US Expat Taxes for Americans Living in Colombia – What You Need to Know
It has been estimated that there are 60,000 Americans living in Colombia.
Colombia remains a popular destination for American expats, thanks to its laid back culture, colonial architecture, history, and beaches. As an American expatriate living in Colombia though, what exactly do you need to know regarding filing US expat (and Colombian) taxes?
All US citizens and green card holders who earn more than $12,550 (in 2021, or just $400 of self-employment income or just $5 if you’re married to a foreigner) anywhere in the world are required to file a US federal tax return and pay taxes to the IRS, regardless of where in the world they live or where their income originates.
The good news is if you are paying income tax in Colombia, there are various exclusions and exemptions available to prevent you paying tax on the same income to the IRS too.
US taxes – what you need to know
If you earned more than US$12,550 (in 2021, or $400 of self-employment income etc), you are required to file Form 1040. While taxes are still due by April 15, expats get an automatic filing extension until June 15, which can be extended further online until October 15.
If you have overseas assets worth over US$200,000 per person, excluding your home if it is owned in your own name, you also have to file form 8938 to declare them.
If you had a total of at least US$10,000 in one or more foreign bank and/or investment accounts at any time during the tax year, you also have to file FinCEN form 114, otherwise known as a Foreign Bank Account Report or FBAR.
“Fiscal residents (nationals or foreign) are taxed on worldwide income and should report equity owned in Colombia and abroad.”
If you pay income tax in Colombia, there are several exemptions that allow you to pay less or no US income tax on the same income to the IRS. The main one is the Foreign Earned Income Exclusion, which lets you exclude the first around US$100,000 of foreign earned income from US tax if you can prove that you are a Colombian resident, and the Foreign Tax Credit, which gives you a $1 tax credit for every dollar of tax you’ve paid in Colombia. These exemptions can be combined if necessary.
The US and Colombian governments share taxpayer info, and Colombian banks pass on US account holders’ account info to the IRS, so it’s not worth not filing or omitting anything on your return. The penalties for incorrect or incomplete filing for expats are steep to say the least.
If you’re a US citizen, green card holder, or US/Colombian dual citizen, and you have been living in Colombia but you didn’t know you had to file a US tax return, don’t worry: there’s a program called the IRS Streamlined Procedure that allows you to catch up on your filing without paying any penalties. Don’t delay though, in case the IRS comes to you first.
Colombian taxes – what you need to know
Colombian residents pay income tax on their worldwide income. A resident is defined as someone who spends a minimum of 183 days in Colombia within a 365 day period. The 365 day period doesn’t have to correspond with the tax year.
Colombia’s income tax rates rise from 0% to 39%, depending on the income level. There is also a small wealth tax that will affect property owners, as well as a local property tax. There is a capital gains tax of 10%.
The Colombian tax year is the same as the American. The date on which Colombian tax returns are due depends on the taxpayer number (NIT), and is announced each year. The Colombian tax authority is called DIAN.
We strongly recommend that if you have any doubts or questions about your tax situation as a US expat living in Colombia that you contact a US expat tax specialist.