US permanent resident disagrees with tax obligations in China - what's the legal stance?
In the digital age, the global community is more interconnected than ever. This is especially true for individuals like Damon Chen, a US green card holder who currently resides in China. Despite being based in another country, Chen's financial obligations to the United States remain unchanged.
Chen recently expressed his frustration on Elon Musk's social media platform about having to pay US federal and state taxes on any income he makes in China. His complaint sparked a conversation among netizens, with some suggesting he could give up his green card or lose it if he spends more than 6 months outside the US.
However, relinquishing a green card is not a simple matter. To officially abandon the status, a green card holder must file Form I-407 with the USCIS. Until this is done, the green card holder remains subject to US tax laws, including the requirement to file an annual US tax return and report worldwide income to the IRS.
This obligation continues until the green card is officially relinquished or revoked. Key tax obligations and considerations include worldwide income reporting, the Foreign Earned Income Exclusion (FEIE), the Foreign Tax Credit (FTC), tax treaties, and various reporting requirements such as the FBAR and Form 8938.
The FEIE allows eligible individuals to exclude up to $130,000 (in 2025) of foreign earned income from US taxable income, provided they meet either the Physical Presence Test or the Bona Fide Residence Test. The FTC helps avoid double taxation by allowing a credit on the US tax return for income taxes paid to the foreign country.
The US and China, like many other countries, have a tax treaty in place to prevent double taxation. Under this treaty, a particular income is not taxed twice, providing a tax credit in each country on the taxes paid in the other. However, treaty benefits must be claimed on the US return, and compliance with both countries’ rules is required.
Not all countries follow the same taxation rules as the US. For instance, most EU countries do not tax their residents on income made abroad. This is a point Chen highlighted in his initial complaint.
Chen, who founded Testimonial.to and PDF.ai, and previously worked as a senior software engineer at Cisco Systems for over 8 years, also launched a community called IndieLog (formerly Lonely Dev) during the Covid-19 lockdown.
In India, a US citizen or green card holder living in the country must declare their global income in their US tax return and their India return, under the Double Taxation Avoidance Agreement (DTAA) between India and America. As always, consulting a tax professional familiar with US expat and Chinese tax laws is highly advisable due to the complexity involved.
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