US Expatriates living in Colombia
Americans overseas, otherwise known as expatriates have complex tax situations because they have tax residency to potentially 2 governments, the USA and Colombia.
When you need tax advice and preparation services while living abroad in Colombia (or any other country), we are here to help.
It is possible to contact us through WhatsApp at +1 407-864-2702.
Tax residency can be complicated. It is possible to be a tax resident of multiple countries. Tax residency is acquired through Citizenship, Residency (M-Visa, R-Visa, US Green card) or physical presence.
US Tax Residency is unique in that US Citizen and Green Card Holders maintain their tax residency even if they live abroad outside of the US. This means there may be a requirement to file and pay taxes to the US government while living outside of the country.
While living outside of the US, it is likely you acquired a foreign tax residency as well. In the case of Colombia, if you physically reside in the country for 183 days in any 365 rolling calendar period, you may acquire tax residency.
With two tax residencies, it may possible to owe taxes to two governments. No one wants to pay double the amount of taxes! There are strategies that can reduce or entirely offset this double taxation residency, all while following the law.
2023 Tax Filing Deadline for US Citizens and Residents Abroad
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For US citizens and residents living overseas or abroad, the filing deadline is June 16th, 2025.
When you file your return it is important to make the election that you are filing from abroad so the IRS can apply your June 16th deadline to your tax account. This will help avoid the potential of “Failure to File” or additional penalties.
Although you may be granted an automatic extension to file your return, you are NOT granted an extension to pay your outstanding tax liability. For 2024, the tax payment deadline is April 15th 2025.
FBAR “Foreign Bank Activity Report” are due April 15th, 2025.
Foreign Tax Credit
For most Americans living in Colombia, the Foreign Tax Credit is the only tax strategy needed to avoid double taxation from both the Colombian and US governments. The Foreign Tax Credit, sometimes referred to as the FTC, reduces your American tax liability dollar for dollar by foreign taxes paid.
It is possible to claim both the Foreign Tax Credit and Foreign Earned Income Exclusion at the same time (sometimes referred to as double dipping). There are some intricacies to claiming both the Foreign Tax Credit and Foreign Income Exclusion at the same time and unless you are an high income earner, it is more than likely all you need is to claim the Foreign Tax Credit to avoid the possibility of double taxation.
If you do claim both at the same time, the exclusion and credit can NOT be used on the Same Earned Income.
For 2024 the Foreign Earned Income Exclusion limitation is $126,500 of Foreign Earned Income. This means, if you meet the requirements of the Foreign Earned Income Exclusion, you can exclude up to $126,500 of foreign earned income.
If you decide it may be advantageous to claim both the Foreign Tax Credit and Foreign Earned Income Exclusion at the same time, you can first exclude $126,500 from earned income and then claim credit for any taxes paid on income above the $126,500 exclusion.
For example, if you earned $150,000 while living in Colombia, you could exclude up to $126,500 with the Foreign Earned Income Exclusion and then claim credit on the foreign taxes owed/paid on $23,500 of income above the $126,500 already excluded.
Something to keep in mind, you must pay the foreign taxes to claim the tax credit and there are pros/cons to using this strategy.
How do you acquire Colombian Tax Residency?
If you’re a U.S. citizen or Green Card holder, acquiring tax residency in Colombia is possible under certain conditions. Here’s how it works:
1. Establish a Permanent Residence in Colombia
To be considered a tax resident of Colombia, you must have a permanent place of residence in the country. This can include a house, apartment, or any other type of dwelling that you own or rent.
2. Spend 183 Days or More in Colombia
One of the primary criteria for acquiring tax residency is spending at least 183 days in Colombia during a calendar year. These days do not have to be consecutive and can include time spent for business, vacation, or study.
3. Obtain the Appropriate Visa
If you’re not a Colombian citizen, you will need to obtain a visa to stay in the country. The type of visa required will depend on the purpose of your stay—whether for tourism, work, or other reasons. Ensure that your visa allows for long-term residence.
4. Register with Colombian Authorities
Upon arriving in Colombia, you’ll need to register with the Colombian immigration authorities and obtain a cédula, a national identification card. This card is necessary to legally reside in the country. It is important to obtain your (RUT) Registro Único Tributario. The RUT is equivalent to a social security number for the country of Colombia. It tells you when you are required to file your tax return by (August thru October).
5. File a Tax Return in Colombia
Once you meet the criteria for tax residency, you must file an annual tax return with Colombia’s tax authority, DIAN, to report your worldwide income.
For U.S. citizens and Green Card holders, these steps can establish your tax residency in Colombia, meaning you’ll be required to comply with Colombian tax laws, including reporting all income earned globally.
US/Colombia Tax Analysis
Breakdown of Taxes Between Both Countries- We collaborate closely with Colombian Public Accountants and Attorneys to anticipate and estimate your tax obligations in both the United States and Colombia. Our goal is to guide you through the most efficient methods for filing taxes across both countries.
- We provide a comprehensive written report detailing tax obligations between both countries.
- This service is well-suited for Americans and/or dual citizens contemplating a move to Colombia and aiming to gain residency there
What is the Foreign Earned Income Exclusion?
The Foreign Earned Income Exclusion is a provision of the Internal Revenue Code that allows certain U.S. taxpayers to exclude a portion of their foreign earned income from their U.S. taxable income. The exclusion applies to income earned while living and working outside the United States, and it is intended to help reduce the burden of double taxation on U.S. taxpayers who earn income abroad.
To qualify for the Foreign Earned Income Exclusion, you must meet certain requirements, including:
You must have foreign earned income: The exclusion applies only to income earned from working outside the United States. This can include wages, salaries, and self-employment income.
You must have a tax home in a foreign country: To qualify for the exclusion, you must have a tax home in a foreign country. Your tax home is generally considered to be the place where you are employed or self-employed.
You must be a U.S. citizen or resident alien: The exclusion is available only to U.S. citizens and resident aliens.
You must meet the physical presence test or the bona fide residence test: To qualify for the exclusion, you must either meet the physical presence test or the bona fide residence test. The physical presence test requires you to be physically present in a foreign country or countries for at least 330 full days during a 12-month period. The bona fide residence test requires you to be a resident of a foreign country or countries for an entire tax year.
If you meet all of the above requirements, you can exclude a certain amount of your foreign earned income from your U.S. taxable income. The exclusion amount is adjusted annually for inflation and is currently $126,500 for the tax year 2024.
It’s important to note that the Foreign Earned Income Exclusion is just one way to reduce the burden of double taxation on U.S. taxpayers who earn income abroad. There are other provisions and strategies that may also be available, depending on your individual circumstances. It’s a good idea to consult with a tax professional for more information and guidance.
