Paying Taxes

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TheMan17
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Paying Taxes

Postby TheMan17 » Fri Aug 18, 2017 12:31 pm

I have a great question my friends! How does a dual citizen of the US and Peru pay taxes while living in Peru but working as a subcontractor for a US company? :D :D


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gringolandia
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Re: Paying Taxes

Postby gringolandia » Fri Aug 18, 2017 1:09 pm

It is a rather gray area. You must find a competent accountant in Peru to handle it for you.

I'll give you my basic understanding of it, though.

First off, there is no tax treaty between the US and Peru. That means there is no treaty *requiring* that both countries avoid double-taxation. It also means that Peru has no way to know you earned any money outside of Peru unless you tell them yourself.

However, even though there is no tax treaty, it turns out that Peru *does* allow you to subtract tax you already paid in the US from what would normally be your Peruvian tax burden. So if you choose to do so, you can include a copy of your US tax forms when you file your Peruvian tax forms, and subtract what you already paid in the US from what you would otherwise have to pay in Peru. Most likely you will still owe at least a little bit in Peru, though.

Why would you do that if you can just not tell them you earned anything in the US and they have no way to know unless you tell them? The simple answer is that they can and will look at deposits you received in your Peruvian bank account, so if you wired a bunch of money in, you'll have to show them where it came from (or else they'll assume it is drug money or something and confiscate it or tax you on the whole amount).

Okay, but what if you did not send much money from the US, but instead left it in the US? Perhaps you live cheaply and can carry enough cash in to get by whenever you travel back and forth? For those people, there is a second option that can make sense (though you better make sure your accountant is on board with it). The second option is to declare *only* the money you deposited into your Peruvian bank account as your income, and pay a certain percentage (I think it is something like 20%) on that. Yes, it is basically being double-taxed, but you're only double-taxed on the small percentage of your overall income that you sent into Peru. How legit is this? Talk to your accountant.

That's about it.

I didn't answer the question of whether or not you actually need to file in Peru since you didn't ask. You probably already know, but if my memory is correct the answer to that is you must file if you have been physically present in Peru for six months as of the January of the year you became a legal resident. So if you became a legal resident in March 2015, you would have to file in 2016, but if you became a resident in October 2015 you would not have to file until 2017. I'm pulling this from my memory, though I know I posted the answer to this in another thread not too long ago on this forum, so maybe check for that to be sure. You accountant will probably want to see your passport just to verify your travel dates in any case.
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gringolandia
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Re: Paying Taxes

Postby gringolandia » Fri Aug 18, 2017 5:18 pm

An important addendum:

If you choose to include your US tax return with your Peruvian tax return, keep in mind that the Peruvian tax return needs to be filed between January and March. So even though the US allows you to wait until April 15 to file your return, you CAN NOT wait that long. You must get it done earlier so you can meet the filing deadline for Peru.
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Re: Paying Taxes

Postby Alpineprince » Fri Aug 18, 2017 5:22 pm

File in Peru first and then take the foreign earned income credit off your US taxes.
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gringolandia
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Re: Paying Taxes

Postby gringolandia » Sun Aug 20, 2017 2:51 am

Alpineprince wrote:File in Peru first and then take the foreign earned income credit off your US taxes.


Have you actually done this?

My accountant in the US is looking into the foreign earned income credit. From what I researched on my own, the foreign income credit is only applicable to income you earned in a foreign country. If you earned the income in the US, it isn't foreign.

BUT, my accountant isn't sure about that, and I guess he should know better than me. So he's looking into it.

I'd be very curious to hear if the tax I paid in Peru can actually be deducted from what I paid in the US.

But you are not only talking about using the foreign earned income credit, but filing in Peru FIRST... so is this just an idea you have, or did you actually do it?

And WHY would you do it? And actually, HOW? What info would you give to Peru to file if you haven't already prepared your 1040 in the US?? I'm really not understanding. I mean, you've already paid the tax in the US even before you file there (via withholding or whatever), so if you file in Peru first and they say "you owe this much on your stated income", wouldn't you then have to pay that to Peru? And then request a huge refund from the US after you file your foreign earned income credit? That just doesn't make any sense to me.

Would love to hear more. Thanks.

By the way, I should mention that my accountant in Peru did not know how to handle my taxes when I first brought it up with her. She actually had to go to SUNAT and meet with them and explain the whole situation to get the answers she needed. So be aware that even a competent accountant may not have the answers on hand and might have to inquire with SUNAT about how to handle your particular tax situation.
SeATL2Peru
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Re: Paying Taxes

Postby SeATL2Peru » Tue Feb 20, 2018 9:30 am

Hi just wanted to chime in b/c we went through this tax issue while living abroad and working for (and being paid by) a US (mainland) company.

Foreign earned income is determined not by where the money comes from but by where your body is while you earn the income. So if you are in Peru being paid by an American company, that is foreign income b/c your body was in a foreign place while it was earned. For example, I work online for an American company and American clients but while I'm abroad my income is foreign.

Hope this helps.
TheMan17
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Re: Paying Taxes

Postby TheMan17 » Tue May 15, 2018 6:00 pm

Thank you because I am in the same situation! Work for an American company from home but live here. I'm from Seattle too....GO HAWKS!

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