Tax Compliance for US Expats Living in Chile

As a US expat living in Chile, it’s essential to understand your tax obligations and compliance requirements. This article will guide you through the key forms and filings, overseas filing options, US-Chile tax treaty benefits, social security taxes, and foreign bank account reporting (FBAR) requirements.

Key Forms and Filings

Required Forms for Tax Compliance

Form 2555: Foreign Earned Income Exclusion: Claim exemption from US income tax on foreign-earned income.
Form 8938: Statement of Specified Foreign Financial Assets: Report specified foreign financial assets, such as bank accounts and investments.
Form 8833: Treaty-Based Return Position Disclosure: Disclose treaty benefits claimed on your tax return.
Form 5471: Information Return of U.S. Persons With Respect to Certain Foreign Corporations: Report ownership in a foreign corporation.

Overseas Filing and the IRS Streamlined Program

Eligibility for Tax Relief

US expats living in Chile who haven’t filed their US tax returns may be eligible for the IRS streamlined filing compliance procedures. This program allows you to file the last three years of tax returns and six years of FBARs without late penalties, provided:

The failure to file was non-willful.
The IRS hasn’t already contacted you.

US-Chile Tax Treaty

Limited Benefits Due to Savings Clause

The US and Chile have a tax treaty in place, but many benefits are limited due to the ‘savings clause.’ This clause allows the US to tax its citizens as if the treaty didn’t exist, which means that most treaty benefits don’t apply to US expats.

Self-employed US expats living in Chile are only subject to Chilean social security taxes, not US, thanks to the US-Chile totalization agreement. This agreement helps US expats avoid double taxation on social security by specifying that their contributions are due only in the country where they are working.

Foreign Bank Account Reporting (FBAR)

Filing Requirements and Penalties

US citizens who have a combined maximum value of more than $10,000 in foreign financial accounts at any point during the tax year need to file the FBAR. Failing to file the FBAR can result in severe penalties, including fines of up to $10,000 for non-willful violations.

By understanding these key forms and filings, overseas filing options, US-Chile tax treaty benefits, social security taxes, and foreign bank account reporting requirements, you’ll be better equipped to navigate your tax obligations as a US expat living in Chile.