The bona fide residence test is one of two tests that can be used to qualify for the Foreign Earned Income Exclusion. The bona fide residence test is a higher standard to achieve than the physical presence test, but does not require tracking of days in U.S. You meet the bona fide residence test if you are a bona fide resident of a foreign country or countries for an uninterrupted period that includes an entire tax year. However, you do not automatically acquire bona fide resident status merely by living in a foreign country or countries for 1 year.
As a U.S. citizen residing and working abroad you are subject to taxation in both the country of your residence and the United States. The U.S. is the only developed country in the world to tax its citizens regardless of residency. This means you are subject to taxation in the U.S. on your WORLDWIDE income, regardless of where you live.
There are several mechanisms in place to avoid “double taxation” between the U.S. and your resident country. This article will take a look at the foreign earned income exclusion and foreign tax credit. It is important to fully understand both the foreign earned income exclusion and the foreign tax credit before deciding how to proceed.
The physical presence test is one of two tests that can be used to qualify for the Foreign Earned Income Exclusion. The physical presence residence test is the easier threshold, but does require tracking of days in U.S. You meet the physical presence test if you are physically present in a foreign country or countries 330 full days during a period of 12 consecutive months. The 330 qualifying days do not have to be consecutive. The physical presence test applies to both U.S. citizens and U.S. resident aliens.