U.S. Expatriate Taxes in Singapore
U.S. Federal Income Tax Obligations For U.S. Expatriates Living/ Working in Singapore
The Basics – Singapore
Singapore officially the Republic of Singapore, is a sovereign island city-state in maritime Southeast Asia. It lies about one degree of latitude (85 miles) north of the equator, off the southern tip of the Malay Peninsula, bordering the Straits of Malacca to the west, the Riau Islands to the south, and the South China Sea to the east. The country’s territory is composed of one main island, 63 satellite islands and islets, and one outlying islet, the combined area of which has increased by 25% since the country’s independence as a result of extensive land reclamation projects. It has the second greatest population density in the world.
Modern Singapore was founded in 1819 by Sir Stamford Raffles as a trading post of the British Empire. In 1867, the colonies in East Asia were reorganized and Singapore came under the direct control of Britain as part of the Straits Settlements.
During WWII Singapore was occupied by Japan in 1942, but returned to British control as a separate crown colony following Japan’s surrender in 1945.
Singapore gained self-governance in 1959, and in 1963 became part of the new federation of Malaysia, alongside Malaya, North Borneo, and Sarawak. Ideological differences led to Singapore being expelled from the federation two years later, thereby becoming an independent country.
Singapore is a highly developed country; it is ranked ninth on the UN Human Development Index, and has the second-highest GDP per capita (PPP) in the world. Singapore is the only country in Asia with an AAA sovereign rating from all major rating agencies. It is a major financial and shipping hub, consistently ranked the most expensive city to live in since 2013, and has been identified as a tax haven. Singapore is placed highly in key social indicators: education, healthcare, quality of life, personal safety and housing, with a home-ownership rate of 91%. Singaporeans enjoy one of the world’s longest life expectancies, fastest Internet connection speeds and one of the lowest infant mortality rates in the world.
Singapore is a unitary parliamentary republic, a democracy while free elections the government exercises significant control over politics and society, and the People’s Action Party has ruled continuously since independence.
One of the five founding members of ASEAN, Singapore is also the headquarters of the Asia-Pacific Economic Cooperation (APEC) Secretariat and Pacific Economic Cooperation Council (PECC) Secretariat, as well as many international conferences and events. Singapore is also a member of the United Nations, World Trade Organization, East Asia Summit, Non-Aligned Movement and the Commonwealth of Nations.
Singapore comprises a total area of 280.2 sq miles is the 176th largest country in the world by area, has a population of 5,703,600 people and a GDP of 391.875 billion U.S. dollars. The Singapore’s currency is the is the Singapore dollar (SGD), Singapore’s time zone is +8 UTC, Singapore’s country telephone dialing code is +65, it’s internet TLD is “.sg” and it operates on a 230 volt electrical grid.
The U.S. and Singapore share a common language of English, in addition Singaporean’s speak Malay, Mandarin and Tamil, making Singapore perhaps the top number #1 popular destination for Americans to reside and work. As a U.S. citizen or resident alien (U.S. Expat) living in Singapore, however, there is always the possibility of “double income taxation,” i.e., having to pay taxes to both Singapore and the U.S. on the same income you earned in the U.K. The good news is that there are rules in place to avoid double taxation.
Knowing your obligations as a U.S. Expat are important. The Internal Revenue Code’s (IRC) rules are, however, quite complex, and while this is a simplified, broad overview to familiarize you with your filing obligations and how to avoid double taxation, you should consult a Certified Public Accountant (CPA) expert in U.S. Expat income taxation to learn more. U.S. Expat income taxes are a highly complex niche area of taxation that most CPA’s are not aware of.
U.S. Tax Obligations on U.S. Expats Living in Singapore
The U.S. imposes the same obligations on its citizens and resident aliens living abroad to file and pay U.S. federal income taxes, as it does on its citizens and residents living and working in the U.S.
Requirement to File U.S. Income Tax Returns
Specifically, if you are a U.S. citizen, or “resident alien,” and you meet the annual filing thresholds, you are obligated to file a federal return Form 1040 and pay federal income taxes annually no matter that you live and work in Singapore, the fact that you are paid in SGD or USD or where your employer or clients are located whether in the U.S. or Singapore. The annual filing thresholds, which are dependent on your filing status- Single, Married Separate, Married Joint, Head of House or Qualifying Widower, age and type of income are indexed annually by the Internal Revenue Service (IRS).
