Expats in Singapore are at risk of double taxation since the US doesn’t have a tax treaty or totalization agreement with that country. Find out the tax considerations you should make before moving to a country that will cost you money down the road.
Is There a Tax Treaty Between the US and Singapore?
Currently, there is no tax treaty between Singapore and the US. Because of that, income may be taxed in both countries. However, the Foreign Earned Income Exclusion, foreign housing exclusion, and foreign tax credit can be used to reduce or eliminate this double taxation, which can help expats in Singapore minimize their tax liability.
What Are Totalization Agreements?
Totalization agreements differ slightly from tax treaties. Totalization agreements are global tax contracts that are enacted to eradicate double taxation pertaining to Social Security and Medicare taxes in the US. The US and other individual countries have made these agreements to prevent social security contributions for the same income. These totalization agreements are important for US expats living and working in foreign countries as they need to contribute to social security taxes to both countries if such an agreement is not in place. The tax considerations are especially significant for self-employed US expats in Singapore and other foreign countries.
Self-Employed US Expats in Singapore Are Especially at Risk
Because there is no totalization agreement or tax treaty between the US and Singapore, these expats frequently face taxation issues. If an individual is a US citizen and self-employed in Singapore, he is still required to pay US Social Security and Medicare taxes on his earnings, even when contributions to the Singapore Social Security system are required. This is because the US and Singapore do not currently have an agreement eliminating the double taxation of social security income.
Individuals are required to pay social security taxes if the net self-employment earnings were $400 or more for the year. Self-employment tax consists of two parts: Social Security and Medicare taxes. Self-employed expats do not withhold Social Security and Medicare taxes from their income automatically, nor do employers make these payments on their behalf. Consequently, the self-employed person is responsible for both the employer and employee allotments of the Social Security and Medicare taxes. Together, these are known as the self-employment tax.
The current rate of social security is 6.2% for the employer and 6.2% for the employee. The IRS considers self-employed expats as both the employer and the employee, so the Social Security tax amount for self-employed individuals is 12.4%. The Medicare tax rate is 1.45% each for employers and employees, so, naturally, self-employed individuals are liable for a Medicare tax of 2.9%. That is, the current self-employment tax rate is 15.3%. The self-employed expats in Singapore need to make sizeable social security payments both in the United States and Singapore. However, if a US expat is employed by a Singapore employer and required to pay taxes into the Singapore social security equivalent, they may not be required to pay US Social Security tax.
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