US Tax of Singapore Income & Investments
US Tax of Singapore Income: There are many US Persons who still maintain overseas assets, accounts, investments and income-sources in Singapore. Common sources of Singaporean income include: Central Provident Fund (CPF), the Singapore Depository (SGX), Foreign Rental Properties and Mutual Funds held in organizations such as Fund Supermart. While there is no international tax treaty between the United States and Singapore, there is a FATCA agreement — and banks such as DBS/POSB and Citibank Singapore report US Person Account Holders to the US Government — which can lead to significant FATCA Fines and FBAR Penalties. A common question we receive is whether income earned in Singapore is taxable in the U.S. The Singapore tax system is setup different than the tax system in the United States and the IRS tax and reporting compliance requirements are complicated. Each year we represent many clients from Singapore with issues involving offshore investments & IRS compliance of CPE, CPE, AIA, FundSupermart (and other investment institutions) and foreign rental property income. Since the Internal Revenue Service has taken an aggressive approach on matters involving foreign accounts compliance and unreported foreign income, it is important to get into compliance to avoid offshore penalties.
We have a separate page dedicated to evaluating the U.S. tax of a CPF.
IRS International Tax Compliance
Here are some of the basics involving U.S. tax:
The first and most important aspect of US tax on income from Singapore is that the US taxes individuals on their worldwide income.
Therefore, if you are a US person working in Singapore, then you have to be cognizant of the fact that the income you earn abroad is going to be taxed in the United States.
But I Reside in Singapore?
Worldwide Income is different than Resident Based Taxation. The U.S. Taxes U.S. persons (not just U.S. Citizens) different than how most countries operate.
In most countries, when a person relocates to a new country, the original country does not tax the individual on income that was earned beyond its borders – because the are considered nonresidents.
Alternatively, the United States bases its tax rules on U.S. Person status, which includes:
- U.S. Citizens
- Legal Permanent Residents, and
- Nonresident who meet the Substantial Presence Test
Foreign Earned Income Exclusion
If you reside overseas in Singapore you may be able to qualify for the Foreign Earned Income Exclusion (FEIE), using IRS Form 2555.
If you qualify for FEIE, it means that even though the United States taxes you on your worldwide income, if you meet the exclusion then $102,000 (adjusted for inflation) is exempt from US taxation.
In other words, if you work overseas in Singapore and made $95,000 USD equivalent and meet the FEIE requirements then you would not owe any tax to the United States on that income — even if it was tax-free in Singapore.
*If you already pay tax in Singapore, you do not get a credit back from United States.
In addition, you may also receive a foreign housing exclusion for a portion of the money you spend on housing in Singapore. Therefore, it is important to keep track of your expenses for housing when you live abroad.
Paid Foreign Taxes in Singapore (Foreign Tax Credit)
Unlike the Foreign Earned Income Exclusion which only refers to “earned income,” the Foreign Tax Credit can be applied to either earned income or passive income. Therefore, if you were employed overseas and earned money, but already paid tax on that money you may be able to apply a credit towards some (if not all) of the tax money you already paid in Singapore. In addition, if you earned passive income such as interest, dividends, royalties or capital gains you can also apply a foreign tax credit for passive income.
Tax-Free Income In Singapore?
Unlike the United States, many foreign countries have tax free income on items such as interest, dividend, or capital gains. While the United States does offer some tax exempt interest, usually at the state level on municipal bonds (a.k.a. muni bonds), in some countries, an entire category of income (such as passive interest or dividends) is exempt from tax. Unfortunately, the United States typically does not acknowledge the tax-free status. Therefore, if you earned interest income or dividends (or any other type of passive income that may have escaped tax in Singapore) you may still have to pay tax on that money in United States.
No U.S. Totalization Agreement
In addition to tax treaties, the United States has entered into totalization agreements with various countries as well. The purpose of a totalization agreement is to avoid double payments of social security taxes to both United States and a foreign country. For example, if a person works in a foreign country and has to pay Social Security into that country (especially if they are self-employed and would have to pay the entire portion), the United States has lightened the burden by entering into a totalization agreements with countries so that the person would not have to pay the same tax to the United States.
Currently there is no Totalization Agreement with Singapore.
FBAR, FATCA & Foreign Reporting
We represent many individuals each year from Singapore and it is very common for clients to have accounts and investments in Singaporethat they did not know (or knew) and had not reported it to United States, including:
Foreign Company Ownership
The United States has made the enforcement of foreign reporting a key enforcement priority. Therefore, it is important that if you have unreported income, accounts, assets, or investments from Singapore that were not reported to the United States that you consider getting into compliance sooner as opposed to later (since the programs can be terminated at any time, the penalty can increase, and/or if the IRS contacts you first, you lose the opportunity to enter into any if the IRS Amnesty Programs).
Golding & Golding: About Our International Tax Law Firm
Golding & Golding specializes exclusively in international tax, and specifically IRS offshore disclosure.
Contact our firm today for assistance with getting compliant.