By Samuel Warren 
Americans in Greece: How the Foreign Earned Income Exclusion and Tax Credits Work
Reading time: 15 minutes
Table of Contents
- Introduction
- Understanding the Foreign Earned Income Exclusion (FEIE)
- Qualifying for the FEIE
- Calculating the FEIE
- Foreign Tax Credits
- Double Taxation Agreement between the US and Greece
- Real Estate Considerations for Americans in Greece
- Financial Planning Strategies
- Conclusion
- FAQs
Introduction
As the allure of international living continues to captivate Americans, Greece has emerged as a particularly enticing destination. With its rich history, stunning landscapes, and vibrant culture, it’s no wonder that many U.S. citizens are considering a move to the Hellenic Republic. However, navigating the complex world of international taxation can be daunting for expatriates. This comprehensive guide aims to demystify the Foreign Earned Income Exclusion (FEIE) and tax credits available to Americans living in Greece, providing a roadmap for financial success abroad.
Understanding the Foreign Earned Income Exclusion (FEIE)
The Foreign Earned Income Exclusion is a provision in the U.S. tax code that allows qualifying U.S. citizens and resident aliens who live and work abroad to exclude a certain amount of their foreign earned income from U.S. taxation. This exclusion is a powerful tool for Americans living in Greece, potentially reducing their U.S. tax liability significantly.
Key Features of the FEIE
- For the 2023 tax year, the maximum exclusion amount is $120,000
- The exclusion applies only to earned income (salary, wages, self-employment income)
- It does not apply to passive income such as dividends, interest, or capital gains
- The exclusion is claimed on Form 2555
Qualifying for the FEIE
To be eligible for the Foreign Earned Income Exclusion, Americans living in Greece must meet one of two tests:
1. The Physical Presence Test
To qualify under this test, you must be physically present in a foreign country (or countries) for at least 330 full days during a 12-month period. This period can be any 12 consecutive months, not necessarily aligning with the calendar year.
2. The Bona Fide Residence Test
This test requires that you have been a bona fide resident of a foreign country for an uninterrupted period that includes an entire tax year. To be considered a bona fide resident, you must have established a genuine residence in Greece with no clear intention of returning to the United States in the immediate future.
Calculating the FEIE
The calculation of the Foreign Earned Income Exclusion can be complex, especially for those with income from multiple sources or who have spent time in both the U.S. and Greece during the tax year. Here’s a simplified breakdown:
- Determine your total foreign earned income for the year
- Calculate the number of days you qualify for the exclusion
- Prorate the maximum exclusion amount based on your qualifying days
- Apply the exclusion to your foreign earned income
It’s important to note that if your foreign earned income exceeds the maximum exclusion amount, you may still owe U.S. taxes on the excess. Additionally, the excluded income may still be considered when determining your tax bracket for any non-excluded income.
Foreign Tax Credits
In addition to the Foreign Earned Income Exclusion, Americans living in Greece may also benefit from Foreign Tax Credits. These credits can help offset U.S. taxes on income that has already been taxed by the Greek government.
How Foreign Tax Credits Work
- You can claim a credit for foreign taxes paid on income that is also subject to U.S. taxation
- The credit is claimed on Form 1116
- Credits can be carried forward or backward in certain circumstances
- The credit is limited to the U.S. tax liability on the foreign-source income
It’s crucial to understand that you cannot claim both the Foreign Earned Income Exclusion and Foreign Tax Credits on the same income. However, you may be able to use a combination of these benefits to optimize your overall tax situation.
Double Taxation Agreement between the US and Greece
The United States and Greece have a Double Taxation Agreement (DTA) in place, which aims to prevent double taxation of income earned in one country by a resident of the other country. This agreement provides several benefits for Americans living in Greece:
- Clarifies which country has the primary right to tax various types of income
- Provides reduced withholding rates on certain types of income
- Offers mechanisms for resolving tax disputes between the two countries
Understanding the provisions of this agreement is crucial for optimizing your tax situation as an American living in Greece. It’s advisable to consult with a tax professional who specializes in international taxation to ensure you’re taking full advantage of the benefits provided by the DTA.
