It has been estimated that there are several thousand Americans living in Cambodia.
Living in Cambodia is an incredible experience for a number of reasons, including the friendly people, the tropical climate, the culture, and the quality of life. As an American expatriate living in Cambodia though, what exactly do you need to know regarding filing US expat (and Cambodian) taxes?
All US citizens and green card holders who earn a minimum of around $10,000 (or just $400 for self-employed individuals) 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 their income is generated.
The good news is if you are paying income tax in Cambodia, 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 earn over US$10,000 (or just $400 of self-employment income), wherever the income originates in the world you have to file IRS form 1040.
While any US taxes due are still due by April 15th, expats get an automatic filing extension until June 15th, which can be extended further on request until October 15th.
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.
“Individuals are not required to submit annual personal income tax returns. Accordingly, the monthly salary tax deduction is considered to be a final tax for individuals.”
If you pay income tax in Cambodia, there are several exemptions that allow you to pay less or no US income tax on the same income to the IRS. The main exemptions are 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 Cambodian resident, and the Foreign Tax Credit, which gives you a $1 tax credit for every dollar of tax you’ve paid in Cambodia. These exemptions can be combined if necessary. Remember though that even if you don’t owe any tax to the IRS, if your income is over US$10,000 (or $400 if you’re self-employed) you still have to file a federal return.
The US and Cambodian governments share taxpayer info, and Cambodian 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/Cambodian dual citizen, and you have been living in Cambodia 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.
Cambodian taxes – what you need to know
Cambodian residents are taxed on their worldwide income on a scale from 0% to 20%. Non-residents are taxed a flat 20% of their Cambodian sourced income.
Foreigners living in Cambodia are considered a resident for tax purposes if they spend more than 182 days in Cambodia during the tax year, or if their principal abode is in Cambodia.
However, collection of Cambodian taxes is quite chaotic. In theory, employers (or their local representatives, if the employer is foreign) are supposed to pay the income tax due each month by the 15th of the month following payment. Cambodia doesn’t require anyone to file a personal tax return though, so they don’t know what anyone’s earning, and so what they should be paying.
The Cambodian tax authority is called the General Department of Taxation.
It is clearly sensible to ensure that you pay your taxes (or ask your employer to, if they are Cambodian), even though no one is checking up on you, to ensure that you avoid possible consequences in the future.
We strongly recommend that if you have any doubts or questions about your tax situation as a US expat living in Cambodia that you contact a US expat tax specialist.