As a global financial hub, Singapore has drawn many US expats to its borders. Some estimates even show that as many as 26,000 US citizens are living in Singapore. While the country has many allures, the process of filing taxes in the US and in Singapore can be daunting.
Americans living and doing business offshore have many factors to consider. This article explains US tax benefits for Americans living in Singapore, US tax when running a business in Singapore, bank account reporting requirements, Social Security implications, and Singapore taxes. (Also read 11 Expat Tax Tips Before Moving Abroad.)
Tax benefits for US Citizens living in Singapore
Singapore and the US do not have a tax treaty. Therefore, US expats must pay taxes in both countries. However, by using US tax credits and exclusions you can significantly reduce or even eliminate your tax burden.
There are three primary tax benefits that US citizens living abroad can take advantage of:
- Foreign Earned Income Exclusion (FEIE)
- Foreign Housing Exclusion
- Foreign Tax Credit (FTC)
To maximize those benefits, make sure you work with an experienced expat tax accountant. You can schedule a consultation with one of our experts here.
Save income tax with the Foreign Earned Income Exclusion
The Foreign Earned Income Exclusion is often the best option for US taxpayers living and working in Singapore. By claiming this exclusion, expats can exclude up to $107,600 (2020) of their earnings from US income tax.
To qualify for the Foreign Earned Income Exclusion, you must either meet the physical presence test or the bona fide resident test.
To meet the physical presence test, you must be physically in another country (or countries) for at least 330 full days during any period of consecutive 12 months. The rules for what constitutes a day outside of the United States are somewhat intricate.
Meeting the bona fide residence test is more subjective. There is no limit to the number of days you can spend in the US. However, you must prove that you called another country “home” for an entire calendar year.
High Foreign Housing Exclusion/Deduction in Singapore
Singapore is one of the most expensive housing markets for expats. Luckily, some of those expenses are deductible. The Foreign Housing Exclusion allows you to deduct certain housing expenses from your gross income on your US Tax Return.
You can use the Foreign Housing Exclusion in combination with the Foreign Earned Income Exclusion.
The amount you can deduct varies based on the country. The yearly housing limit deduction for Singapore is $82,900 (2020), significantly above the standard $32,280 (2020).
You can deduct expenses such as:
- Utilities (telephone charges do not qualify)
- Real and personal property insurance
- Rental of furniture and accessories
- Residential parking
Foreign Tax Credit to offset US tax
If you are paying taxes in another country outside of the US, you can use the Foreign Tax Credit (FTC). The FTC provides a dollar-for-dollar tax credit for taxes paid in your country of residence.
You cannot apply the tax credit against income excluded under the FEIE. However, for any income that exceeds the FEIE, you can use the portion of foreign tax paid on the non-excluded earned income.
For example, if your taxable salary is $150,000, you can exclude the first $107,600 (2020) from US income tax. For the remaining $42,400 you can use the Foreign Tax Credit, but only the portion of foreign tax you paid on this portion of your income.
You can use income tax paid in a foreign country to offset income tax in the US. Likewise, the foreign tax you paid on passive income, such as investment or rental income, can be used to offset US taxes on passive income.
A key benefit of the FTC is that any unused tax credit carries over into future years. For example, if you live in a high tax jurisdiction currently (such as the UK) you can build up your tax credit. Then, if you move to Singapore, which is a low tax jurisdiction, you can apply the unused tax credit to any non-excluded income.
Reporting a Singapore bank account and other assets
Regardless of which exclusions or credits you use, you will most likely also need to report your bank account in Singapore (or other countries) and other financial assets. Foreign bank accounts are reported on the FBAR (FinCEN Form 114).
You are required to file the FBAR if you have financial interest or signature authority over foreign financial accounts that have a combined value of over $10,000 at any one time during the year.
The deadline for the FBAR is April 15. However, there is an automatic extension to October 15 for those who cannot file before April 15.
As a US citizen abroad, you must also report certain financial assets on Form 8938. Assets such as mutual funds, stocks, and bonds are reported on this form. What you will need to report varies based on how you file your taxes, where you reside, and the value of your assets.
Social security contributions when living in Singapore
If you are a permanent resident of Singapore, you need to pay into the Singaporean social security system. This program is known as the Central Provident Fund (CPF).
You can take a direct foreign tax credit on Form 1116 of your US tax return for those mandatory social security contributions in Singapore. This is because these mandatory payments are based upon a % of income creditable even though the funds are transferred to private accounts.
However, you must pay US tax on any employer contributions and all earnings of the CPF. The tax is due in the year contributions and earnings are made and cannot be deferred. Furthermore, the contributions and earnings are tax-free upon withdrawal.
Self-employed US expats in a foreign country without a social security totalization agreement, like Singapore, must still pay into the US social security and Medicare system.
Non-permanent residents of Singapore do not need to pay into the Central Provident Fund.
US Taxes for businesses in Singapore
Self-employed individuals operating a business in Singapore can choose to either report as a corporation or make an election to report the income on Schedule C of their US tax Form 1040. They must pay social security and income taxes on the Schedule C income.
The self-employed taxpayer can then either claim the FEIE on the profits of the business or use a Foreign Tax Credit for the income tax paid in Singapore.
If the taxpayer chooses to file as a corporation (Controlled Foreign Corporation, CFC) when doing business in Singapore, the corporation must report the profits on Form 5471 on its US tax return. The 2017 US tax reform imposed the new GILTI tax on the profits. As a result Form 5471 has become rather complex. Contact us if you need help with this.
Filing Singapore taxes as an expat
In addition to filing a tax return in the US, Americans living in Singapore may also have to file and pay taxes in Singapore. Singapore considers someone a tax resident if they spend 183 days per year or more there.
Singapore tax residents must submit their tax forms before April 15 to the Inland Revenue Authority of Singapore (IRAS).
Even though you submit the tax forms in April, payment is not due until later in the year. Once your taxes are due, the Inland Revenue Authority will mail you a notice for payment. These notices typically go out in September. You then have one month from the mailing date of the notice to pay your taxes.
As Singapore is a territorial tax jurisdiction, you do not need to pay any taxes on income earned outside of the country. Singapore only imposes taxes on income earned within Singapore.
Furthermore, Singapore does not tax investment income such as interest, dividend and capital gains.
Singapore uses a progressive tax system. When compared to other countries, taxes for individuals in Singapore are fairly low. Therefore, most expats likely benefit more from using the FEIE than the Foreign Tax Credit for income tax.
Singapore taxes for non-residents
If you are not a resident of Singapore, then your income is taxed differently. How your income was earned will also impact the amount you must pay.
If you are not a resident in Singapore and earned income from employment in Singapore, then you must either pay 15% in taxes or the tax rate of your income, whichever tax rate is higher.
If you are not a resident in Singapore and are not employed in Singapore, then you are taxed at a rate of 20% on income derived from Singapore.
Living in Singapore – How to file US taxes
When living abroad, it is important to not only be in compliance with US and local tax laws but also to make sure that you maximize the credits or exclusions available to you. If you’re not sure how to file your taxes, or if you have questions about optimizing your taxes, contact our team for a consultation.