(FWIW I'm an American)
As far as I understand tax deductions work like: Initial Income - Deduction = Adjusted Income. Then, you owe full taxes on the Adjusted Income.
Let's say European Tax Rate is 40%, American Tax Rate is 20% (hypothetically!)
Foreign income is 100k USD equivalent.
You pay 40k taxes in Europe and are left with 60K.
You deduct 40K from Initial Income, leaving you with adjusted income of 60K. You then pay 20% of that (12K) to the IRS, leaving you with 48K.
So you’re in this hypothetical tax range taxed at less than US+European tax, but still have an effective tax rate much greater than not having US citizenship.
Simple formula I think:
Effective Tax = Income x EuropeanTaxRate + (Income-Income x EuropeanTaxRate) x AmericanTaxRate
Factor out income etc. I’m on my phone :-)
[1] https://en.wikipedia.org/wiki/Foreign_earned_income_exclusio...
Also, you do get an additional separate exemption/deduction (i.e. NOT a credit) up to around the first 100k of foreign earned income, if you meet some rather stringent qualifications.
There are ways to structure things using a foreign corporation to reduce your tax liability. This is changing though with the new 2017 Trump Tax "Cuts" and Jobs Act, which now requires expat business owners to report even their leftover business income as their own personal income (GILTI).
Many expat small business owners stand to be financially devastated because the law even taxes previous business income from the last 30 years in a so-called "transition tax." Ouch.
It's normal for troublesome countries to give more more security to journalists and other American citizens, and the US government rescues idiots stuck North Korea all the time. Most other countries wouldn't lift a finger for their citizens if that would have a significant monetary cost.
