# salary vs base salary plus allowances for Americans from a tax perspective



## charlieroot (Dec 19, 2015)

Hi everybody!

I did read previous posts related to this subject, but haven't seen anything that addresses exactly what I'm about to ask.

I have 2 options:

1. all-inclusive salary plus medical plus annual round trip flights plus vacation - a higher salary

2. the same with a lower salary plus whatever amount I want as a housing allowance 

Would someone explain to me please the advantages and disadvantages of both options?

More specifically the tax aspects of these options (US citizen). 

If I choose the second option, how much should I ask in the housing allowance?

If I choose the first option, can I still claim housing exclusion? 

I'm single and would not need a villa or anything large. Probably 1-2 bedroom (not sure how they count bedrooms in UAE - in some countries they count them differently).

It's a 1-year renewable contract. I will probably stick around for 2-4 years.

Will be based in Dubai or Abu Dhabi. Not sure yet. Is there any tax-related difference in being based in Abu Dhabi vs Dubai?


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## TallyHo (Aug 21, 2011)

Hi Charlie,

I am not American but have worked with a number of Americans over the years and for a large American company, so this is where the source of my information is from.

I'm assuming there's a certain salary figure and the company is offering the salary to be structured either as a single sum or as a base plus a "housing allowance" component, but it comes out to the same amount each way. For you it's a moot point how your package is structured.

The US allows its expatriate citizens to deduct a certain amount of their income each year tax-free. The figure goes up each year and right now it's currently just about $100K USD. On top of this you are allowed to deduct a certain amount of your housing expenses up to a certain level. The IRS will have publications that tells you how much you are allowed to deduct for the UAE. It makes no difference whether you receive a lump sum salary inclusive of all benefits or if your housing allowance is itemized as a separate benefit. You still have to report the value of your housing allowance. There are certain benefits that do not have to reported for taxable purposes, such as school fees or annual flights. 

But from the UAE perspective, it's better to have an all-inclusive lump sum package because your end of service gratuity is based on your base salary, not the benefits. But you do need to read through the package offer carefully to make sure that the "lump sum" package doesn't have a separate housing allowance component even if it is paid along with your salary monthly. 

I would also ask your employer how the housing allowance is paid, or if you elect for the lump sum package, if a certain amount of money can be advanced to pay for your housing. Rents in the UAE are paid anywhere from 1-4 cheques per year and generally if you can pay in one cheque, you get a bit of a discount (to use as an example, an apartment that rents for 100K in one cheque or 105K in two cheques). Not many people can or are willing to pay the entire amount up front from their savings, so many companies offer a housing advance as an interest free loan which is deducted monthly from your salary.


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## charlieroot (Dec 19, 2015)

Thank you!

That's a really cool tip about the housing advance... I did not think about it... That is a very good point.


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## GloballyRelaxed (Nov 5, 2014)

From memory the only difference on a tax perspective between Abu Dhabi and Dubai is on the housing allowance the IRS gives out.

I know Dubai is circa 57k USD allowance, I think.....(caveat think) Abu Dhabi is slightly lower.

Handy page for a bit more info is Worldwide Tax Laws for American Expatriates - AngloINFO Dubai, in Dubai (United Arab Emirates)

I use a local UAE American tax specialist who also has offices in the US, that way if they screw up I do have a degree of recourse.


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## jgw99 (May 26, 2014)

charlieroot said:


> Thank you!
> 
> That's a really cool tip about the housing advance... I did not think about it... That is a very good point.


This is how we went about the housing expense here as well--lump sum from the company. Deducted monthly for 12 months. 

page 11 identifies the limits of housing expenses for tax year 2015. https://www.irs.gov/pub/irs-pdf/i2555.pdf


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## charlieroot (Dec 19, 2015)

GloballyRelaxed said:


> From memory the only difference on a tax perspective between Abu Dhabi and Dubai is on the housing allowance the IRS gives out.
> 
> I know Dubai is circa 57k USD allowance, I think.....(caveat think) Abu Dhabi is slightly lower.
> 
> ...



Gosh!... $57k just for housing... Is it REALLY SO expensive?!

Can I manage with $2k-$3k per month? Even $3k seems too much for housing...

I'm considering taking this contract to work as a cyber security project manager or a senior SME... if you can advise me what I can realistically expect in terms of compensation, please drop me a few lines in private. Or may be you are aware of great opportunities for me. 

It's just... gosh! this number - $57k for housing - really made me wonder! J


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## GloballyRelaxed (Nov 5, 2014)

charlieroot said:


> Gosh!... $57k just for housing... Is it REALLY SO expensive?!
> 
> 
> It's just... gosh! this number - $57k for housing - really made me wonder! J


The 57k USD is the *max deductible* that you are allowed by the IRS to claim.

FYI London is one of the most expensive on the IRS list up at 84k USD per year allowed to be deducted, Abu Dhabi clocks in at roughly 8k below Dubai's level.

It does not mean that you will be living in accommodation that is 57k , its the ceiling you can deduct on.

Afraid I am not in the same line of work that you are so would not be able to help you out on that one.

Best is to create a separate post with the contract details you have been offered and what sort of lifestyle you are looking for.

There will bound to be a few opinions on if it is worth your trouble.

Good luck.


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## charlieroot (Dec 19, 2015)

GloballyRelaxed said:


> The 57k USD is the *max deductible* that you are allowed by the IRS to claim.
> 
> FYI London is one of the most expensive on the IRS list up at 84k USD per year allowed to be deducted, Abu Dhabi clocks in at roughly 8k below Dubai's level.
> 
> ...



I do understand that it is the max IRS limit, but I assume that somehow reflects the prevailing prices...

I'm a bachelor and, I guess, it costs a lot more to house a family with kids...

Thanks for your time to respond! J


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## GloballyRelaxed (Nov 5, 2014)

Not a problem at all...happy to help.

As an idea on accommodation have a look at https://dubai.dubizzle.com/ punch in a few details and get an idea of what is on offer.

Area wise, well its up to what sort of lifestyle you want to lead and how deep are the pockets.


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## charlieroot (Dec 19, 2015)

I guess most of properties are furnished already.

Someone mentioned that rental furniture can be included into the housing exclusion, but purchased ones..


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## GloballyRelaxed (Nov 5, 2014)

charlieroot said:


> I guess most of properties are furnished already.
> 
> Someone mentioned that rental furniture can be included into the housing exclusion, but purchased ones..


Most properties are un-furnished, the ones that are furnished of course attract a premium and you are playing a bit of Russian roulette on the quality.

If you are at a loss to furnish the place first off there are a few companies here that will rent you whats needed for months/years. I rent the major items simply because I cant be bothered with all the aggro when the time comes to move again. When we first relocated out of a serviced hotel apartment they supplied everything until the shipment arrived from NY.

I was never asked by the accountant if I had rented furniture so pass on whether this is a deduction as well, knowing the IRS though...probably not.

Your relocation here though is a tax deductible, that includes personal airfares.


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