US Expat Taxes for Americans Living in Turkey – What You Need to Know
It has been estimated that there are several thousand Americans living in Turkey.
Living in Turkey is an incredible experience for a number of reasons, including the hospitable locals, the food, climate, and beaches, the proud culture, not to mention easy access to the rest of Europe. As an American expatriate living in Turkey though, what exactly do you need to know regarding filing US expat (and Turkish) 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 Turkey, 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.
“Turkey taxes its residents on their worldwide income, whereas non-residents are taxed on Turkish-source earnings only. Income tax is levied on taxable income at progressive rates after certain deductions and allowances. There is no special tax regime for expatriates.”
If you pay income tax in Turkey, 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 Turkish resident, and the Foreign Tax Credit, which gives you a $1 tax credit for every dollar of tax you’ve paid in Turkey. 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 Turkish governments share taxpayer info, and Turkish 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/Turkish dual citizen, and you have been living in Turkey 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.
Turkish taxes – what you need to know
Turkish residents are taxed on their worldwide income on a scale from 15% to 35%. If your only income is from employment in Turkey, tax will be deducted at source and you don’t need to file a Turkish tax return.
Capital gains in turkey are considered ordinary income for tax purposes.
Foreigners living in Turkey are considered a resident for tax purposes if their home is in Turkey, or if they spend a period of 6 months or more in Turkey in a year.
The Turkish tax year is the same as the US, which is to say the calendar year. Tax returns are due by March 25th. The Turkish tax authority is called the Revenue Administration.
We strongly recommend that if you have any doubts or questions about your tax situation as a US expat living in Turkey that you contact a US expat tax specialist.