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US Expat Taxes Explained: Filing Taxes as an American Living in Saudi Arabia

How Working in Saudi Arabia Impacts US Expat Taxes

How will living in Saudi Arabia affect your US expat taxes?  The opportunities and favorable tax structures have made many Gulf nations desirable destinations for expatriates from around the globe.  Yet even if you face a favorable tax structure in your host country, you could be effected adversely on your US expat taxes –  and this is just one of the reasons why it’s important to understand your filing obligations to US authorities as you comply with Saudi tax law.

US Expat Taxes in Saudi Arabia

If you are a citizen or permanent resident of the United States then you are obligated to file US taxes, in this case US expat taxes, with the IRS each year regardless of the country in which you reside.

In addition to the regular income tax return, you could also be required to file an informational return on your assets held in foreign bank accounts with Foreign Bank and Other Account Reporting (FBAR) Form 114, in addition to Form 8938 Statement of Specified Foreign Financial Assets.

While the US is one of the few governments that tax the international income of their citizens and permanent residents who reside overseas, it does have special provisions to help protect them from double taxation including:

  • The foreign earned income exclusion allows you to decrease your taxable income on US expat taxes by the first $108,700 for 2021 ($107,600 for 2020) earned as a result of your labors while a resident of a foreign country.
  • The foreign tax credit, which allows you to offset the taxes you paid in your host country with your US expat taxes dollar for dollar, and
  • The foreign housing exclusion, which allows you to exclude certain household expenses that occur as a result of living abroad.

With proper planning and quality tax preparation, you should be able to take advantage of these and other strategies to minimize or even eliminate your US expat taxes.  Please note, however, that even if you think you won’t end up owing anything on your US expat taxes you will more than likely still be required to file a return.  For more information, see US Expat Taxes Explained.

Saudi Arabia Income Tax

Saudi Arabia is a tax haven for those looking to avoid paying taxes on income earned from employment. Saudi Arabia is similar to other Gulf nations because it has no tax on business income.  There are also no taxes on investment income for individuals; businesses are taxed on these capital gains.

Who is a Resident of Saudi Arabia?

Unlike many countries, Saudi Arabia grants residency through resident permits.  It does not matter how long you are in Saudi Arabia or what your connections are to the country; if you have a permit (Iqama), you are considered a resident.  You can apply for a resident permit at any Saudi embassy.

Saudi Arabia Tax Date

Since there is no income tax on income earned or capital gains, the Department of Zakat and Income Tax does not require a tax return from individuals. There is no tax year in place, or a tax due date.

Social Security in Saudi Arabia

There is a social security regime in Saudi Arabia, which covers private-sector and some public-sector Saudi workers.  There is voluntary coverage available for those who are self-employed, work abroad, or no longer fit the requirements for compulsory coverage. This coverage is paid for by an insured pension that takes 9% of gross earnings.  For those who are self-employed, that rate is increased to 18%. So depending on your situation, you may have the option to pay into US Social Security, Saudi social security, or both.

Is Foreign Income Taxed Within Saudi Arabia?

Income is not taxed in Saudi Arabia, regardless of where it was earned.

US – Saudi Arabia Tax Treaty

Saudi Arabia is not one of the many countries with which the United States has a tax treaty.  Considering the low level of taxation in Saudi Arabia, this will not be an issue for most expatriates.  It may prove to be a problem, however, for those who are paying business taxes to both Saudi Arabia and the United States.

Other Taxes in Saudi Arabia

There are no capital gains, wealth, gift, or inheritance taxes in Saudi Arabia.  Furthermore, there is no Value Added Tax (VAT) that expatriates will need to worry about in the event of making large purchases.  Saudi Arabia is among the lowest taxed nations on the globe.

Saving on US Expat Taxes

Saudi Arabia is appealing as a result of its more controlled growth, attractive tax regime, and a warm climate.  Nevertheless, remember that a favorable tax regime will translate into the possibility of higher US expat taxes because no foreign taxes can be deducted from your US expatriate return since none were paid.  If you have any questions about your US expat taxes and how they will be affected by living in a low-tax area such as Saudi Arabia, speak to an expat tax expert.

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