Sunday, December 21, 2008

American who wants to work in a cruise ship that is Italian based, where will I pay taxes? U. S.? Italy? both?



Answer on American who wants to work in a cruise ship that is Italian based, where will I pay taxes? U.S.? Italy? both?

You absolutely must file US tax returns and pay US taxes. If you have to pay Italian taxes, you can take a credit for the income taxes paid by using Form 1116.

Unfortunately working on a cruise ship does not qualify for the Foreign Earned Income Exclusion unless you actually have a bona fide foreign residence for the entire tax year. The ship doesn't count as a foreign residence, so you'd need to rent a room or apartment in a foreign country. Nor does time on the high seas count for meeting the physical presence test so there's no way to meet that test. The cost of the foreign residence would probably be more than any tax savings though. On top of that, if you have to pay Italian income taxes, they are much higher than US income taxes so you'd do better with the credit on Form 1116 anyway.