreign income taxes paid or accrued on income taxable in the foreign country and the US.

This credit, designed to avoid double taxation, cannot be claimed against income that was excluded from US taxation through the FEI exclusion.

“The foreign tax credit reduces actual US tax on a dollar-to-dollar basis; a deduction for foreign taxes only reduces income subject to tax,” he said.

Whether to elect an FEI exclusion or claim a tax credit depends on if the taxpayer’s non-US tax home is in a high tax jurisdiction (which varies depending on income bracket) such as Thailand or countries in the European Union.

“If you are in a high tax rate jurisdiction, meaning you are paying taxes at a higher rate in the foreign jurisdiction than you would in the US, then it makes more sense to forgo the FEI exclusion election,” he said.

John added that once an FEI exclusion is elected, it remains in effect for all subsequent years unless revoked. However, once revoked, it cannot be re-elected before the sixth year following the year the revocation was effective, unless the taxpayer obtains the IRS Commissioner’s consent, he warned.

US taxpayers who are living abroad on the general tax filing deadline of April 15 get an automatic extension of two months to file. The taxpayer can file for an additional four month extension (total six months, or by October), using form 4868.

If, however, the taxpayer has an amount owing to the IRS, he must pay that amount by April 15. The extension is only an extension to file, not to pay.

In a future issue, we’ll go over the reporting requirements for foreign assets and investments, as well as other tax developments.

— Steven Layne

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Archiving articles from the Phuket Gazette circa 1998 - 2017. View the Phuket Gazette online archive and Digital Gazette PDF Prints.

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Governments & old media versus social media – who will win? | VIDEO

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Governments & old media versus social media – who will win? | VIDEO | The Thaiger

We look at the recent changes made by the Australian and Indian governments to except control over the world’s biggest social media platforms. India has issued strict new rules for Facebook, Twitter and other social media platforms just weeks after the Indian government attempted to pressure Twitter to take down social media accounts it deemed, well, anti social. There is now an open battle between the rise of social media platforms and the governments and ‘old’ media that have been able to maintain a certain level of control over the ‘message’ for the last century. Who will win?

The rules require any social media company to create three roles within India… a “compliance officer” who ensures they follow local laws; a “grievance officer” who addresses complaints from Indian social media users; and a “contact person” who can actually be contacted by lawyers and other aggrieved Indian parties… 24/7.

The democratisation of the news model, with social media as its catalyst, will continue to baffle traditional media and governments who used to enjoy a level of control over what stories get told. The battles of Google and Facebook, with the governments of India and Australia will be followed in plenty of other countries as well.

At the root of all discussions will be the difference between what governments THINK social media is all about and the reality about how quickly the media landscape has changed. You’ll get to read about it first, on a social media platform… probably on the screen you’re watching this news story right now.

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The social media giants in battle with ‘old’ media and world governments | VIDEO

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The social media giants in battle with ‘old’ media and world governments | VIDEO | The Thaiger

“The rules signal greater willingness by countries around the world to rein in big tech firms such as Google, Facebook and Twitter that the governments fear have become too powerful with little accountability.”

India has issued strict new rules for Facebook, Twitter and other social media platforms just weeks after the Indian government attempted to pressure Twitter to take down social media accounts it deemed, well, anti social.

The rules require any social media company to create three roles within India… a “compliance officer” who ensures they follow local laws; a “grievance officer” who addresses complaints from Indian social media users; and a “contact person” who can actually be contacted by lawyers and other aggrieved Indian parties… 24/7.

The companies are also being made to publish a compliance report each month with details about how many complaints they’ve received and the action they took.

They’ll also be required to remove ‘some’ types of content including “full or partial nudity,” any “sexual act” or “impersonations including morphed images”

The democratisation of the news model, with social media as its catalyst, will continue to baffle traditional media and governments who used to enjoy a level of control over what stories get told.

The battles of Google and Facebook, with the governments of India and Australia will be followed in plenty of other countries as well.

At the root of all discussions will be the difference between what governments THINK social media is all about and the reality about how quickly the media landscape has changed. You’ll get to read about it first, on a social media platform… probably on the screen you’re watching this news story right now.

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Never miss out on future posts by following The Thaiger.

Continue Reading

Business

Turbulence ahead for Thailand’s aviation industry | VIDEO

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Turbulence ahead for Thailand’s aviation industry | VIDEO | The Thaiger

When the airlines, in particular, were asking the government to put their hands in their pockets for some relief funding in August last year, it was genuinely thought that international tourists would be coming back for the high season in December and January. At the very least local tourists and expats would head back to the skies over the traditional holiday break. And surely the Chinese would be back for Chinese New Year?

As we know now, none of that happened. A resurge in cases started just south of Bangkok on December 20 last year, just before Christmas, kicking off another round of restrictions, pretty much killing off any possibility of a high season ‘bump’ for the tourist industry. Airlines slashed flights from their schedule, and hotels, which had dusted off their reception desks for the surge of tourists, shut their doors again.

Domestically, the hotel business saw 6 million room nights in the government’s latest stimulus campaign fully redeemed. But the air ticket quota of 2 million seats still has over 1.3 million seats unused. Local tourists mostly skipped flights and opted for destinations within driving distance of their homes.

As for international tourism… well that still seems months or years away, even now.

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