Expat Taxes: What You Still Owe at Home When Living in Latin America

One of the most common and most dangerous assumptions expats make is this: "I moved abroad, so I don't have to file taxes at home anymore." For some nationalities, this is flatly wrong. For others, it depends on steps you may or may not have taken when you left. Either way, getting this wrong can result in penalties that range from annoying to financially devastating.

This guide covers tax obligations for Americans, Canadians, Brits, and Australians living in Costa Rica, Panama, and Colombia — the most common expat profiles in our coverage area. It is not a substitute for professional tax advice, but it will tell you what questions to ask and what deadlines you cannot miss.

Americans: You Always File. Period.

The United States is one of only two countries in the world (the other being Eritrea) that taxes its citizens on worldwide income regardless of where they live. If you are a US citizen or green card holder, you must file a federal tax return every year, no matter how long you have lived abroad or how little connection you have to the United States.

The Foreign Earned Income Exclusion (FEIE)

The good news is that the FEIE (Form 2555) allows you to exclude a significant amount of foreign earned income from US taxation. For the 2025 tax year, the exclusion is approximately $126,500. To qualify, you must meet either the Bona Fide Residence Test (you are a bona fide resident of a foreign country for an entire tax year) or the Physical Presence Test (you are physically present in a foreign country for 330 full days during a 12-month period).

Important caveats: the FEIE only covers earned income (salary, self-employment income). It does not cover investment income, rental income, Social Security benefits, or pension distributions. If your income is primarily from investments or retirement accounts, the FEIE may not help you much.

The Foreign Tax Credit (FTC)

An alternative to the FEIE is the Foreign Tax Credit (Form 1116), which gives you a dollar-for-dollar credit against US taxes for income taxes you have paid to a foreign country. In some cases, this is more advantageous than the FEIE, particularly if you are paying significant taxes in your host country. You can use the FEIE and FTC together, but not on the same income.

FBAR and FATCA: The Reporting That Catches People

Beyond income tax filing, American expats have two additional reporting obligations that trip up thousands of people every year:

• FBAR (FinCEN Form 114): If the combined balance of all your foreign financial accounts exceeds $10,000 at any point during the year, you must file an FBAR by April 15. This includes bank accounts, investment accounts, and even accounts where you have signatory authority but no ownership. Non-willful failure-to-file penalties are $10,000 per account per year. Willful violations can reach $100,000 or 50% of account balance.
• FATCA (Form 8938): If your foreign financial assets exceed the reporting thresholds ($200,000 on the last day of the year or $300,000 at any point, for single filers living abroad), you must report them on Form 8938 attached to your tax return. Failure-to-file penalties start at $10,000.

Renouncing Citizenship

Some Americans consider renouncing US citizenship to escape worldwide taxation. This is a drastic step with permanent consequences. It requires an exit tax on unrealized gains, costs $2,350 in administrative fees, and means you may be barred from re-entering the US depending on the circumstances. It should only be considered after extensive consultation with a cross-border tax attorney.

Canadians: Residency Is What Matters

Canada uses a residency-based tax system. If you are a tax resident of Canada, you are taxed on worldwide income. If you have properly severed your residency ties, you are taxed only on Canadian-source income.

Severing Residency Ties

The CRA (Canada Revenue Agency) looks at several factors to determine residency status:

• Primary ties: Do you have a dwelling in Canada available for your use? Do you have a spouse or dependents remaining in Canada?
• Secondary ties: Do you have Canadian bank accounts, a Canadian driver's license, Canadian health insurance, Canadian club memberships, or personal property in Canada?

Simply moving abroad is not enough. You must actively sever primary ties — sell or rent out your home on an arm's-length basis, close unnecessary bank accounts, surrender your provincial health card, and cancel your driver's license. Many Canadians fail to properly sever ties and are surprised to learn the CRA still considers them residents.

Foreign Property Reporting (T1135)

If you remain a Canadian tax resident and hold foreign property with a total cost exceeding CAD $100,000, you must file Form T1135. This includes foreign bank accounts, foreign real estate held for investment (not personal use), and foreign stocks held outside of registered accounts.

British Expats: The Statutory Residence Test

The UK uses the Statutory Residence Test (SRT) to determine tax residency. The test considers how many days you spend in the UK, your ties to the UK (family, accommodation, work), and whether you have been resident in previous years.

