When U.
S.
citizens move abroad, they are often uncertain what impact their move will have on their annual tax liability.
The U.
S.
imposes taxes based on citizenship, not residence.
This means all U.
S.
citizens, including expats, are required to file a tax return every year, regardless of where they reside.
Most of countries in Asia impose taxes based on residence principle.
When U.
S.
citizens stay in that country for certain period in a year they should report their income and pay taxes due to the residence country.
The periods are difference between countries, as example Japan will have the right to tax American citizens who work in Japan and stay there for more than 183 days during a year.
The same period applies in China.
When U.
S.
citizens become tax subject in two countries it is a misconception to think that they have the burden of double-taxation.
There is a system of exclusions and credits in place to avoid double taxation.
The systems are: the Foreign Earned Income Exclusion, the Foreign Housing Exclusion, the Foreign Tax Credit (General Limitation) and the Foreign Tax Credit (Passive).
Unused foreign tax credits can be carried back one year, and then forward 10 years.
The U.
S.
also has tax treaties with numerous foreign countries that target the issue of double taxation.
Most of these treaties stipulate that the country where the income originates has the "first" right to tax that income.
Some of these treaties also may grant foreign tax credits against income originated in the U.
S.
However foreign taxing authorities sometimes require certification from the U.
S.
government that an applicant filed an income tax return as a U.
S.
resident, as part of the proof of entitlement to the treaty benefits.
It important to keep in mind that U.
S.
citizens working abroad still have the obligation to file a U.
S.
tax return.
The U.
S.
applies the worldwide income principle, applying the same criteria to various types of investment income - such as interest, dividends, and capital gains - as it would if the income were generated within the U.
S.
Reporting all bank accounts outside of the U.
S.
if the aggregate value of those accounts exceeded $10,000 at any point in the tax year is also important.
Certain investment income from outside of the U.
S.
can be problematic and have punitive or unfavorable tax implications.
Income generated from Passive Foreign Investment Income; Controlled Foreign Corporations, Subpart F Income; Foreign Personal Holding Company Income and Foreign Partnership Income fall into this category.
Seeking an advisor both in the U.
S.
and in the foreign country is preferable.
It is better to seek advice before deciding to move abroad.
Careful planning could hinder you from pitfalls and financial losses.