Gulf's US expats hope Trump will make good on his double taxation pledge

Proposed legislation aims to resolve a longstanding grievance for American citizens living abroad

US President-elect Donald Trump has vowed to abolish double tax rules for American citizens living abroad. AP

Americans living in the UAE are cautiously optimistic about a new US bill that could end the practice of double taxation for citizens living abroad.

The proposed legislation, which has gained significant momentum, aims to address a long-standing grievance among Americans living abroad who are required to file taxes in the US, regardless of where they reside.

For many Americans in the UAE – where there is no federal income tax – the US policy of taxing its citizens abroad is both a financial and administrative burden. While foreign tax credits and exclusions soften the blow for some, the process of filing annually remains complicated, time-consuming and costly.

Costly civic duty

Natalia Miranda, an American marketing and communications professional who has lived in Dubai for eight years, sees filing her US taxes as part of her civic duty, however, acknowledges the high costs and challenges involved.

“It would be nice to not have to file and count down to that April 15th filing day. Luckily, our tax person is a former expat himself, so he is able to navigate the super-intricate system for us,” she told The National.

The bill, called the Residence-Based Taxation for Americans Abroad Act, was put forward by Republican Representative Darin LaHood of Illinois, and is in line with president-elect Donald Trump's campaign pledge to end double taxation for Americans living abroad.

Americans living abroad file taxes with the Internal Revenue Service, which can cost hundreds of dollars to complete, even though about 60 per cent do not owe taxes, according to the Taxpayer Advocate Service, an office within the IRS.

Those obligations apply to millions of Americans residing overseas – estimates range from 3.9 million to 5.5 million – including so-called “accidental Americans” who are unaware they hold dual citizenship.

“With the new president-elect, I believe a lot of reforms will come in to play, [although I'm] not sure how it will make a huge impact, as the USA expat community globally remains fairly small,” said Ms Miranda.

“I am married to a non-US citizen, we have to pay that tax on that as well, so it does end up adding up, but when you choose a life as an expat, all those cost are factored in.”

The bill would establish a process through which Americans living overseas can elect to be treated as a non-resident without having to renounce their citizenship.

By doing so and moving to a residence-based tax model, their foreign-based income would be exempt from US taxes. Those with US-sourced income – including real estate, investments and retirement income – would still have to pay US taxes.

The number of Americans renouncing their US citizenship has steadily increased over the years, with the country's complex and often onerous tax rules said to be a key factor.

Taxes can be higher for Americans married to other nationalities, as the citizen might choose to file taxes under a different status – such as “married filing separately” – which limits access to certain deductions and credits. The spouse’s financial information may also need to be reported, potentially increasing their taxable income.

'Sign of progress'

For Himanshi Jesrani Bhatia, an American business development manager who was born in the UAE, the proposed bill is a welcome sign of progress.

“The proposed bill addressing double taxation is a significant step towards fairness for Americans living abroad,” she said. “Current tax policies often feel misaligned with the realities of expatriate life, creating unnecessary financial challenges.

“This initiative reflects a growing understanding of the global roles many Americans play and the need for more equitable treatment in a complex, interconnected world.”

Advocacy groups, such as the Association of Americans Resident Overseas and American Citizens Abroad, have long campaigned for tax reform, arguing that the current system places an undue burden on US expats.

'Not automatic'

Dixit Jain, managing director of The Tax Experts DMCC, which has operated in Dubai for 13 years and currently has 30 American clients, highlighted the complexities involved in transitioning to the proposed tax system. He said that while the reforms could provide significant relief, they also come with stringent requirements if the bill passes.

“The transition into the system is not going to be automatic,” said Mr Jain said. “Individuals must certify, under penalty of perjury, that they have complied with all US tax regulations for the preceding five years.

“This will be a significant challenge, as meeting such compliance requirements is not always easy.”

He said Americans would also need to provide evidence proving residency in a foreign country to qualify.

But nevertheless, Mr Jain said it was welcome news for Americans living overseas. “People who have no financial ties to the US and earn all their income abroad could see substantial relief,” he said.

“Filing tax returns involves a lot of calculations, and even a small error can trigger IRS involvement. The proposed bill could relieve expatriates from these burdens.”