[ HTJ Podcast ] U.S./Singapore Taxes for Expats & International Entrepreneurs- 6th September 2021
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Hello, good evening, everyone. Good evening, everyone. Thanks for joining us here at HTJ.tax. We have webinars and live streams probably every week on various topics of interest to people who are international entrepreneurs, investors, or ex-pats working overseas, working outside of the US. So today we have the honor and privilege of joining us, Mr. Boon Yip Yee. Sorry, those who have just joined, please, could you remain mute? There'll be an opportunity at the end for you to mute yourself for the Q and A. So, thanks for that. So, joining us, we have Boon Yip, and he is a qualified Singapore tax adviser and qualifier accountant, as we've done in previous sessions, what are we going to do? Because I know you guys joined with specific questions in mind. So, what we've done is modified it from what we did previously, where we went through like a PowerPoint, and then we went into the Q and A. So, we're going to jump into the good stuff, which is what you signed up for, which is a Q and A, some of you have sent questions in advance and comments and advance. Thanks for doing both, those who have not done so depending on which platform you're going to be viewing this, you, if you're on zoom, just look to the chat box below and you can type your questions there. If you're on LinkedIn, Facebook, Twitter, YouTube, you can type your questions or comments into the boxes below, and we'd get to them in the order in which we have received them. So, without further ado, I'm going to just jump into the questions that were previously submitted. Number one, what are the tax breaks for those starting a Singapore private limited company? Boon Yip I think this is one you.
BOON YIP YEE:
All right. So, okay. Basically, for the, the different incentives available for new entities, I mean, new startup, okay. For the first three years of being corporation. So, company and titles actually a lower effective tax rate. So, the headline tax in Singapore is 17%, but as we know, very seldom for SME to pay a 17% tax. So, it goes on to appear. Okay. So, I think new, new entities is paying about 4.25 effectively, and beyond three years, after the three years tax break probably will be at a higher rate, 6 to 7%.
So, if you look at the chargeable income, if you are having a million Singapore dollars of chargeable income effectively, you're still paying something like phenomenal seconds, about 15%, less than just 15%. Right? So, in fact, it is still lower than some of the major competitive economic countries like Hong Kong, right? So, they will probably be the one of the areas of the tax incentives. Okay. You don't have to qualify, you don't have to apply is by default for all new entities, except those a passive company.
So, when I say passive, meaning you are, you are doing investments, investment holding companies, just passive income. You're taking dividends, right? Interest some property investments. Yes. You're not qualified but having said you still qualify for a subsequent years. Okay. So, there's actually two types of incentives. There's a full tax exemption scheme and the partial one. So, all companies entitled to partial. Okay. So actually, there's a distinction between investment holding and investment trading. So, if you are doing investment as part of the trading activities, you are considered a trading company, a trade, not an investment holding.
So, you qualify for all the incentives that are available for just like a normal company. Right. Okay.
Okay. That's pretty comprehensive. Thank you very much for that. So that kind of is a great segway into the second question, which was submitted. Can I use a Singapore private limited to hold shares in my investments? So basically, an investment holding company. So, from I'll comment on the US side, before we come back to you for the Singapore side for a US side, obviously yes, you can, but it's tends to be not very tax efficient, the default, unless you make certain elections or you do something to the structure from a us tax perspective, it won't be very efficient. And the reason why is because it triggers something called a PFIC or passive foreign investment company, that's PFIC for those who want to check it out.
So, this was a designation that was created in the 1980s and in the tax code. And basically, it was a response to the financial services industry in the United States that was seeing that essentially a US person could invest outside of the US and be an experienced more preferential tax treatment. So as a result of that, the PFIC regime was established, which to be completely honest with you, it does a complete opposite. It almost penalizes US exposed persons. So, this would be individuals as well as entities who create investment holding structures outside of the US.
And again, there are ways of mitigating this. You speak to your tax advisor, but the default, is not, is an unfavorable treatment. And that definition of a passive foreign investment company, it's triggered by very specific thresholds in terms of the level of income. So once the level of income being operational or passive, once a passive income exceeds a certain threshold, PFIC is triggered. And similarly, when you look at the balance sheets of the company, if more than a certain percentage of the assets are held for the production of passive income, then again, it's triggered. So that leads me to what you said previously. Boon Yip are there like very specific thresholds for that investment holdings structure in, in Singapore, given what you mentioned?
BOON YIP YEE:
Okay. Investment holding companies are typically a very less, very least incentivized. So basically, they don't have a lot of incentives available because if you receive dividend, they are not taxed. So, all the dividends channel out to the venture shareholders are not texting. So, it's a first year. So that is why is very minimum incentives available for the investment holding companies.
