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.
Disclaimer: We are not legal advisors nor tax accountants. 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, you'll likely need to pay personal income tax in both the US and the European country.
To ensure 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.
Good news: There is currently no European Union country that taxes its non-resident citizens. If you live in the US, you won't owe European taxes simply for holding EU citizenship.
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.
Key Points for US Citizens Living in Europe
- You must file US taxes annually, regardless of where you live
- Income earned in Europe is taxed by both the US and your country of residence
- Investment and real estate income may also be subject to taxes in both countries
- Capital gains tax may apply in both countries if you sell US property while living abroad
- Private and public pensions (including Social Security) are taxed in both the US and Europe
Reducing Your Tax Burden
- Foreign Earned Income Exclusion — There is a cap on how much foreign-earned income you can generate before US tax is imposed. This cap changes each year based on inflation.
- Tax Treaties — The US has tax treaties with many European countries, which can help you avoid or minimise double taxation and reduce your overall tax burden.
- Professional Advice — Work with a tax professional experienced in international taxation to optimise your tax strategy.