Taxes For Us Citizens In Singapore?

[steffi]

So given that Singapore doesn't have any tax treaty and the new 82k limit as of 2006 and the fact that anything over that ends up being in the higher tax bracket instead of the lower like it was prior to 2006 does a salary offered to work in a place like Singapore have to be more than what you could earn in the US in order to compensate for the tax obligation you have on your income in both Singapore and USA?

This seems to make it much more challenging for US citizens to work in parts of Asia that don't have tax treaties.

I suppose I could have done what a lot of people are doing and renounced my US citizenship to relieve myself of the tax obligation but that's a pretty drastic measure.

[thaihome]

Besides the foreign income exclusion ($82k), you also will be able to take a dollar-for-dollar tax credit for the Singapore Income Tax (or any other country) you will pay. There is no need for a tax treaty to do this.

I have worked in several Asian countries for the past 10 years and have never had to pay any US tax, including 2006 when the new rules on the tax calculation went into effect. The Thai tax I paid gave me a credit that offset the full amount of the US tax. The only exception was a couple of times the Alternate Minimum Tax got me for a few hundred when the gross amount got really big due to other compensation.

Chances are you not be liable for any US tax.

TH

[steffi]

In what article of the tax code does it talk about the dollar for dollar tax credit then?

Besides the foreign income exclusion ($82k), you also will be able to take a dollar-for-dollar tax credit for the Singapore Income Tax (or any other country) you will pay. There is no need for a tax treaty to do this.

I have worked in several Asian countries for the past 10 years and have never had to pay any US tax, including 2006 when the new rules on the tax calculation went into effect. The Thai tax I paid gave me a credit that offset the full amount of the US tax. The only exception was a couple of times the Alternate Minimum Tax got me for a few hundred when the gross amount got really big due to other compensation.

Chances are you not be liable for any US tax.

TH

[thaihome]

Line 47 of the 1040. Supported by Form 1116. I should note the credit is only up to your tax amount, but you can carry over unused amount for 5 years.

TH

[lanny]

Why do you think the absence of a tax treaty makes a difference to an expat living in the country? Almost nothing in the treaties applies to residents of the foreign country; rather it is for residents of one country doing business in the other.

The $82,400 Foreign Earned Income Exclusion is in the US Internal Revenue Code and does not depend on the treaty. Likewise, the Foreign Tax Credit, although covered in the treaty, is also a part of the IRC and not dependent on the treaty.

I think there is a misconception of the tax credit. You do not get a dollar for dollar offset if you also claim the foreign exclusion. You cannot claim a credit on the US tax return for that portion of the foreign tax that applies to the excluded income. You only get a credit for taxes paid on income that is actually taxed by both countries.

[steffi]

Meaning that in Singapore you're taxed on your entire locally earned income and in the US you're taxed on the portion over 82.4k.

How does this differ from a country that has a tax treaty? There you get a one for one credit but do you get that even if you take the foreign earned income exclusion?

What you are giving up when you choose to work in a country that does not have a tax treaty vs one that does?

Why could somebody like Jim Rogers, I assume an American citizen just pack up and move to Singapore without having a further tax obligation than he had before. I admit this may not be relevant since he's probably operating thru a company anyway.

Why do you think the absence of a tax treaty makes a difference to an expat living in the country? Almost nothing in the treaties applies to residents of the foreign country; rather it is for residents of one country doing business in the other.

The $82,400 Foreign Earned Income Exclusion is in the US Internal Revenue Code and does not depend on the treaty. Likewise, the Foreign Tax Credit, although covered in the treaty, is also a part of the IRC and not dependent on the treaty.

I think there is a misconception of the tax credit. You do not get a dollar for dollar offset if you also claim the foreign exclusion. You cannot claim a credit on the US tax return for that portion of the foreign tax that applies to the excluded income. You only get a credit for taxes paid on income that is actually taxed by both countries.

Edited November 8, 2007 by steffi

[thaihome]

I doubt you can compare Jim Roger's tax situation with any member here...

As for the dollar-for-dollar foreign tax credit, I should have qualified that as for me, I get a dollar for dollar credit for all foreign income tax I pay as my net foreign source taxable income (1040 Line 7) is greater then my (adjusted gross income, less the standard deduction, (1040 Line 41) therefore the multiplier is equal to 1.00 (Form 1116 line 18) and my foreign tax credit is not reduced.

I worked in Singapore for almost 2 years, paid a ton of Singapore income tax and not a dime to the US. Today, with the new US tax calculation method, that might not be true.

Since leaving Singapore 7 years ago and working in other Asian countries, I have accumulated over $100K in unused foreign tax credits. 2006 was over $10K alone, so I am not too worred about US tax in the next 5 years or so.

TH

[lanny]

As for the dollar-for-dollar foreign tax credit, I should have qualified that as for me, I get a dollar for dollar credit for all foreign income tax I pay as my net foreign source taxable income (1040 Line 7) is greater then my (adjusted gross income, less the standard deduction, (1040 Line 41) therefore the multiplier is equal to 1.00 (Form 1116 line 18) and my foreign tax credit is not reduced.

I hate to tell you, but if you were claiming a credit for 100% of the Singapore tax AND taking the foreign earned income exclusion, you were doing it incorrectly. You cannot claim a credit for the portion of the foreign tax that is applicable to the excluded income. At the top of page 2 of Form 1116 (line numbers may change from year to year) you are supposed to reduce the foreign taxes paid by that portion which applies to the excluded income. If you were not doing this, you were not calculating the credit correctly.

I have seen many returns with this credit calculated incorrectly. Even returns prepared by CPAs. Many tax accountants, who are not familiar with the foreign exclusion and the foreign tax credit, do not understand how to make this calculation.

[thaihome]

I hate to tell you, but if you were claiming a credit for 100% of the Singapore tax AND taking the foreign earned income exclusion, you were doing it incorrectly. You cannot claim a credit for the portion of the foreign tax that is applicable to the excluded income. At the top of page 2 of Form 1116 (line numbers may change from year to year) you are supposed to reduce the foreign taxes paid by that portion which applies to the excluded income. If you were not doing this, you were not calculating the credit correctly.

I have seen many returns with this credit calculated incorrectly. Even returns prepared by CPAs. Many tax accountants, who are not familiar with the foreign exclusion and the foreign tax credit, do not understand how to make this calculation.

You are correct on both counts, it was calculated incorrectly for me by a CPA. But a quick check when I pointed it out to him after reading your post showed that the reduction calculation still left enough (barely) to cover US tax amount. So though calculated incorrectly, the zero tax amount is still correct.

No doubt I will be moving to another tax person next year that is more experienced, would think after doing my returns for several years he would catch on a bit better.

Thanks,

TH