Tax Credits (FTC, GBC)

Which Foreign Taxes Qualify for the Tax Credit?

4:28Premium Video

Written byLipai WangFounder · IRS-registered tax professional

Key Takeaways

Only income taxes (or taxes in lieu of income tax) qualify for the FTC
The tax must be a legal, actual liability that was paid or accrued
The tax must be imposed on you — you cannot claim someone else's tax
VAT, sales taxes, property taxes, and customs duties do NOT qualify
Income taxes from most countries with standard income tax systems qualify

Which Foreign Taxes Qualify for the Credit?

Not every foreign tax qualifies for the Foreign Tax Credit. The IRS has three strict requirements. First, the tax must be an income tax (or a tax imposed in lieu of an income tax). Second, it must be a legal and actual liability — you must have genuinely owed and paid or accrued the tax. Third, it must be imposed on you personally, not on someone else.

Taxes That Qualify vs. Don't Qualify

Income taxes paid in countries like Canada, UK, Japan, Australia, and most other nations with income tax systems generally qualify. These are direct income taxes similar to U.S. federal income tax.

Taxes that do NOT qualify include: Value Added Tax (VAT) paid in Europe, sales taxes in Asian countries, property taxes on foreign real estate, customs duties, social security taxes (with exceptions under tax treaties), and fines or penalties. These are not income taxes and cannot be credited against your U.S. tax liability.

Frequently Asked Questions

Can I claim a credit for foreign social security taxes?

Generally no, unless a tax treaty between the U.S. and the foreign country allows it. Some tax treaties permit crediting of social security taxes paid to the treaty partner country.

What about withholding taxes on foreign dividends?

Foreign withholding taxes on dividends, interest, and royalties generally qualify for the FTC, as they are imposed in lieu of income tax. The amount withheld is shown on your foreign tax documents.

tax creditsforeign tax creditgeneral business creditform 3800

Listen on Spotify

Money & Tax Talk with Rippa — 5/5 rating

Never miss an IRS deadline

Get free email reminders for Form 5472, state annual reports, quarterly estimated tax, and OBBBA rule changes — built for foreign-owned LLC owners. No spam. Unsubscribe anytime.

We respect your privacy. No spam, ever.