Thu. Jul 2nd, 2020

Understanding the Difference Between Residency-Based and Citizenship Based US Taxation Singapore

tax

How the united states tax system work makes a big difference in the world- something that many expats and certainly Americans are well aware of. It determines who is eligible for tax, on what circumstances, and how much. Learn about the implication of US taxation in Singapore for residency-based and citizenship-based taxation for expats. 

What is residency-based taxation?

Under the residency-based taxation, a resident of the country is subject to taxation on his worldwide income. Whereas, non-residents of the country are only subject to taxation of the income generated from the country itself. Moreover, the tax rates for US expats Singapore and non-residents differ. So, when you move abroad next-time, make sure to check with the local tax authority to find out how resident status is acquired. 

What is citizenship-based taxation?

For citizens from countries like the United States that follow citizenship-based taxation provision, a citizen or permanent resident or an alien will be subject to income tax irrespective of the point where the income was earned. This taxation system is much rarer than residency-based taxation. In fact, US and Eritrea are the only two countries in the world that use this system. 

This clearly means that the only way to filing annual USA tax Singapore– even if you live elsewhere and make money solely outside of the US- is to renounce your citizenship. 

In case you don’t owe taxes, you will still likely be required to file an annual informational return. Many expatriates can eliminate their liability to American tax Singapore by claiming eligible deductions, credits, and exclusions like Foreign Earned Income Exclusion (FEIE), but are still required to file returns. Additionally, expats who meet the requirements for FBAR (Foreign Bank Account Reporting) will also require to file this as well. However, the threshold for FBAR is met, if you at any point during the year, have more than $10,000 in all of your foreign bank accounts in total. Another major requirement is to file form 8938, which fulfills the requirement conducted under the provision of FATCA (Foreign Account Tax Compliance Act)- must be filed in case you meet a different set of foreign asset thresholds.

How Residency-based taxation provisions affect the American taxation system?                           

Although resident-based US taxation is more common and less complex than citizenship based US tax affairs, however, it can also complicate taxation matters for Americans living abroad. If a US expat moves to another country with a residency-based taxation permit and becomes a tax resident of that country, then as a consequence he may owe double taxation. Some crucial measures to mitigate this complicated double taxation matters, include tax treaties, Foreign Tax Credit, which involves a dollar for dollar credit to your US tax liability based on the taxes you paid to the foreign country.

Get the assistance of expert tax professionals

To combat the confusion between residency-based taxation and citizenship-based taxation, you need to lead on the tax professional expertise who do expat taxes. They are the ones who stay updated with the latest tax news, updates, and all the credits, exclusions, and deductions available to expats.