Double taxation.

[Benifit7]

Hey guys, I'll be arriving in Singapore in about 3 weeks. I'm a US citizen and my boss I opening a location in sing. In pretty worried about double taxation. I'll only be making about 40 a year. Sobasically I'm wondering if there is a way to avoid double taxation. This is a long term assignment . Thanks guys.

[sundaymorningstaple]

As long as Obamy doesn't withdraw the income earned abroad exclusion (IRS form 2555 or 2555-EZ) you can earn up to USD $97,600/year without paying double taxes on that amount. But other income will be taxed at a rate that would have existed if the exclusion was not there. However, income earned at you home in the US is not taxable to Singapore so if you only have wages here you should be okay, at least initially.

[paulsalem]

Just to add to what SMS said.

If you exceed the foreign earned income exclusion (FEIE) ($99,200 for 2014), you can still get a credit for the amount of taxes you paid in Singapore on the income above 99,200.

Your housing and utilities are also deductible up to a certain amount. Since you are new to the expat gig, have a professional expat firm do your taxes for at least the first year.

If you make in excess of $99,200 you may want to look into creating a Singaporean based company. Have your employer pay your salary to that company. You will then pay yourself, and your spouse a salary, and you can both claim $99,200 tax free. You may be able to reduce your SG tax burden as well this way, by having "your company" pay your housing... I'm still researching this option, so I may be wrong. There are companies who are experienced in both creating SG corporations and IRS laws.

[Benifit7]

Like I said before . I'll only be making about 40k and my company pays for my lodging. I was hoping I made a low enough wage to be exempt.

[paulsalem]

Like I said before . I'll only be making about 40k and my company pays for my lodging. I was hoping I made a low enough wage to be exempt.

Sorry, I missed that. And if you make more you still get to keep most of it!

[sundaymorningstaple]

There is a very good chance that you won't even get an Employment Pass at that salary. About the best you could do would be an S pass if you are lucky. You employer is going to have to convince the MOM why they need to bring over a western expat if all he is being paid is the equivalent of S$4000/mo.

[aileens]

Hi guys. I'm going through the US tax code. And it seems like the US Foreign Income Earned Exclusion applies only to countries with which the US has an income tax treaty? And it appears Singapore isn't one of them?

[sundaymorningstaple]

You have it bass ackwards

[aileens]

@sundaymorningstaple : could you please explain?

I had the impression you and @paulsalem were talking about foreign earned income exclusion in the US?

[BBCWatcher]

The U.S. IRS's Foreign Earned Income Exclusion is well described in Chapter 4 of IRS Publication 54. "Foreign Country" is defined starting on page 13 of at least the 2015 edition of that publication. The instructions to IRS Form 2555 are also helpful.

No, the foreign country does not have to be a country that has a tax treaty with the United States. It has to be not Antarctica, not international waters or airspace, and not territory over which the U.S. government has sovereignty. Cuba has its own special rule, for now anyway.

[aileens]

Oops. You're right I got it confused with the clause that applies to US citizens with bona fide residence in Singapore.

Under Publication 54:
Chapter 4. Foreign Earned Income and Housing: Exclusion –Deduction : Requirements (page 12)
To claim the foreign earned income exclusion, the foreign housing exclusion, or the foreign housing deduction, you must meet all three of the following requirements.
1. Your tax home must be in a foreign country.
2. You must have foreign earned income.
3. You must be one of the following.
a. A U.S. citizen who is a bona fide resident of a foreign country or countries for an uninterrupted period that includes an entire tax year.
b. A U.S. resident alien who is a citizen or national of a country with which the United States has an income tax treaty in effect and who is a bona fide resident of a foreign country or countries for an uninterrupted period that includes an entire tax year.
c. A U.S. citizen or a U.S. resident alien who is physically present in a foreign country or countries for at least 330 full days during any period of 12 consecutive months.


I happen to fall in category 3b as a Resident Alien, which requires the foreign country to have a tax-treaty with the US.

[BBCWatcher]

Read that section again more carefully, please. Wouldn't you qualify per condition 3c? You said this is a long-term assignment.

And note that's not 330 days during a calendar year. It's 330 full days during any period of 12 consecutive months.

That said, your U.S. permanent residency is at risk if you're physically absent from the United States for too long an interval, especially if you don't have advance parole, but I assume you're aware of those issues at least now that I mentioned them. If you're planning to naturalize as a U.S. citizen, now might be a good time.

[BBCWatcher]

Some more caveats/cautions:

1. If your earned income is fully shielded from U.S. taxability via the Foreign Housing Exclusion and/or Foreign Housing Exclusion, you will not be eligible to make U.S. Individual Retirement Account (IRA) contributions, such as a Roth IRA.

There are a couple ways you can work around this problem. One way is to have enough U.S. earned income to qualify for a contribution (or for your spouse, since a spouse can make an IRA contribution for you). For example, at US$40,000 per year of steady earned income if you spend 2 months per year working in the United States then you should hit at least US$5,500 of U.S. earned income and could make a US$5,500 IRA contribution. So suppose you plan your stint in Singapore so that you leave on March 1, 2017. January and February are U.S. earned income months, so you can make a 2017 IRA contribution based on that income (due by April 15, 2018). You stay in Singapore (with a couple short trips to the U.S. to keep your green card alive) until the end of October, 2018. For the period March, 2017, through October, 2018, you can take advantage of the Foreign Earned Income Exclusion. Then November and December, 2018, give you enough U.S. earned income to make an IRA contribution for 2018 (due by April 15, 2019).

2. The same is true for U.S. 401(k) contributions if you participate. It's best to "max out" your 401(k) contributions in those U.S. months. Or, if your employer allows it, continue making 401(k) contributions even while working in Singapore. (That is allowed, actually, as long as you're still on your U.S. employer's payroll -- although you should adjust your tax withholding during your time in Singapore.)

3. On the other hand, if you're working for a Singapore-based employer, you won't have to make U.S. Social Security and Medicare contributions. But the downside is that you also won't earn Social Security and Medicare credits if you're not contributing. Spend too long off Social Security and you'll lose your Social Security Disability insurance coverage, too. At least be aware of those dynamics. If you can arrange the overseas work schedule as per the example #1 then Social Security and Medicare can work very well, too. You'd end up putting 2017 and 2018 into your earnings history as lower income (and lower taxed) but still decent years, and that'd be really nice.

4. There are certain tax credits that you lose if you don't have unexcluded income. The Child Tax Credit is a notable example. Again, the "ideal" work schedule suggested in #1 above helps there, too, if applicable.

[sundaymorningstaple]

tl;dr

[BBCWatcher]

That's unfortunate, SMS. I understand you're a U.S. person, and you might have learned something about tax optimization. When you get a chance, you might want to take a look.