Living as a US expatriate in Singapore presents a unique set of challenges, especially when it comes to understanding and navigating the tax system. The country’s tax-friendly environment for corporations, featuring a flat corporate tax rate, makes it particularly attractive for business owners and individuals engaging in business operations.
This guide aims to provide a comprehensive overview of the tax obligations for US expats living in Singapore, helping you to better understand your responsibilities and potentially avoid any tax pitfalls related to rental income, employment income, business profits, and more.
Understanding Tax Responsibilities for US Expats in Singapore
The US has a citizenship-based taxation system which means US expats must file a federal income tax return and report their worldwide income annually once their taxable income exceeds the filing threshold regardless of where they reside.
Singapore’s tax system, on the other hand, is territorial, meaning only income earned within the country is subject to tax. Tax obligations in Singapore are determined by one’s tax residency status. Non-resident individuals are only taxed on income earned within Singapore.
Here’s a quick glance at some key facts:
- Primary Tax Forms [Singapore]: Form B/B1
- Primary Income Tax Return [United States]: Form 1040
- Tax Year: Calendar year (January 1 to December 31)
- Tax Deadline [Singapore]: April 15th for paper filing, and April 18th for e-filing
- Tax Deadline [US expatriates]: June 15th
Non-tax residents are required to pay a flat rate of 15% on their employment income or the progressive resident tax rate, whichever is greater. In contrast, tax residents are obligated to pay taxes on all income earned in Singapore and any foreign income that is brought into Singapore. The highest individual income tax rate for residents is a progressive rate of 22%. For non-resident income, the current rates can differ.
Corporate income tax for business income is a flat rate of 17%. Personal deductions and tax deductions are available to reduce the amount of taxable income and subsequently the tax payable.
Managing your bank accounts in both countries, monitoring the income threshold for the need to file annual returns, and keeping abreast of changes in the financial services sector are key to effective tax management.
How to Determine Your Residency Status in Singapore?
Determining your tax residency status in Singapore involves understanding the criteria laid out by the Inland Revenue Authority of Singapore (IRAS). The following guidelines are provided to determine if you are considered a tax resident or a non-resident for tax purposes in Singapore.
You will be considered a tax resident in Singapore if you meet any of the following conditions:
- You are a Singaporean: This is the simplest criterion. If you are a citizen of Singapore, you are automatically considered a tax resident.
- You are a Permanent Resident (PR): If you have been granted PR status and have established your home in Singapore, you are considered a tax resident.
- You are a foreigner who has stayed/worked in Singapore for 183 days or more in the tax year: This is the rule most relevant to expatriates. If you are a foreigner working in Singapore, you are considered a tax resident if you have been in the country for at least 183 days in the year preceding the year of assessment. The count of 183 days includes weekends and public holidays, and it does not need to be continuous.
- You are a foreigner who has stayed/worked in Singapore for three consecutive years: Even if you have not stayed in Singapore for 183 days in a particular year, you will still be considered a tax resident if you have been in Singapore for three consecutive years.
If you don’t meet any of the above conditions, you will be considered a non-resident for tax purposes. This usually applies to foreigners who have stayed or worked in Singapore for less than 183 days in the tax year.
Types of Taxes in Singapore
Singapore’s tax policy excludes several types of taxation, including capital gains tax, gift tax, estate tax, inheritance tax, and net wealth tax. However, as an American living in Singapore, you may be subject to the following taxes:
- Income Tax: Singapore uses a territorial tax system, meaning individuals and companies are taxed only on their Singapore-sourced income, including rental income, salaries, and business income.
- Property Tax: If you own a property, you must pay annual property tax. The rates vary depending on whether the property is owner-occupied, not occupied by the owner, or non-residential.
- Excise Tax: Singapore imposes excise taxes on a number of products, including liquor, wine, tobacco products, motor vehicles, gasoline, and gambling winnings.
- Goods and Services Tax: There is a 7% tax on business-related goods and services, with a few exceptions.
- Stamp Duties: Singapore applies a stamp duty to several types of legal documents and transfers, including stocks and shares, the sale of a property, and the lease of a property.
- Corporate Tax: Singapore’s headline corporate tax rate is a flat 17%.
- Central Provident Fund (CPF): It is the Singaporean equivalent of a Social Security system.
How US Expats Can Avoid Double Taxation in Singapore?
U.S. tax law provides several mechanisms to prevent this kind of double taxation:
- Foreign Earned Income Exclusion (FEIE): The FEIE allows you to exclude a certain amount of your foreign earned income from U.S. tax. As of the 2021 tax year, the maximum exclusion is $108,700 per taxpayer. If both spouses work and reside abroad, each one can claim the full exclusion.
- Foreign Housing Exclusion or Deduction: In addition to the FEIE, U.S. expats can also claim the foreign housing exclusion or deduction. This allows you to exclude or deduct certain amounts for housing expenses that occur as a consequence of living abroad.
- Foreign Tax Credit (FTC): If you pay or accrue tax to a foreign government, the FTC allows you to offset these taxes against U.S. taxes owed on foreign source income. It’s important to note that the credit cannot be more than the U.S. tax liability on the same income.
These measures can significantly reduce or even eliminate your U.S. tax bill. However, to qualify for the FEIE, foreign housing exclusion, or FTC, a U.S. expat must meet certain conditions, including passing the Bona Fide Residence Test or Physical Presence Test.
Claiming Additional Child Tax Credit
If you have children, you might be eligible to claim the Additional Child Tax Credit. It is a refundable credit that can be claimed on your US Expat Tax Return and it amounts to $1,400 per qualifying child.
Tax Treaties and Totalization Agreements
Currently, there is no tax treaty or totalization agreement between Singapore and the US. This means income may be taxed in both countries. However, the Foreign Earned Income Exclusion, foreign housing exclusion, and foreign tax credit can be used to reduce or eliminate this double taxation.
At 1040 Abroad, we understand the challenges and intricacies of navigating the tax systems of both the United States and Singapore. We believe in empowering you with the right knowledge and tools to make informed decisions about your tax obligations.
To that end, we offer free, unlimited email tax consultations for U.S. expats living in Singapore. Our team of experienced tax professionals is ready to assist you with any questions or concerns you may have. You can reach us at firstname.lastname@example.org or by filling out the contact form on our website. Let us help you simplify the tax process and optimize your tax strategy.