Moving from the United States to Grenada changes a great deal, but not your relationship with the Internal Revenue Service. The United States taxes its citizens and green card holders on worldwide income regardless of where they live. An American retired in Lance aux Epines, working remotely from Grand Anse or running a dive business on Carriacou still files a federal return every year.
The good news is that the US system has tools designed for people abroad, and with sensible planning many Americans in Grenada owe little or no US income tax. The bad news is that the reporting burden is heavy and the penalties for missing a form can exceed any tax due. This guide covers the main rules; a US tax professional experienced with expatriates should prepare your returns.
The foreign earned income exclusion
The foreign earned income exclusion (FEIE), claimed on Form 2555, lets a qualifying American exclude a set amount of foreign earned income from US income tax. The amount is indexed each year and has been in the region of US$130,000 per person in recent years. A married couple who both work abroad can each claim it on their own earnings.
To qualify, your tax home must be in a foreign country and you must meet one of two tests. The physical presence test requires at least 330 full days outside the United States in any twelve-month period; trips home for holidays and family visits count against you. The bona fide residence test requires that you be a genuine resident of a foreign country for an uninterrupted period that includes a full calendar year, judged on your ties, intentions and the terms of your stay.
Two limits trip people up. The exclusion covers only earned income, such as salary and self-employment profit, not pensions, Social Security, dividends, interest or capital gains. And an additional housing exclusion or deduction is available for foreign housing costs above a base amount, which can matter in a place where rents for a furnished home near the south coast are not cheap.
The foreign tax credit, and how it interacts with Grenadian tax
The alternative, or complement, to the exclusion is the foreign tax credit on Form 1116. It reduces your US tax by the foreign income tax you have paid on the same income. If you are resident in Grenada and pay Grenadian income tax at rates up to 28 per cent on earnings, the credit can offset much or all of the US tax on that income.
Choosing between the exclusion and the credit is a genuine planning decision. Where Grenadian tax is low or nil on a particular income, the exclusion may be better. Where Grenadian tax is substantial, the credit may eliminate US tax while leaving excess credits to carry forward. Revoking the exclusion once chosen can lock you out of it for several years, so the decision should be modelled rather than made by habit.
Because Grenada and the United States have no income tax treaty, there are no treaty provisions to fall back on. The interaction rests on US domestic law and on how the Grenadian tax is characterised, which is one more reason to have an adviser familiar with both systems.
Reporting forms that carry heavy penalties
For many Americans abroad the main risk is not tax owed but forms not filed. These are the ones that matter most for someone with accounts in Grenada.
- FBAR (FinCEN Form 114): required if the combined maximum balance of all your foreign financial accounts exceeds US$10,000 at any point in the year. A Grenadian current account, a credit union savings account and a joint account with a spouse are all included. It is filed electronically with FinCEN, separately from the tax return.
- Form 8938 (FATCA): reports specified foreign financial assets above higher thresholds for those living abroad, filed with the tax return. It overlaps with the FBAR but is a separate obligation.
- Foreign companies: owning 10 per cent or more of a Grenadian company, for instance one formed to run a guesthouse, can trigger Form 5471, one of the more demanding US information returns.
- PFICs: pooled investments based outside the United States, such as some regional mutual funds or unit trusts, may be passive foreign investment companies, with punitive default tax treatment and annual reporting.
- Foreign trusts and gifts: large gifts or inheritances from non-US persons and interests in foreign trusts have their own reporting forms.
Self-employment, NIS and the missing totalisation agreement
Self-employed Americans owe US self-employment tax, the Social Security and Medicare contribution, on their net earnings, and the FEIE does not reduce it. The United States has totalisation agreements with a number of countries that prevent people paying social security in both places. Grenada is not among them.
The result can be double contributions. An American running a business in Grenada may owe US self-employment tax and Grenadian National Insurance Scheme contributions on the same profits. Structuring the business, for example through a Grenadian company, changes the analysis but brings its own US reporting. Employees of US companies working remotely usually remain within US payroll taxes through their employer, and whether NIS is also due is a separate question for the NIS office.
Social Security benefits themselves can generally be paid to Americans living in Grenada. Medicare does not cover care received outside the United States, which matters for retirees planning their health insurance.
Retirees: pensions, IRAs and Social Security
Many Americans in Grenada are retired, and their income is mostly unearned: Social Security, pensions, IRA and 401(k) distributions, dividends and interest. The foreign earned income exclusion does not apply to any of it, so the US taxes it much as it would if the retiree still lived in Florida or Ohio, minus any state tax once state residence has genuinely ended.
Whether Grenada also taxes that income depends on Grenadian residence and the treatment of foreign income under the Income Tax Act, a point to confirm with a Grenadian accountant. If Grenadian tax is paid, the foreign tax credit may relieve US tax on the same income, subject to the limits and income categories of Form 1116.
Practical points also arise. Some US brokerages restrict or close accounts for clients with foreign addresses, and some will not allow new investments. Required minimum distributions continue on the normal schedule. Keeping a US mailing address for convenience can create state tax questions, so choose any such arrangement carefully.
Mistakes Americans commonly make
Stopping filing after the move. Some Americans assume that living abroad, or earning below the exclusion, means no return is needed. Filing thresholds are based on gross income before the exclusion, and the exclusion must be claimed on a return to apply.
Forgetting the state. Some states continue to treat former residents as taxpayers if they keep a home, a driver's licence or voter registration there. Break state ties deliberately when you move.
Missing the June deadline logic. Americans living abroad receive an automatic two-month extension to file, to mid-June, but interest on any tax owed still runs from mid-April.
Ignoring the joint account. Being a signatory on a spouse's or business account in Grenada counts for the FBAR even if the money is not yours.
Investing locally without checking. Buying into regional funds or Eastern Caribbean securities can create PFIC or other reporting issues. Check before investing.
An annual routine for Americans in Grenada
A predictable calendar keeps the burden manageable.
- Through the year, keep a travel log of days in and out of the United States to support the physical presence test.
- In January, collect year-end balances and the highest balance for every Grenadian and other foreign account, converted at the Treasury year-end rate.
- By spring, gather Grenadian tax documents, such as PAYE records or your IRD return and assessment, for the foreign tax credit.
- File the FBAR electronically by the April deadline, which is automatically extended to October.
- File the federal return, using the June extension for those abroad or a further extension to October if needed.
- Review annually with a US expat tax adviser whether the exclusion or the credit gives the better result.
Frequently asked questions
Do Americans living in Grenada have to file US taxes?
Yes. US citizens and green card holders file a US return on worldwide income wherever they live, if their gross income exceeds the filing threshold. Exclusions and credits often reduce the tax owed, but only when claimed on a filed return.
Is there a US–Grenada tax treaty?
No comprehensive income tax treaty exists between the United States and Grenada. The two countries have a tax information exchange agreement and a FATCA agreement, which govern information sharing but do not reduce tax for individuals.
Do Grenadian bank accounts need to be reported to the US?
If the combined maximum balance of all your foreign accounts exceeds US$10,000 at any time in the year, you must file an FBAR. Higher-value holdings may also require Form 8938 with your tax return. Grenadian banks also report US account holders under FATCA.
Can Americans collect Social Security while living in Grenada?
US Social Security benefits can generally be paid to beneficiaries living in Grenada. Medicare, however, does not cover medical care received outside the United States, so retirees should arrange suitable international or local health insurance.
Do self-employed Americans in Grenada pay social security twice?
They can. With no US–Grenada totalisation agreement, a self-employed American may owe US self-employment tax and Grenadian NIS contributions on the same earnings. Business structure affects this, so take advice before starting trading.
