The Bona Fide Resident Test is one out of the two tests given to United States citizens and those holding green cards that live overseas to qualify them to claim the Foreign Earned Income Exclusion, The Foreign Housing Deduction and the Foreign Housing Exclusion. The Bona Fide Test is only used by the expats whose tax home is not in America but in a foreign country, to increase the exclusion of their income earned from the foreign country and to prevent multiple taxation.
Bona Fide Test can be used only if you are a U.S Citizen or a U.S. Resident alien who comes from a country with which a treaty has been established with the U.S. One is not granted the status of Bona Fide resident automatically, by just living in a foreign nation for given one tax year.
When is a Bona Fide Resident Test Used?
To qualify as a bona fide resident, you have to:
- Prove to be a residence in a foreign nation
- Reside in a foreign nation for at least an complete tax year.
- And you cannot exempt yourself from paying tax to the authority of the country you reside.
Note that the bona fide resident test is usually assessed one case after the other depending on questions raised and your answer on the IRS Form 2555 or 2555-EZ. Some important factors that are considered as pertinent before certifying you as a bona fide resident include; the nature and duration and also the reason for you sojourn in a foreign land. If you travel overseas and work for a longer period of time, and possess a permanent residence for yourself and your entire family, then you are most likely to qualify. But if you travel for a given period of time just to work on a specific project, you are likely not to qualify as a bona fide resident.
You can also be regarded as a bona fide resident if you travel to a foreign land for a short period of time for either pleasure or business trip if you fulfill the requirement for the test above.