As a general rule, individuals who work abroad for a certain period of time are subject to income tax under the jurisdiction of the country where they earn it. However, there are several exceptions and tax treaties that may apply.
One example is the Foreign Earned Income Exclusion (FEIE) provided under the US tax code. If you meet certain requirements, you may be able to exclude up to a certain amount of your foreign earned income from US federal income tax. For the tax year 2021, the maximum FEIE is $108,700.
To qualify for the FEIE, you must pass one of two tests: the Bona Fide Residence Test or the Physical Presence Test. The Bona Fide Residence Test requires a person to establish a bona fide residence in a foreign country for an uninterrupted period that includes an entire tax year. The Physical Presence Test requires a person to be physically present in a foreign country for at least 330 full days during a 12-month period.
It is important to note that the FEIE only applies to federal income tax and does not apply to state or local taxes. Additionally, it does not exempt a person from paying Social Security or Medicare taxes.
Other countries also have similar tax treaties with different countries, which may exempt or reduce taxes on foreign income. It is advisable to seek the guidance of a licensed tax professional or attorney to evaluate your specific circumstances and applicable tax treaties.
In conclusion, while it may be possible to claim an exemption from taxes if working abroad for a certain period, it is important to understand the specific requirements and limitations of any applicable tax treaties or laws in both the foreign country and the home country of the individual.
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