The Exclusions – FEIE
As always, there are certain tests you must meet to be eligible to claim these special exclusions and credits.
If you meet these IRC requirements, the FEIE is claimed on Form 2555, and allows you to exclude “Foreign Earned Income” (FEI) from U.S. Federal income taxes. FEI is essentially wage or self-employment income that you earn while living and residing in Singapore/ outside the U.S.
To qualify to take the FEIE you have to:
- Meet the “Tax Home Test”, (THT) and
- Meet either the:
- “Bona fide Residence Test” (BFR), or the
- “Physical Presence Test” (PPT).
Generally, this means that on a facts and circumstance basis you actually must live and/or work in Singapore and meet certain specific requirements. If you do qualify for the FEIE, it is not unlimited. The IRS sets annually indexed amounts as to how much you can exclude.
The Exclusions – HE and HD
As a U.S. Expat living in Singapore, you may also qualify for the:
- “Housing Exclusion” (HE) if employed or
- “Housing Deduction” (HD) if self-employed.
Both Housing mechanisms referred to above allow U.S. Expats to exclude additional FEI from their U.S. Federal income taxation in reference to actual, qualified, foreign, housing expenses paid for by themselves or by their employers either directly or by reimbursement in the Singapore.
Qualified foreign housing expenses can include, but are not limited to such items such as Singapore:
- The fair market value of employer provided housing,
- Furniture rental, and
- Temporary living expenses.
- Real estate/ property taxes
However, to take either the HE or the HD you must first be qualified to take the FEIE, and the IRS sets annual limits- a base or housing Norm/ or Deductible and a Cap- on either of the Housing Exclusions or Deductions, which are determined in reference to the FEIE itself.
Countries with a Low-Income Tax Rate, Below that of the Singapore
With the Singapore average income tax rate set at 15-20%, considering that as above according to the U.S. FTC limitation you will always end up paying the higher of the two countries income taxes, no doubt when it comes to the U.S. Expat living/ working in HK the FEIE, HE and HD take on an added critical role.
Whenever able it is always preferable where the U.S. Expat works and lives in Singapore a lower income tax country to try and maximize the Exclusions- the FEIE, HE and HD prior to using the U.S. FTC, otherwise no doubt always you will end up paying the higher of the two income taxes that is of course the U.S.
As such it is crucial that concepts like the PPT slide days, sourcing of foreign and U.S. earned income, and the HE and HD cap deductibles and caps should always be fully considered given this dilemma, as such the difference between a CPA who understands and does this day in and day out and a CPA or yet worse a non-licensed tax preparer can result in U.S. tax savings of many tens of thousands of dollars as a result of making the correct tax preparer choices.
The Form 114 FBAR and Form 8938 FFA
Not to forget or marginalize the fact that all U.S. persons living in Singapore must consider their obligation annually to file Form 114 Report of Foreign Bank and Financial Accounts (FBAR) and Form 8938 Statement of Specified Foreign Financial Assets (FFA) , the former of which is specifically referenced on Schedule B – Interest and Dividends- that accompanies Form 1040, the fact that if you are required to file both the FBAR and FFA Forms as a U.S. Expat living and/ or working in Singapore. the amounts on both forms must sync and of course that both forms carry a mind boggling non-willful violation penalty of $10,000 per account/ FFA per annum
The Bottom Line
Because Singapore sets income taxes on income at much lower rates than the U.S., if the U.S. income tax compliance is done correctly, in general assuming no U.S. source income- no U.S. passive income and no U.S. workdays- if the optimization of the FEIE, HE and/ or HD is not done correctly this will have a significant impact on your U.S. income tax liability since the FTC is so marginalized! If your foreign earned income is above the combined exclusions, you will always have to pay any additional U.S. Federal Income taxes on income you earned in Singapore.
As you can see, however, the rules are complex, and it is easy to get overburdened if you do not hire the correct CPA firm U.S. Expat specialists.
At Protax, our primary goal and objective is to analyze the interplay of the FEIE, HD, HE and FTC to find the optimum strategy to limit the world-wide taxes you pay. While of course at the same time making sure that you are in full U.S. tax compliance.
Protax is the world’s leading U.S. individual international tax firm, specializing in the delivery of world class professional services to U.S. Expats. For more information, fill out our contact form to speak to one of our expert tax consultants.