One way US expats save on US expat taxes is by using the Foreign Earned Income Exclusion. To qualify, however, you must pass one of the two residency tests: the Physical Presence test or the Bona Fide Residence test. If you qualify as a bona fide resident of one country but then move to another country temporarily, do you lose your bona fide status?
Hi everybody. My name is David McKeegan. I’m with Greenback Expat Tax Services and our question today is I’m a bona fide resident of France. My employer is sending me to Switzerland for four months. Will I lose my bona fide resident status?
Now in order to maintain your bona fide resident status in the eyes of the US Government your residency must remain overseas, but it doesn’t necessarily have to remain in one country.
Establishing residency in a foreign country includes integrating with the foreign culture so you’re setting up bank accounts, you have professional relationships there, you’re joining churches, all these kind of things that really mean that you’re living there full-time.
If you’re traveling to another country for a period of time, you must keep your abode in France or in the foreign country or you need to establish a new abode in the country you’re going to. In this case it would be Switzerland.
You can leave the country for brief or temporary trips back to the United States or any other country for vacation or business purposes, but you need to maintain your abode in the foreign country. You need to maintain your primary residence in a foreign country.
It’s also worth noting that you must have clear intentions of returning from any trips back to the primary abode. If you are going to Switzerland for four months, you need to have clear intentions of returning to France after that four month period in order to maintain your bonafide resident status in France.
I will say that the IRS looks at your actions more than your words. Part of this is around your intentions, that you intend to return to a foreign country and you need to show that you’re planning on returning to your primary country, so France in this case, by maintaining your house in France, maintaining your bank accounts in France, all those kind of things.
Really that’s one of the reasons why contractors find it so hard to qualify as bona fide residents because if they go overseas for an 18 month contract, they leave their primary residence in the United States. They have their bank accounts in the United States. Maybe their family stays in the United States. It makes it very difficult for them to prove that they’re living abroad full time.
That’s why contractors will almost always need to qualify under the Foreign Earned Income Exclusion using the Physical Presence test rather than the Bona Fide Resident test.
That’s all for this week. If you have any questions please let us know. Thank you.