International Taxes: A Survival Guide for the Brave

If domestic taxes are a maze, international taxes are that maze but underwater, on fire, and someone keeps moving the walls. But with the right knowledge, you can navigate it without drowning.

Rule number one: if you're a U.S. citizen or resident, you're taxed on worldwide income regardless of where you live or where the money comes from. The U.S. is one of only two countries that does this (the other is Eritrea, for context). Moving to Bali doesn't exempt you from Uncle Sam.

The Foreign Earned Income Exclusion (FEIE) lets you exclude up to $120,000 (2026) of foreign earned income from U.S. taxes. But it only applies to earned income — not investment returns, not rental income, not dividends.

Foreign Tax Credits prevent double taxation by allowing you to credit taxes paid to foreign governments against your U.S. tax bill. This is usually more beneficial than the FEIE if you're in a high-tax country.

If you own a foreign corporation, you might need to file Form 5471 (International Filing Hell, basically). Missing this form carries a $10,000 penalty per year. The IRS doesn't joke about foreign reporting.

Transfer pricing matters if your U.S. company does business with a related foreign entity. You need to price transactions at arm's length — meaning the same price you'd charge a stranger. The IRS watches this closely.

VAT (Value Added Tax) is common outside the U.S. and can range from 5-27%. If you're selling to European customers, you need to understand VAT registration and collection.

The bottom line: hire an international tax professional. The money you spend on an expert is a fraction of the penalties for getting it wrong.