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Anne
Anne, Master Tax Preparer
Category: Tax
Satisfied Customers: 1640
Experience:  Enrolled Agent with 25 Years Experience specializing Individual and Small Businesses
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Hi, My wife and I are Dutch citizens with a Greencard, working

Customer Question

Hi,
My wife and I are Dutch citizens with a Greencard, working temporarily in the UK. We're considering a posting in Malaysia, and have to decide before week's end.

Question:
* my employer Shell pays their expats net-of-tax. That is, they take care of paying all taxes to the host country, as well as any due in the base-country (in my case the Netherlands). Working in the UK seems to pose no problems, since the UK taxes are higher than US taxes. Consequently, the US doesn't charge me any tax over my net-of-tax-income, since Shell has already paid more taxes to the UK on my behalf than the US would charge. My question: how does this situation unfold when working in Malaysia? That is: a) is there some tax treaty between the US and Malaysia that governs this, and b) is Malaysian income tax higher than that in the US, so that the US won't charge me tax over my net-of-tax-income, that is, over and above what Shell already pays Malaysia on my behalf?

Thanks
Erik
Submitted: 4 years ago.
Category: Tax
Expert:  Lev replied 4 years ago.

As you are a green card holder - you are required to file your tax return based on income level - and are required to report all your income worldwide.

 

In additional - you might be eligible for a foreign earned income exclusion.

As an US person living abroad - you may claim a foreign earned income exclusion.

The person may qualify for the foreign earned income exclusion - he/she should:
-- Work and reside outside the United States for at least 330 days during the year, or
-- Meet either the Bona Fide or Physical Presence tests.
If the person qualifies, he/she may exclude up to $91,400 (2009 in foreign wages -- plus housing allowances (limited to 30% of the earned income exclusion).

To receive that exclusion - the taxpayer should file either form 2555 or 2555EZ.

Here are forms you likely need:

Please be aware that - the exclusion above will not affect self-employment taxes - only income taxes. Only earned income is excludable. For instance dividends, investment income, etc - are not excludable.

Please also be aware that this credit is not granted automatically - you need to file a tax return and claim the credit.

 

If the same income is taxable in the US and in a foreign country - you may claim a credit for taxes paid in a foreign country on your US tax return.

To determine the amount of credit -the person should use the form 1116 and attach it to his/her tax return. - http://www.irs.gov/pub/irs-pdf/f1116.pdf

Here are instructions - http://www.irs.gov/pub/irs-pdf/i1116.pdf

 

As you are a green card holder - your situation is not covered by tax treaties.

Let me know if you need any help.

 

Customer: replied 4 years ago.

I was hoping for a more specific answer. Assuming that...

* I earn 300.000$ gross, all in Malaysia

* My wife doesn't earn anything

* I have a 1-year old son

* We live in Malaysia the entire year, going to the US for 2 weeks vacation a year

* Housing is provided free-of-charge by employer

* I have 500k$ on checking accounts in the US

* I have no further financial transactions, or assets (either real estate or other)

 

Under these conditions, do I end up paying taxes to the US over and above the taxes I (i.e., my employer pays) to Malaysia?

 

thanks

EJB

 

Expert:  Anne replied 4 years ago.
Hi EJB

There is no tax treaty between the United States and Malaysia.

Malaysia has an income tax system with the higest tax rate for an individual is 30%.

If I read your question correctly, you expect to earn $300,000. For US tax purposes, this will put you in the 33% bracket, so yes, under this scenario, you would still owe some tax to IRS. You will also have to pay tax on any interest income your $500,000 in US bank earns. Please see below:

Malaysia Tax Law - Income Tax Law



If the above link doesn't work, here's the web address you can copy & paste into your web browser.

http://www.lawyerment.com.my/tax/income.shtml

2009 Tax Rate Schedule (copy & paste in your web browser)

http://taxes.about.com/od/2009taxes/qt/2009_tax_rates.htm

I hope this helps.



Edited by Anne on 11/4/2009 at 2:26 AM EST
Customer: replied 4 years ago.

Anne - I'm still a bit confused.

A quick back-of-the-envelope on the income-tax part (forgetting about the 500k checking accounts) seems to suggest that I owe virtually nothing to the US:


Assuming 300,000$ gross income, an exchange rate of 3.43 Malaysian Ringit per US$ gives 1,029,144 RM.

300,000 lies between 195,850 and 349,700, yielding US tax amounts of 43,830.50 + 33% over (300,000-195,850) = total of 78,200$

If I understand Malaysian tax brackets correctly (http://fortunesense.blogspot.com/2009/01/malaysia-individual-income-tax-rate-for.html and http://www.hasil.gov.my/lhdnv3e/individuIndex.jsp?process=21000&menu=13&expandable=1), I'd pay 54,825 RM over the frist 250,000 RM, and 27% over the remainder of 779,144 RM, equating to 265,194 RM = 77,305$ .

I'm not sure where your 30% Malaysian rate comes from, or if the 28% quoted by http://asiatax.wordpress.com/2009/06/30/malaysia-tax-and-accounting-principles-at-a-glance/ is correct. In any case, a higher Malaysian tax-rate could only help me, since my employer would pay more tax to Malaysia, which I can deduct from my US taxes, can't I?

 

Is the above correct, and does it indeed mean I'd have to pay an extra 78,200-77,305 = 895$ extra tax to the US over and above what I (i.e. my employer) pays to Malaysia, presuming the 27% is indeed the correct max Malyasian tax rate?

 

thx

Erik

Expert:  Anne replied 4 years ago.
Yes you are correct. My answer was based on $300,000 US dollars, no exchange rates taken into account. With your calculations and the exchange rate, then your figures look like they're going to be pretty accurate.

I hope this helps.

Anne, Master Tax Preparer
Category: Tax
Satisfied Customers: 1640
Experience: Enrolled Agent with 25 Years Experience specializing Individual and Small Businesses
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