As a US citizen living and working outside of the US, it is often possible to exclude part- or even all of your foreign income and self-employment income from federal tax through the Foreign Earned Income Exclusion (FEIE).
In order to qualify for the Foreign Earned Income Exclusion (FEIE), you must be a US citizen, work/ reside outside of the US and meet the demands of either the bona fide residence test or the physical presence test.
Below is a summary of the Bona Fide Residence and Physical Presence Test:
Bona Fide Residence Test
In order to meet the Bona Fide Residence test, you must be a Bona Fide resident of a foreign country or countries for an uninterrupted period that includes a year or more. The Bona Fide Resident allows you to qualify for both FEIE and foreign housing deduction.
In order to work out if you qualify for Bona Fide Residence, you must first find out if you have established a residence in a foreign country. A US expats residence is not always the same as their domicile. A domicile is a permanent home.
Physical Presence Test
You meet the requirements for the Physical Presence Test if you are physically present in a foreign country or countries 330 full days during 12 constructive months. The test also applies to US citizens and US permanent residents; the 330 days do not have to be consecutive.
Probably the biggest difference between the Bona Fide Residence Test and the Physical Presence Test Is that the Physical Presence Test is based on how long a person stays in a foreign country and is not dependent on the kind of residence established, the intentions of returning to the U.S., or the nature of the stay abroad.