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The Implications of the 2020 U.S. Elections on Expat Taxes

18th Nov 2020

After a drawn-out week of counting ballots, the United States elections have finally concluded. Former Vice President Joe Biden will become the next President of the United States, following what wound up being a relatively decisive victory.

In America, many took to the streets to celebrate what they view as the end of a turbulent and divisive era. And according the Associated Press, many leaders around the world were quick to express “hope and relief” about the U.S. charting a new path forward.

Once the excitement of the election fades, however, and those who are thrilled or disappointed with the result go back to their lives, discussions will turn toward the practical impact of a Biden presidency. As is often the case when American leadership changes hands, this impact will include shifting tax policies, and for that reason we want to take an early look at how Vice President-elect Biden may affect taxation on U.S. expats.

Biden’s Tax Plan

As is so often the case when politicians put forth financial plans, there is debate — even among experienced economists — about the broad potential impacts of Biden’s tax plan. What we know for certain though is that it will look very different from Trump’s. A breakdown of the plan by FXCM lays out several of the highlights, including a rising corporate tax rate (21% to 28%); a doubled minimum tax on earnings of U.S. companies operating abroad; a 15% tax on all corporate income; shifting the top individual income tax bracket up (to 39.6%); and penalising corporations that “ship jobs overseas to sell products back to America.”

Again, there’s plenty of debate to be had over the broad impact of these policies. Looking at the big points though, it’s clear that Biden’s primary goal is — as he repeatedly stated on the campaign trail — to make corporations and the ultra-wealthy pay their share and prioritize U.S. jobs. There is nothing in those big points that should directly change things for expats specifically — save for those who may run large corporations or fall into that top individual income tax bracket anyway.

Global Intangible Low Tax Income

This is the one provision in which there may in fact be a change that would impact a large number of expats as a result of Biden’s election. The Global Intangible Low Tax Income, or GILTI, was designed in 2017 as a means of taxing income on American expats running small businesses under U.S.-based firms. There’s some speculation that Biden’s plan could increase this tax from 10.5% to 21% — though the matter may not be entirely settled yet, as the idea has been challenged. The idea behind this is to de-incentivize large companies from reallocating profitable resources overseas, but it still stands as the main bullet point in Biden’s tax plan that may impact a meaningful number of expats.

Expat Tax Filing

As for how U.S. expats will file taxes under a Biden administration, there is no indication just yet of any changes. Last year’s post on “How To Prepare Expat Tax Returns In The USA” should still apply, save for any minor year-to-year changes that may arise. But as far as we can tell at this point, there is no significant news regarding how or when expats need to file their U.S. taxes.

Expat Sentiment

Expat sentiment toward the U.S. election with regard to taxation may actually represent one of the few areas in which supporters of Trump and Biden agree. Both, per a EuroNews article that interviewed expats on both sides, would like to see America’s double taxation policy abolished altogether. That is to say that expats (understandably) would like to see the next administration reverse the policy that requires Americans abroad to file taxes at home altogether.

Trump-supporting expats saw the now-lame-duck president as someone who might in fact scrap this policy, even though he did not do so during his first term. And Biden-supporting expats appear to hope that the new president-elect can be moved to change the policy as well. So, while expats still differed in their candidate preferences, like Americans in general, they seem to want the same thing in this case. Given Trump’s first term, it is unlikely they would have gotten it during a second one. But it’s also unclear (and perhaps unlikely) that they’ll get it under Biden either.

All in all, we don’t foresee a particularly great impact on U.S. expats specifically as a result of a Joe Biden tax policy. Broader changes will affect particularly wealthy expats or those running corporations, and the GILTI is something to watch. Overall though, expat taxation does not appear to be a primary focus of Biden’s plan.

This article was written by: Jem Blayston.