The Fundamental Truth About Americans Moving Abroad
The United States is one of only two countries in the world (the other is Eritrea) that taxes its citizens based on citizenship rather than residence. This means that wherever you live — Portugal, Thailand, the UAE, or Antarctica — if you hold US citizenship, you must file a US federal income tax return every year and pay tax on your worldwide income.
This does not make moving abroad impossible or even particularly expensive for many Americans. The combination of the Foreign Earned Income Exclusion, foreign tax credits, and tax treaties can reduce or eliminate the incremental US tax burden for most Americans who move to higher-tax countries. But it requires planning, and it never goes away.
The Pre-Departure Tax Checklist for Americans Moving Abroad
Engage a US Expat Tax Professional
Not all CPAs understand expat tax. Find one who specialises in FEIE, FATCA, and foreign tax credits before you move
File a State Tax Exit Return
File your final state tax return as a part-year resident in the year you leave. Change your voter registration, driving licence, and primary address to a non-income-tax state if possible
Document Your Break From California or New York
If you leave a high-tax state, document everything: final lease/mortgage termination, utility account closures, vehicle registration change, professional licence update
Register Your Foreign Accounts for FBAR
As soon as you open a foreign bank account, note the account details for your FBAR filing next April 15
Understand Your FATCA Thresholds
Single filer abroad: report on Form 8938 if foreign assets exceed $200K at year-end ($400K if married filing jointly)
Establish Residency in Your Target Country
You need a genuine residency permit — not just a tourist visa — to claim the bona fide residence test for the FEIE
FBAR: The Most Commonly Missed Obligation
The FBAR (FinCEN 114, Report of Foreign Bank and Financial Accounts) is filed separately from your tax return — directly with FinCEN via the BSA E-Filing System, by April 15 (with automatic extension to October 15). It is required for every US person who has financial interest in or signature authority over one or more foreign financial accounts if the aggregate value of those accounts exceeds $10,000 at any point during the calendar year.
FBAR covers not just bank accounts but also foreign brokerage accounts, foreign pension accounts in some cases, and even accounts in foreign financial institutions where you have signature authority (for example, as an officer of a foreign company). The penalties are severe: $10,000 per non-wilful violation per year, and up to $100,000 or 50% of the account balance per wilful violation.
The Foreign Earned Income Exclusion: What It Does and Does Not Cover
The FEIE (Form 2555) allows Americans who meet the bona fide residence test OR the physical presence test (330 full days abroad in any 12-month period beginning or ending in the tax year) to exclude up to $126,500 of foreign-earned income from US federal income tax. This covers wages, salaries, and self-employment income earned from work performed outside the US.
What the FEIE Does NOT Cover
The FEIE does not apply to: investment income (dividends, interest, capital gains), rental income, Social Security benefits, pension income, IRA distributions, or income earned on US soil. Americans who live primarily on passive investment income and move abroad will still owe US federal tax on that income, subject to reduction by foreign tax credits.
Opening a Bank Account Abroad: The FATCA Reality
Many Americans are surprised to discover that opening a bank account abroad is significantly harder than it used to be. The Foreign Account Tax Compliance Act (FATCA), enacted in 2010, requires all non-US financial institutions to identify and report on accounts held by US persons to the IRS — or face a 30% withholding tax on US-source payments. Many smaller banks in Europe, Asia, and Latin America have found it easier to simply stop taking US clients than to implement full FATCA compliance infrastructure.
For Americans moving abroad, this means banking due diligence is essential before choosing a residency destination. Countries with strong FATCA-compliant banking infrastructure for US persons include Portugal, Cyprus, Malta, UAE, Singapore (for qualifying investors), and Panama. You will need to provide Form W-9 (confirming your US tax identification number) to any foreign bank you open an account with.
State Tax: The California and New York Exit
California's Franchise Tax Board is the most aggressive state tax authority in the United States at pursuing residents who try to leave. California will maintain your state income tax obligation if you have any of the following 'safe harbor' flags: a California driver's licence, California voter registration, a California business licence, California professional memberships, or significant time spent in California during the year. California's top income tax rate is 13.3% — eliminating it is significant.
New York imposes both state and NYC income tax. New York uses a 'permanent place of abode' test — if you maintain a permanent abode in NYC for more than 183 days and spend more than 183 days in New York State, you are a New York resident. Moving abroad generally resolves this if you genuinely terminate your New York housing arrangements.
Best Countries for Americans Moving Abroad in 2026
- Portugal: Most popular overall. Excellent infrastructure, English widely spoken, US tax treaty, FATCA-friendly banking, 20% flat tax option under IFICI, EU residency and citizenship path
- Greece: Best for high passive income Americans. Lump-sum tax of €100,000 covers all foreign income. Warm climate, low cost of living, EU residency
- UAE (Dubai): Zero local tax, world-class infrastructure, English-speaking business community, easy residency from $280K property investment. No US tax reduction benefit
- Panama: US dollar economy, territorial tax, US-friendly culture, excellent banking, direct US flights, permanent residency from $300K
- Italy: Stunning lifestyle, flat tax regime, US tax treaty, diverse investment visa options. Language barrier for some
- Cyprus: Non-dom tax status, Mediterranean lifestyle, English widely spoken, EU member state, FATCA-compliant banking
Do I have to pay US taxes if I live abroad?
Yes. The US taxes its citizens on worldwide income regardless of residence. However, the FEIE can exclude up to $126,500 of earned income, and foreign tax credits can offset US tax on income that's already been taxed abroad.
How do I stop paying California income tax when I move abroad?
You must genuinely sever your California domicile — change your driver's licence, voter registration, professional memberships, and primary bank accounts to another state or country. California requires a genuine break, not just a physical departure.
Can I maintain a US address while living abroad?
Yes, but it must be clear that it is not your primary residence. A US forwarding address for mail purposes is fine; maintaining a California home as your primary residence while living abroad will likely maintain California tax liability.