Dual Citizenship

By Tom Andrews, CPA

As you may or may not be aware all US citizens are subject to US income tax regardless of whether they reside in the United States or not. To make matters more complicated some yacht crewmembers have dual US citizenship with another country.  While these circumstances are rare we do encounter these situations from time to time. 

The typical fact pattern for a dual citizen yacht crewmember is that they were born outside the United States and one of the parents was a United States Citizen making them eligible for US citizenship. The dual citizen may never have lived inside the United States but now they are working on a yacht that has entered into US territorial waters or they would like to take advantage of their US citizenship and travel to the United States in hopes of finding work or possibly working on a US flagged vessel something that a nonresident might not be eligible for.  As the dual citizen crewmember is completing the employment paperwork they are being asked to provide answers to questions that will in turn be provided to the IRS.

Many dual citizen yacht crewmembers are surprised to find out that as a US citizen they may have been required to file a tax return for every year their income exceeded the threshold that requires filing. While this in turn might cause an instance of panic we recommend that the dual citizen step back and analyze the situation more carefully.  While you might have been required to file past tax returns it does not necessarily mean you would have owed taxes during this time period.  Chances are if you were complying with the tax laws of the country that you are domiciled in you will probably be entitled to one of several exemptions available to tax payers.  These exemptions include the following:

  1. Foreign earned income exclusion.
  2. Foreign tax credit.
  3. Income tax treaty.

While these exemptions may reduce or eliminate your tax burden they do require that you be a tax resident of the country that you are domiciled in. The topic of tax residency can be difficult for some taxpayers domiciled outside the United States as it requires that you be a resident filer of the country you are domiciled in. Many yacht crewmembers that are domiciled in a foreign country have declared themselves as “nonresidents” for the purpose of avoiding tax in their home country.

Dual citizenship is a complicated topic for yacht crewmembers, if you find yourself in this fact pattern I recommend that you consult with a US tax attorney that specializes in these matters and also consult with a tax accountant in the country that you are domiciled.   The IRS does provide additional information regarding dual citizens at the IRS.gov website.

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