Filing Expatriate Tax Returns for American expats Sri Lanka

By Expat News

Sri Lanka a beautiful tropical island located just right south of India. It has been famous for its natural beauty and has attracted expatriates for many centuries. American expats working in Sri Lanka sometimes are unaware about the requirement to file US expatriate tax returns as well as to pay overseas taxes. Moreover, Americans living abroad should learn more about foreign earned income exclusion, foreign housing exclusion and foreign tax credits.

What are foreign income tax rates in Sri Lanka? What are US expat tax filing requirements? How can American expats in Sri Lanka minimize US expat taxes? Do you provide US expat tax services to Americans living abroad?

These questions are quite popular among expats Sri Lanka.

Expatriate Tax Rules for Expats Sri Lanka

The USA is one of the few countries that taxes its citizens and green card holders on a worldwide income. However, American expats Sri Lanka have several ways to reduce US expat tax liabiblity by utilizing certain provisions under Internal Revenue Code section 911.

  • Foreign earned income exclusion. American expats Sri Lanka who qualify for this exclusion may be able to exclude up to $101,300 for 2016.
  • Foreign housing exclusion. Additionally, American expats Sri Lanka may be able to exclude or deduct foreign housing expenses. Sri Lanka is famous for its low housing costs in the Asian region.
  • Foreign tax credit. Expats Sri Lanka can take a credit for foreign income taxes and minimize US expat tax liability.

Additionally, American expats might be required to file the FBARs form to report foreign financial accounts.

Tax system in Sri Lanka – FAQ

Are American expats Sri Lanka taxed on their worldwide income?

If you are considered a tax resident in Sri Lanka, then you pay a personal income tax on your worldwide income. Nonresidents are taxed only on Sri Lanka-source income.

Who is considered a tax resident in Sri Lanka?

An expatriate is considered a tax resident if s/he has been physically present in Sri Lanka for 183 days or more during a taxable year.

What is the tax year in Sri Lanka?

The tax year in Sri Lanka runs from April 1 to March 31.

What is an income tax rate in Sri Lanka?

Sri Lanka has a progressive tax rate up to 24%.

Which income is taxable in Sri Lanka?

Generally, all remuneration and benefits of expats Sri Lanka is considered a taxable income. It includes such items as salary, bonus, commission, leave pay, cost-of-leaving allowances etc.

Can American expats Sri Lanka file a tax return with a spouse?

Spouses are taxed separately and they have to file separate tax returns.

Is it a requirement to file a Sri-Lankan tax return and pay overseas taxes every year?

American expats are not required to file an income tax return if the taxpayer’s source of income is one of the two sources:

– a compensation from one employment and a person is enrolled in a Pay-As-You-Earn scheme;

– dividend or interest income subject to withholding tax.

Does Sri Lanka have a tax treaty and social security agreement with the USA?

There is no such an agreement in 2012. Also, Sri Lanka does not have a totalization agreement with the USA either.

These are some of the issues that American expats in Sri Lanka should review before filing Sri-Lankan and US expatriate tax returns. Please make sure to check the latest developments by the Inland Revenue Department of Sri Lanka.

If you have any questions about overseas taxes paid in Sri Lanka and how you can minimize U.S. tax liability on your expatriate tax return, please seek help of an expat tax CPA that provides international tax services. International tax experts at Artio Partners provide a full range of tax services for expats.