Navigating the Singaporean Tax System - Key Considerations for US Expats
by Admin
Posted on 08-06-2023 05:59 PM
Singapore boasts one of the lowest tax rates worldwide and offers numerous financial incentives to small business owners, but staying on top of taxes requires careful management.
US expats living in Singapore should keep abreast of tax filing deadlines and understand local taxation law, in addition to being aware of which expenses and assets fall within its taxation thresholds.
Following is advice in Singapore expat tax planning for US expats from HTJ.tax.
Taxes on Income
Singapore income taxes include both personal and corporate taxes on income. Tax rates in Singapore are relatively low compared to other developed nations; individuals can expect to pay anywhere from 0%-20% of their total income as taxes; this amount depends on whether or not you are considered a resident or non-resident, filing status requirements, filing deadlines and the forms you need to submit.
As a resident, filing your Singapore tax return by April 15th each year is mandatory and payments for it should be sent out after assessment notices have been sent out on September 15th. US expats working self-employed may need to report earnings both to Singaporean and US tax returns; they can take advantage of Singapore's wide network of Avoidance of Double Taxation Agreements and Unilateral Tax Credits in order to limit tax liabilities further.
Singapore's corporate tax rate stands at 17%. This rate is relatively low when considering that Singapore provides various tax schemes that allow startups to lower their effective corporate tax rate significantly below this figure. Furthermore, no taxes or capital gains taxes apply and generous deductions exist.
Singapore applies withholding taxes to certain forms of payments, including interest, royalties, rent for movable property rental agreements, and management fees. Withholding taxes are usually levied at their point of origin so they're typically deducted before reaching their recipient; however, Singapore's extensive network of Double Taxation Agreements and bilateral Tax Credits may reduce or even eliminate them under certain conditions.
On December 21, 2018, Singapore officially ratified and submitted to deposit its instrument of ratification of the Multilateral Instrument (MLI). When implemented, this agreement will modify over 90 existing tax agreements to reduce or remove withholding taxes for payments made to recipients in foreign jurisdictions that don't have a double tax treaty agreement (DTA) with Singapore - providing international investors and businesses alike with significant tax savings opportunities.
Taxes on Property
The Inland Revenue Authority of Singapore (IRAS) is the primary government body responsible for tax collection in Singapore. Along with collecting taxes, IRAS represents Singapore in tax treaty negotiations and helps draft legislation related to taxes owed. Furthermore, property valuations performed for transactions subject to withholding tax are typically subject to withholding. Nonresident payments such as interest royalties rent for moveable properties management fees etc may incur withholding taxes which can often be reduced or waived altogether through Singapore's network of avoidance of double taxation agreements.
As part of purchasing or leasing real estate in Singapore, one is subject to stamp duty payments. This fee is calculated based on the Annual Value of Property; rates differ depending on whether it's residential or commercial in nature. Owner-occupied homes are exempted entirely while rental properties and vacant land incur taxes of 10%-16% respectively.
Singapore's corporate tax rate stands at 17%; however, its actual effective rate has consistently decreased over time.
Singaporean tax system stands out among international investors and business owners due to its distinct features, making it attractive to both investors and entrepreneurs. Singapore utilizes a territorial system of taxation - this means only income earned or accrued within Singapore is subject to taxes compared with countries like the US that tax all earnings regardless of where it comes from or originates.
Individuals must pass a "bona fide residence test" in order to qualify as residents under US tax code; to meet this stricter standard and submit more paperwork than is required under normal residency regulations.
Americans living in Singapore must file Form 1040 annually to report their income and assets. Thanks to the US-Singapore Tax Agreement, certain deductions and credits from the US can help significantly lower an individual's overall tax liability. Specifically, American expats in Singapore can take advantage of both Foreign Earned Income Exclusion and Foreign Housing Exclusion to significantly decrease their yearly taxes owed. Furthermore, expats should be mindful that having more than $10,000 worth of foreign bank or investment accounts requires filing an FBAR report with US authorities annually.
Taxes on Investments
Singapore levies numerous taxes in addition to income tax, such as stamp duty. Stamp duty fees are assessed on documents such as commercial and legal papers related to stock or real estate property transactions; their exact amount varies based on both document type and transaction type, with more expensive transactions necessitating more stamp duty payments by corporations than from individuals.
Navigating a foreign tax system may be challenging, but it's essential that US expats adhere to all relevant rules and regulations. For example, meeting the bona fide residence test to avoid being taxed on more than just their local income is key for US expats residing abroad. Furthermore, understanding whether you qualify for deductions such as foreign earned income exclusion or foreign housing exclusion could significantly lower overall tax liabilities.
Singapore offers business owners an effective corporate tax rate of 17%; however, through various incentive schemes to foster growth and innovation. These incentive schemes can lower the effective corporate tax rate to well below this figure; especially useful for startups which must pay higher capital gains tax rates.
Due to no bilateral tax treaty between the US and Singapore, income may be taxed in both nations; however, both offer tax credits which help prevent double taxation, including Foreign Earned Income Exclusion and the Foreign Tax Credit.
Singapore does not levy capital gains tax for individuals. Instead, a goods and services tax (GST) of 7% applies on all domestic purchases made for domestic consumption unless specifically exempt. Examples of items specifically exempted include financial services, precious metal supplies, and some residential properties.
Singapore's Inland Revenue Authority of Singapore (IRAS), founded under the Income Tax Act in 1960, serves as its central tax body and coordinates various agencies responsible for collecting and administering various forms of taxes into one organization, helping streamline collection processes while offering more unified services for taxpayers. Furthermore, IRAS handles negotiations regarding tax treaties, draft legislations and property valuation.
Taxes on Trusts
Singapore is an attractive choice for international business and investment. With its robust economy and tax policies that encourage corporations to expand into emerging markets, this city-state is often known as a "tax haven." Because of this reputation, Singapore draws numerous US expats looking to set up shop there; it is essential that any US expat understand the tax system in Singapore before making their move.
Singapore's income tax system is typically straightforward and efficient. Individuals pay taxes based on their chargeable income - defined as what remains after deducting personal reliefs and allowances have been deducted - such as salaries, business profits, investments or rental income - unlike in the US which taxes dividends, capital gains or inheritance.
Singapore-incorporated companies are subject to taxes on both their Singapore-sourced income and any foreign-sourced income that has come into Singapore, if applicable. Thankfully, however, Singapore offers several incentive schemes that help lower this headline 17% rate; startups enjoy tax rebates during their initial three years of operations while financial services companies may qualify for Financial Sector Incentive (FSI), offering reduced tax rates.
Individuals can claim allowances and rebates on their income, such as the Foreign Earned Income Exclusion and Foreign Tax Credit, but the lack of a US-Singapore totalization agreement means they could face double taxation on some forms of income.
Finally, non-residents who own residential property in Singapore must pay an annual 10% property tax that varies based on its value and may incur additional stamp duty when transferring ownership or shares in companies with properties in Singapore.
Even without the benefit of a totalization agreement, US expats in Singapore can still reduce their tax liability with careful planning and the assistance of qualified professionals. By taking advantage of deductions, rebates, and tax exemptions they can substantially decrease their overall tax bill.