Real Estate Considerations for Americans in Greece
Many Americans living in Greece consider purchasing property, either as a primary residence or as an investment. While real estate athens can be an attractive option, it’s important to understand the tax implications of owning property abroad.
Key Points to Consider
- Rental income from Greek property may be taxable in both Greece and the U.S.
- Capital gains from the sale of Greek property may be subject to taxation in both countries
- The Foreign Tax Credit can help offset double taxation on real estate-related income
- Reporting requirements for foreign real estate ownership can be complex
It’s crucial to work with both Greek and U.S. tax professionals to ensure compliance with all reporting requirements and to optimize your tax strategy when investing in Greek real estate.
Financial Planning Strategies
Living as an American in Greece requires careful financial planning to maximize tax benefits and ensure compliance with both U.S. and Greek tax laws. Here are some strategies to consider:
1. Timing Your Move
Carefully plan the timing of your move to Greece to maximize your eligibility for the Foreign Earned Income Exclusion. Consider how partial-year residency might affect your tax situation in both countries.
2. Income Structuring
If possible, structure your income to take full advantage of the Foreign Earned Income Exclusion. This might involve negotiating with employers or adjusting your business structure if you’re self-employed.
3. Retirement Planning
Understand how living in Greece affects your U.S. retirement accounts and consider the tax implications of contributing to Greek pension plans.
4. Currency Management
Be mindful of currency exchange rates and how they affect your income and tax liability. Consider strategies to manage currency risk.
5. Regular Tax Review
As tax laws in both countries can change, it’s important to regularly review your tax strategy with professionals who understand both U.S. and Greek tax systems.
Conclusion
Navigating the complex world of international taxation as an American living in Greece requires careful planning and expert guidance. While the Foreign Earned Income Exclusion and Foreign Tax Credits offer significant benefits, they must be utilized strategically to maximize their effectiveness. By understanding these provisions, along with the Double Taxation Agreement between the U.S. and Greece, Americans can create a tax-efficient life abroad.
Remember that tax laws are subject to change, and individual circumstances can greatly affect your tax situation. Always consult with qualified tax professionals who specialize in international taxation to ensure you’re making the most informed decisions for your financial future in Greece.
FAQs
1. Can I claim the Foreign Earned Income Exclusion if I work remotely for a U.S. company while living in Greece?
Yes, you can claim the FEIE if you meet either the Physical Presence Test or the Bona Fide Residence Test, regardless of whether your employer is based in the U.S. or Greece. The key factor is where you physically perform the work, not the location of your employer.
2. How does owning property in Greece affect my U.S. tax obligations?
Owning property in Greece can complicate your U.S. tax situation. You may need to report rental income and any capital gains from the sale of the property on your U.S. tax return. However, you may be able to claim Foreign Tax Credits for taxes paid to Greece on this income to avoid double taxation.
3. Can I contribute to an IRA while living in Greece and claiming the Foreign Earned Income Exclusion?
If you exclude all of your foreign earned income using the FEIE, you may not be able to contribute to an IRA for that year. However, if you have any non-excluded earned income, you may be eligible to make IRA contributions based on that income.
4. Do I need to file a U.S. tax return if my income is below the Foreign Earned Income Exclusion limit?
Yes, U.S. citizens are generally required to file a U.S. tax return regardless of where they live or how much they earn. Even if you don’t owe any U.S. taxes due to the FEIE, you still need to file to claim the exclusion and report your worldwide income.
5. How does the Greek tax system differ from the U.S. system, and what should Americans be aware of?
The Greek tax system has progressive tax rates similar to the U.S., but the rates and brackets differ. Greece also has a VAT (Value Added Tax) on goods and services, which is not present in the U.S. Americans should be aware of potential social security contributions and property taxes in Greece. It’s crucial to understand both systems to avoid surprises and ensure compliance with all tax obligations.
Article reviewed by Marco Rossi, Private Equity Portfolio Director | Transforming Distressed Assets into High-Performance Investments, on March 14, 2025