Singapore is an attractive expat destination, boasting stunning architecture, an expanding economy and unique natural ecosystems.
US expats living in Singapore face unique tax planning difficulties. Filing US taxes as an American living abroad can be complex and costly, yet there are ways to limit their tax liabilities.
Following the guidelines set by one of the leading US tax services for Americans in Singapore HTJ.tax we've compiled this guide for you.
1. Tax-Free Savings Accounts
An investment account is an indispensable way of meeting your financial goals, but it's crucial that you fully comprehend its tax ramifications before selecting one that works best for you and your personal situation. Tax-free accounts may offer significant advantages over their taxable counterparts if used wisely.
Tax-free savings accounts allow you to build investment income (in the form of interest and capital gains) tax-free, making it easier to meet both short- and long-term savings goals. They complement registered savings plans such as Registered Education Savings Plans (RESPs) and Registered Retirement Savings Plans (RRSPs).
First, open a Tax Free Savings Account with a bank that offers high interest rates and a range of investments. Next, put aside as much money each year as you can; any unused contributions can carry over into subsequent years.
Once you've contributed to your TFSA, the options for investing range from mutual funds and GICs to stocks and stocks - but make sure they fit with your goals and risk tolerance. A TFSA should not be used as a platform for day trading as that constitutes business income and would therefore be taxed by the IRS if successful.
TFSAs can be used to save for virtually any purpose imaginable. From renovating your home to purchasing cottage property and even taking an unforgettable vacation, this type of savings plan offers great flexibility when it comes to saving. What's even better? Withdrawals from a TFSA are completely tax-free so the money can be put to any use at any time without incurring additional tax bills.
American expats in Singapore should consult HTJ.tax or any other expat tax planning service specializing in US/Singapore taxes before opening a TFSA or other foreign financial accounts to mitigate any penalties they might face from failing to report these assets on US FinCEN Form 114, Statement of Specified Foreign Financial Assets. As these assets must be reported annually and could result in serious fines without proper reporting, Greenback should always be consulted prior to opening any such accounts or accounts in Canada.
2. Foreign Earned Income Exclusion
Americans living abroad may face tax issues between Singapore and their home country of America. All income earned anywhere is subject to US taxes, so expat Americans need to file federal returns as soon as they return.
However, several credits and exclusions exist to alleviate this tension. For example, American expats meeting certain requirements can exclude from U.S. taxable income any foreign earned income that has been adjusted for inflation as well as certain foreign housing expenses incurred while living overseas.
American expats need to choose their foreign earnings and housing exclusions carefully when moving abroad. Once elected, once these amounts have been excluded they cannot change it for five years without going through a lengthy and costly process with the IRS; so it is crucial that they consult an experienced international tax specialist such as Tax Samaritan to make sure they make the optimal selections.
United States government officials have entered into several "Double Tax Agreements," designed to ensure taxpayers only pay taxes once on income derived from foreign nations such as Singapore. These arrangements can be particularly helpful to Americans working abroad as various forms of income may be taxed both here and in Singapore.
Americans working in Singapore must be vigilant to ensure they understand which types of income are taxable in the US and which can be offset through foreign tax payments made. Although Singapore does not levy a capital gains tax, it does have a Goods and Services Tax (GST) of 7% which often overlaps with sales or excise taxes.
Americans living in Singapore should also be mindful that their retirement plans such as 401(k)s and individual retirement accounts (IRAs) can be subject to US taxes. To mitigate their tax impact, diversifying assets from different sources is recommended - stocks and mutual funds from both Singapore and the US could provide useful sources.
3. Foreign Tax Credit
American expats living abroad can claim a credit against their US tax liability for taxes paid abroad - an ideal way of offsetting the higher US tax obligations incurred from living in high-tax nations like Singapore.
The Foreign Tax Credit is a tax break that allows you to exclude up to an inflation-adjusted limit from your US taxable income, plus carry forward any credits that remain unused until up to 10 years later or even back to previous years - this benefit can be especially helpful for those living overseas for multiple years.
Expats from the United States working as employees for Singapore-based companies or running their own businesses need to be aware that the United States taxes all income earned worldwide; with some exemptions including Foreign Earned Income Exclusion and Foreign Tax Credit.
Both exemptions allow you to avoid double taxes on salary and investment income while in Singapore, so filing your U.S. tax return each year will help you take full advantage of these advantages.
Your worldwide income must also be reported regardless of where it comes from, including Singapore. Furthermore, filing an FBAR form 114 could become necessary if you own more than $10,000 worth of foreign accounts at any point during the calendar year.
As well as tax exemptions, there are various U.S. regulations which may have an impactful influence on individuals operating businesses or investing overseas, including PFICs (Passive Foreign Investment Companys). Such rules make diversifying your portfolio difficult without facing potentially heavy fines or additional estate taxes.
Utilizing available tax exemptions and credits, living in Singapore allows you to reduce your US estate tax liability while simultaneously making use of Singapore-specific incentives to do so. But for optimal results it is wise to consult an experienced international tax consultant and design a plan tailored specifically towards meeting your goals.
4. Tax-Free Investments
Singapore is an attractive option for expats due to its pristine streets, low crime rate and global culture - no wonder 1.31 million people currently call Singapore home! However, before moving here it is crucial that you are aware how your US expat taxes may be affected; making arrangements to prepare tax returns beforehand is vitally important if long-term success is desired. Tax Samaritan can assist with understanding all the specifics associated with living in Singapore as it relates to US taxes. This guide from Tax Samaritan can assist in understanding specifics of living there and its possible effects on US taxes before making the move - using Tax Samaritan will assist in understanding specifics related to living there and its effects on US taxes in regards to filing tax preparation needs before moving or joining others and prepare taxes properly before moving abroad or going.
Like its American counterpart, Singapore taxes individuals and businesses based on the total profits they produce. Furthermore, Singapore employs the Goods and Services Tax as a general sales tax that applies to most goods and services; additionally there's the Land and Buildings Transaction Tax which applies any time ownership changes such as selling/renting land/buildings/tenements etc. Income taxes come primarily in the form of progressive personal taxes with basic and additional rates; with top marginal personal rates reaching 21%; self-employed persons must file individual reports regarding net profits when reporting net profits generated in Singapore.
As much as the country may be considered a tax haven, it does not have an official treaty with the US and this can mean that one's US expat taxes could include both local and national income taxes; usually this can be avoided using credits and exclusions.
Employed residents in this country must contribute to the Central Provident Fund as part of their social security. Unfortunately, however, this fund is not protected under a tax treaty with the United States and therefore subject to federal taxes as well. Furthermore, Supplementary Retirement Scheme is taxed at 17%.
Due to these reasons, it's essential that Singapore residents consult a professional who has an in-depth knowledge of US expat taxes and how they apply. At American Expat Tax Services we have over 14 years of experience preparing U.S. expat returns for citizens and green card holders worldwide. We understand the challenges associated with moving abroad and provide full range of tax preparation, filing and financial reporting services designed to tackle any unique issues that may arise - contact our office now to discover how we can reduce your tax burden in Singapore!