If you spend fewer than 16 days in the UK during a tax year (or fewer than 46 days if you were not resident in the previous 3 years), you are automatically non-resident. If you spend 183 days or more, you are automatically resident. Between these thresholds, your ties determine your status.

Non-resident Brits are only taxed on UK-source income (rental income from UK property, UK pensions, UK employment income). The remittance basis allows non-domiciled individuals to avoid UK tax on foreign income that is not brought into the UK, though this area of law has been evolving and recent reforms have changed how the remittance basis works.

Australians: The ATO Residency Rules

Australia uses a residency-based system similar to Canada's. The ATO (Australian Taxation Office) applies several tests: the resides test (your ordinary concept of residence), the domicile test, the 183-day test, and the Commonwealth superannuation test.

If you leave Australia permanently, cancel your lease, sell your home, and establish a permanent home abroad, you will generally be considered a non-resident. However, if you maintain an Australian home available for your use, the ATO may still consider you a resident. Non-residents are taxed only on Australian-source income but at higher tax rates with no tax-free threshold.

Local Tax Obligations in Latin America

Beyond your home country obligations, you may owe taxes in your host country as well. The rules vary significantly:

Costa Rica: Territorial Taxation

Costa Rica uses a territorial tax system, meaning only income earned within Costa Rica is subject to Costa Rican tax. If you are a retiree living on a US pension, Social Security, or investment income from abroad, you owe no Costa Rican income tax on that money. This is one of the major tax advantages of Costa Rica for expats. However, if you start a business in Costa Rica or earn rental income from Costa Rican property, that income is taxable locally.

Panama: Also Territorial

Panama operates under the same territorial principle. Foreign-source income is not taxed. Only income generated within Panama is subject to Panamanian tax. Combined with the use of the US dollar, this makes Panama extremely attractive from a tax perspective for expats whose income comes from abroad.

Colombia: Residency Changes Everything

Colombia is different. If you are physically present in Colombia for 183 days or more during any consecutive 12-month period, you become a Colombian tax resident. As a tax resident, you are taxed on worldwide income. Colombia's tax rates are progressive, reaching up to 39% for high earners. This catches many expats off guard — especially digital nomads who assume they can live in Colombia indefinitely without tax consequences.

Double Taxation Treaties

Double taxation treaties prevent you from being taxed twice on the same income. The US has no comprehensive tax treaty with Costa Rica or Panama but does have one with Colombia. Canada has treaties with Colombia and limited agreements with Costa Rica. The UK has a treaty with Colombia.

Where no treaty exists, you generally rely on the Foreign Tax Credit mechanism in your home country to offset taxes paid abroad.

Finding a Cross-Border Tax Specialist

Expat tax is a specialized field. A general accountant in your home country or your host country is unlikely to understand the interaction between both tax systems. Seek out professionals who specialize in expat taxation:

• For Americans: TaxesForExpats, Greenback Expat Tax Services, and MyExpatTaxes are well-regarded online services that specialize in US expat returns. Expect to pay $300 to $800 for a straightforward return, more for complex situations.
• For Canadians: Look for CPAs with cross-border experience. Firms like Cardinal Point and MCA Cross Border Advisors specialize in Canada-US-international tax situations.
• For Brits and Australians: Firms like 1st Contact and Expat Tax Services offer specialized expat filing for UK and Australian citizens.

Common Mistakes That Trigger Problems

1. Not filing at all: The most common and most dangerous mistake. Even if you owe no tax, failing to file can result in penalties, loss of exclusions, and potential criminal liability.
2. Missing FBAR deadlines: The FBAR deadline is April 15 with an automatic extension to October 15. But there is no penalty relief for late-filed FBARs if the IRS comes looking.
3. Unreported rental income: If you rent out your home country property while living abroad, that income must be reported in both countries (your home country and potentially your host country if you are a tax resident there).
4. Ignoring FATCA enforcement: Foreign banks now report American account holders to the IRS under FATCA. The days of quietly holding an unreported foreign account are over. Banks in Costa Rica, Panama, and Colombia all comply with FATCA reporting.
5. Filing zeros incorrectly: Even if your income is fully excluded under the FEIE, you must still file a return and claim the exclusion. Failing to file because you assume you owe nothing is not the same as filing and claiming the exclusion.

Taxes are nobody's favorite topic, but they are one of the few expat issues that can follow you across borders and across decades. Get professional help, file on time, and keep meticulous records. The cost of compliance is always lower than the cost of getting caught.