The answer is no, and I'll explain it with an example below.
Foreign earned income can only be eligible for the foreign tax credit if the taxes were accrued in a foreign country. The US legislators introduced the foreign tax credit to prevent double taxation. In order to be eligible for the FTC, the taxes need to meet specific requirements. Examples of these include a foreign country imposing an income tax or a tax in lieu of income tax. Moreover, the tax must have been paid or accrued by the taxpayer, and it is their legal and actual foreign tax liability. To aid in understanding for USA tax payers who earn income from foreign sources without paying tax in a foreign country, here is an example.
- A US citizen who is a taxpayer buys goods from China and sends them directly to Gyana without bringing them back to the US.
- The goods are sold to residents of Gyana without accruing any taxes, and the profit is brought back to the USA.
- Can a "US Taxpayer" take foreing tax credit in the USA on foreign income where the tax was not accrued?
A U.S. taxpayer is unable to claim the Foreign Tax Credit (FTC) for foreign income if there were no foreign taxes paid or accrued. To prevent double taxation, the FTC is specifically created to apply when income is taxed by both the United States and a foreign country. The FTC would not be applicable if the taxpayer's income from selling goods in Guyana was not taxed abroad
