WHERE TO PAY TAXES

A common question we hear is “will I need to pay taxes to both countries if I’m a dual citizen?” The answer varies, as it depends on where you’re living and where you’re generating income. We are not legal advisors nor tax accountants, so you should always consult a professional regarding your financial situation. Below is what we’ve learned over the years.

LIVING IN THE UNITED STATES

If you're an American living and earning income solely within the United States, you will only need to file and pay US taxes. However, if you choose to open a business in Europe and generate income there, you'll need to navigate the tax laws of both the US and the country where your business is located.

If your business generates income in Europe, it will be subject to the tax laws of that country. As a business owner, you'll need to pay corporate taxes on the income generated by your business. If you pay yourself a salary or take a distribution from the profits of the business, you'll likely need to pay personal income tax in both the US and the European country.

To ensure that you're fulfilling all of your tax obligations and minimising your tax liability, it's essential to consult a tax professional with experience in international taxation. They can help you navigate the tax laws of both the US and the European country where your business is located, and provide guidance on how to optimise your tax strategy.

It's worth noting that there is currently no European Union country that taxes its non-resident citizens. Tax laws can vary significantly from country to country, so it's important to stay informed about the tax laws in the country where your business is located.

LIVING IN EUROPE

Living in Europe while generating income from the US can appear to be a complex tax situation at first glance. As a US citizen, you are required to file taxes with the Internal Revenue Service (IRS) every year, regardless of where you live. This means that even if you're a permanent resident of a European country, you'll still need to file US taxes.

If you’re a permanent resident in Europe while generating US based income, you’ll be taxed at the standard US income tax rate and at your resident country’s tax rate. This typically also includes any income generated from investments and real estate. There are also situations where you might need to pay a capital gains tax to the US and your resident country if you sell a US property while living abroad.

If you're exclusively earning income in Europe, you'll need to file taxes in both the US and the country where you reside. This can be a tricky process, as tax laws can vary significantly between countries. It's essential to work with a tax professional who has experience in international taxation to ensure that you're fulfilling all your tax obligations and minimising your tax liability.

Additionally, if you're planning to retire in a European country, you should be aware that private and public pensions are also taxed in both the US and Europe. As a result, you can expect to pay income tax on your social security when you retire. It's important to factor this into your retirement planning to avoid any surprises when it comes time to collect your pension.

While it may seem like a burden to pay taxes to both the US and your country of residence, there is a cap on how much foreign-earned income you're allowed to generate before a US tax is imposed. This cap changes each year and is based on inflation. It's also worth noting that the US has tax treaties with many European countries, which can help you avoid or minimise double taxation and reduce your overall tax burden.