Foreign earned income exclusion is a provision of the Internal Revenue Code that excludes from taxation a limited amount of income earned by nonresident taxpayers outside the U.S.
To claim the foreign earned income exclusion, the taxpayer must meet one of the following criteria :
The tax payer should be:
1.A U.S. citizen who is a bona fide resident of a foreign country or countries for an uninterrupted period that includes an entire tax year (bona fide residence test),
2.A U.S. resident alien who is a citizen or national of a country with which the United States has an income tax treaty in effect and who is a bona fide resident of a foreign country or countries for an uninterrupted period that includes an entire tax year, or
3.A U.S. citizen or a U.S. resident alien who is physically present in a foreign country or countries for at least 330 full days during any period of 12 consecutive months. (physical presence test)
The taxpayer can elect between this exclusion and the foreign tax credit. The foreign tax is a tax credit against U.S. income taxes for a taxpayer who earns income overseas and has paid foreign taxes on that income.