Overview of Singapore and U.S. Tax Treaty: Double Taxation

US Singapore Tax Treaty – IRS Summary of US Singapore Tax Treaty

Overview of Singapore and U.S. Tax Treaty: Double Taxation

Over the past several years, there has been a significant increase in the number of U.S. Citizens and Lawful Permanent Residents who have relocated to Singapore just as there are many Singaporean citizens and Permanent Residents who have relocated to the United States. One of the main issues for expats in general is how are U.S. taxes handled and do expats have to pay taxes on their worldwide income — or just their U.S.-sourced income. In some countries such as Australia, India, and China, there is a tax treaty between the U.S. and the foreign country in place which helps to offset certain tax consequences. However, since there is no tax treaty between the United States and Singapore it makes it much more difficult from a tax perspective to defer taxes on Singaporean income generated from Singapore on a U.S. tax return. Let’s go through a few examples of how the lack of a tax treaty may impact expat taxes.

*These examples are for illustrative purposes only and Taxpayers should consult with a Board-Certified Tax Law Specialist if they have specific questions about their reporting requirements and not rely on this article for legal advice.

No Treaty Election to be an NRA in Singapore

One key benefit of a tax treaty is that when a Permanent Resident of the United States relocates to a treaty country, they may be able to claim treaty benefits to be treated as a non-resident alien (NRA) for tax purposes. Since there is no treaty with Singapore, this option is not available:

• • • Example: David is a Lawful Permanent Residents of the United States who relocates to a treaty country where he will be living and working full time. David qualifies under the tax treaty to be treated as a non-resident alien and therefore will only be taxed on his U.S.-source income — which significantly reduces David’s tax liability since he works for a foreign employer and is taxed at a much lower tax rate.

    • Example: Jennifer is a Lawful Permanent Residents of the United States who relocates to Singapore. Her tax rate in Singapore would be much lower than in the United States on her personal income but since there is no tax treaty, she is still treated as a U.S. person for tax purposes and taxed on her worldwide income.

No Deferral of Singapore (CPF) Pension Contributions

Since there is no tax treaty with Singapore, there is no treaty in place to allow the deferral of pension contributions to be excluded from gross income.

• • • Example: Michelle is a Lawful Permanent Residents who relocates to a treaty country that allows for U.S. Taxpayers to exclude pension contributions into an employer pension from an employer in that foreign country (up to the amount that the U.S. allows Taxpayers in the United States who are receiving equivalent pension contributions such as a 401K). As a result, Michelle does not pay income tax now on the income that was deferred into her foreign pension plan.

    • Example: Brenda is a Lawful Permanent Residents who relocates to Singapore. She receives a significant contribution from her employer into her CPF but because there is no treaty with the United States, Brenda has to include the amount of that income on her U.S. tax return.

CPF Pension Growth

Expanding upon the prior example, since there is no treaty with Singapore, the next concern is that the growth within the pension fund is not treated as tax-deferred by the IRS as it would in a treaty country. Even though the pension may be receiving tax-deferred treatment in Singapore, that tax-deferred treatment does not carry over to U.S. tax law.

• • • Example: Dean is a Lawful Permanent Resident who relocated to a treaty country where he has an employment-borne pension. Dean does not receive any distributions from the pension and the money is not available to him yet because he is not of the age that he can receive the pension and he is not permanently disabled. Dean can usually take the position that the growth is not taxable, and the IRS will generally accept this position.

    • Example: Miranda is a Lawful Permanent Residents who resides in Singapore and is a few years away from retirement. As a result, she has a very large sized CPF which generates a large amount of passive income. Even though that income is not being distributed to Miranda, since there is no tax treaty in place, she cannot rely on a treaty to defer the income tax on the growth within the pension.

** Even if Miranda was residing in the United States, the growth within her pension would still be taxable because she is a U.S. person who is taxed on her worldwide income and there is no treaty in place to rely on to defer that income.

Just the Tip of the Iceberg

These are just some introductory issues that Taxpayers who have income and earnings in Singapore may have to consider when they are also categorized as U.S. persons for tax purposes. There are other complicated issues as well that are impacted by the fact that there is no treaty, such as issues involving permanent establishments, working in a foreign country for research purposes, and other related issues. For Taxpayers who were out of compliance, the IRS has developed several international tax amnesty programs to assist filers would safely getting into compliance for prior year non-reporting.

Late Filing Penalties May be Reduced or Avoided

For Taxpayers who did not timely file their FBAR and/or other international information-related reporting forms, the IRS has developed many different offshore amnesty programs to assist Taxpayers with safely getting into compliance. These programs may reduce or even eliminate international reporting penalties.

Current Year vs. Prior Year Non-Compliance

Once a Taxpayer missed the tax and reporting (such as FBAR and FATCA) requirements for prior years, they will want to be careful before submitting their information to the IRS in the current year. That is because they may risk making a quiet disclosure if they just begin filing forward in the current year and/or mass filing previous year forms without doing so under one of the approved IRS offshore submission procedures. Before filing prior untimely foreign reporting forms, Taxpayers should consider speaking with a Board-Certified Tax Law Specialist who specializes exclusively in these types of offshore disclosure matters.

Avoid False Offshore Disclosure Submissions (Willful vs Non-Willful)

In recent years, the IRS has increased the level of scrutiny for certain streamlined procedure submissions. When a person is non-willful, they have an excellent chance of making a successful submission to Streamlined Procedures. If they are willful, they would submit to the IRS Voluntary Disclosure Program instead. But, if a willful Taxpayer submits an intentionally false narrative under the Streamlined Procedures (and gets caught), they may become subject to significant fines and penalties. 

Need Help Finding an Experienced Offshore Tax Attorney?

When it comes to hiring an experienced international tax attorney to represent you for unreported foreign and offshore account reporting, it can become overwhelming for Taxpayers trying to trek through all the false information and nonsense they will find in their online research. There are only a handful of attorneys worldwide who are Board-Certified Tax Specialists and who specialize exclusively in offshore disclosure and international tax amnesty reporting. 

*This resource may help Taxpayers seeking to hire offshore tax counsel: How to Hire an Offshore Disclosure Lawyer.

Golding & Golding: About Our International Tax Law Firm

Golding & Golding specializes exclusively in international tax, specifically IRS offshore disclosure. 

Contact our firm today for assistance.