What Americans need to know about paying taxes in Cambodia

In today’s post, Move to Cambodia talks to David McKeegan, the co-founder of Greenback Taxes, a firm that specializes in preparing US tax returns for American expats. I’ve personally used Greenback since I moved to Cambodia  and have been very happy with the work they have done and most importantly, their level of responsiveness. If you’ve used bigger firms for your taxes, you’ll know how much that means (PwC I’m looking at you). Greenback Taxes is the first Move to Cambodia advertiser–but only after I had already been a happy customer for my last two tax returns.

If you’re an American in Cambodia or an American planning on moving to Cambodia, listen up. David has answered all of your tax-related questions here (and if you have more, please feel free to leave them in the comments).

As an American expat in Cambodia, what are my responsibilities in regard to paying taxes?

“Americans living in Cambodia are required to file a US tax return each year. The US taxes its citizens on worldwide income, so any income you earn in Cambodia is subject to US taxes. Fortunately, those that qualify as a resident of another country (through the Physical Presence test or the Bona Fide Residence test) can utilize several deductions and exclusions to offset their tax liability:

  • The Foreign Earned Income Exclusion – This allows you to exclude up to $97,600USD of yearly income

  • The Foreign Tax Credit – This is a dollar for dollar credit for the taxes you pay in Cambodia.

  • The Foreign Housing Exclusion – This allows you to deduct a certain amount of your housing expenses to offset the cost of living abroad.

In addition to US tax obligations, Cambodian residents are subject to Cambodian taxes on their worldwide income; non-residents are taxed on their Cambodian-sourced income only. For tax purposes, a resident is someone who has their principal abode in Cambodia or is present for more than 182 days in any period of 12 months ending in the current tax year.

Both residents and non-residents are subject to Cambodian Taxes on Salary (ToS). ToS includes salary, remuneration, wages, bonus, overtime, compensation and fringe benefits as part of your taxable income. Taxes are withheld by your employer so you do not need to file a Cambodian tax return. However, self-employed individuals must file a yearly tax return.”

I’ve heard that if I don’t make that much money in a year, I don’t have to pay taxes. Is that true?

“US citizens must file a tax return if their income is above a certain threshold, even if there is no tax liability. It is indeed possible, and likely, that you won’t pay any US taxes while living abroad.

It is also possible you won’t pay any Cambodia taxes if you make a small amount of money. Cambodian residents earning 500,000 KHR or less per month, pay a Cambodian tax rate of 0% and do not owe taxes on salary. But from there, tax rates are progressive depending on your income, ranging from 5% to 20%. It’s important to note that a flat tax rate of 20% applies to non-residents.”

What if I’m self-employed?

“For self-employment or investment income, 6,000,000KHR or less per year is exempt from tax. Above this threshold the rates are progressive, ranging from 5% to 20%.

For those who are self-employed, it is important to note that even if you don’t owe taxes to Cambodia, your income must be reported on your US tax return. This may result in taxes being owed to the US. Self-employment tax, for example, is assessed based on your gross income before you apply the Foreign Earned Income Exclusion or other deductions.”

If I don’t owe any taxes, why should I file a tax return?

“Americans living abroad whose income is above a certain threshold are required to file a US tax return each year, regardless of whether or not they will owe American taxes. Currently the thresholds are:

  • Single with income over $9,350

  • Married filing jointly with income over $18,700

  • Married filing separately with income over $3,650

In addition, it’s important to note that you may need to file a state tax return, depending on the state you resided in prior to your move overseas.”

What is FBAR (Foreign Bank Account Report) and how does it affect expats in Cambodia?

“All US citizens are subject to FBAR filing if certain thresholds are met. Any US taxpayer with $10,000 or more in foreign bank accounts at any point in the tax year must disclose this money through an FBAR form. This is a cumulative account total, so if you have 3 different accounts that total $10,000 or more, you will be required to file. As of September 2013, all FBAR forms must be filed electronically–no paper filings will be accepted. Penalties for failing to file FBAR when required are steep, so it is important to disclose your account balances if you meet the threshold.”

If I haven’t filed a tax return in several years, what should I do? Will I get in trouble? 

“If you haven’t filed US taxes in several years, it is important to get caught up as soon as possible. While you may not actually owe taxes to the US, you still have filing requirements. It is especially important to get current if you are subject to FBAR filing, as the penalties for failing to do so can be steep. If you are behind in FBAR filings or believe you owe taxes to the US, there are two programs available to help you.

The Streamlined Program is for low-risk taxpayers who do not owe more than $1500 in taxes for any tax year. The Offshore Voluntary Disclosure Program (OVDP) is suitable for those who owe a greater amount of taxes or are significantly behind in FBAR filings. While acceptance to this program comes with hefty penalties on balances owed, you will likely avoid any criminal prosecution that may result from your delinquency.

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