Understood. Understood. So, moving on to the next, next question that was submitted, what is a QEF election? So, this, again, seem everything is flowing on from the previous question that was posed in that we've established that investment company, holding company structures, they are not treated in a tax preferred manner by the US tax code. So, one of the ways that some people deal with that is making what we call a QEF election. And this section 1295 of the tax code, where essentially, they, the, the structure is it's treated as if in the same manner as a us mutual fund structure.
So, it mirrors what would have been done had this structure been established domestically, domestically as in, within in the U S so the, the, the gains or the distributions retain their character. So, if you have capital gains, then it's treated as capital gains when you return, when it flows through to your 1040, this is assuming, so this type of election tends to be made at the beginning of view, your holding company structure. When you fail to do that, if you fail to make this QEF election, then you have these aggressive lookback rules and throwback rules where the, because what the PFIC regime seeks to do, just take, keeping it very, very top line.
It basically taxes you and what we call Phantom income. So, income that has not even been distributed yet, once there's income within the fund, your investment structure. Then even though it didn't get distributed to you as a salary or bonus or dividends or interest, whatever it is over it is, you're going to pull it up. It is deemed tab then. So, you're going to pay taxes on it. And in addition to its holding gains. So, for example, if you create a holding company structure and you invest in a startup in Singapore, like many of our clients do the startup scene is of course, very vibrant and the shares and your startup, this shot, it started with you've invested in it is appreciated in value with subsequent rounds, you know, with each round is a reevaluation of the share price.
And it goes up, but you haven't sold anything. You haven't recognized, there's no recognized gain. You haven't sold anything yet. You need to declare that increase that appreciation. You need to include that on your tax return. Now, if you, so if it is that you do have a holding company, a PFIC structure, and you fail to make those declarations on a year-by-year basis on your tax return, some aggressive throwback ruse invoked where your tax at your highest marginal tax rate, which right now is around 37%. And after the Biden tax increases, one would expect that I will go up.
So, it's the highest marginal tax rate for the prior years plus interest plus penalties. So, it becomes pretty draconian depending on your situation. So, one of the work arounds on this is what we call a QEF election under section 1295. So, this is assuming that you've dealt with all this section 1291 gains that we've just discussed where you made gains, or you made income, but you've been declared on your tax return in prior years. So, you need to clean that up, or you need to cleanse the taint of these teams, because it's called a tainted PFIC. So, once it's not tainted, you can make that 1295 election. Sometimes you can make it, even though it's tainted, but we don't advise it.
So, you make the 1295 inaction and you're able to come to bleed, not comfortably, but in a tax efficient way, declare it on you on your tax returns on an annual basis. So, we work with investors who do have pooling company structures, or we do have investment structures in Singapore to make that quick QEF election and prepare the annual statements, because it also requires that you prepare their accounts in a manner that's recognized by the IRS in order to enjoy that benefit. So that, so that is a work around to this PFIC dilemma or, or situation we discussed previously. So, we can talk about that offline if you have further questions on it.
Next question, what are the steps for giving up my US citizenship? This is a question, and we were not the biggest team in the world, but we help probably three or four clients each month give up their passports or green card. But having said that, it's not like there's a gross Exodus from the US because we have many more clients enter the US in terms of pre-migration planning. So, you know, it just kind of balances itself out. The steps in giving up your passport, twofold symmetry green card, right? There's the immigration side, and there's a tax side. So, in terms of the immigration side, that's relatively straightforward. You can go to the embassy website. I know it's been pretty difficult over the past year to get appointments because embassies across the, across the world have been subject to reduce operations for obvious reasons. I wouldn't say the word why, because then we get censored on some of the platforms that we publish on. So, for obvious reasons, embassies have been functioning and reduce operating hours and functionality as well. But I believe that things are slowly but surely returning to normality. So please reach out to the embassy in Singapore online, and you can book an appointment. You go in, you explain by then, by the time you go in, you need to have a second citizenship. Many people of course would have Singapore, but others, you know, Australia, New Zealand, European citizens, whatever it is, your other citizenship is you go, you declare that to them, and they ask, are you sure you say yes.
And then sometimes they take it from you, right then, then they give you a second appointment to come back. It depends on the consular officer that you're dealing with. And the important thing is that once it gets the form of the paperwork gets sent to the state department. It comes back to the embassy, you get something called a CLN, a certificate of loss and nationality, and that's back dated to when you first went in, so that's that. The other side, which is perhaps a little bit more complicated would be the tax side. So, in order to properly and comfortably give up your citizenship, you need to make sure that your last five years of tax returns in good order. So, you may want to work with a tax professional to make sure that they were okay, and then outstanding issues.
Get them corrected if there are any issues, then once you give it up, let's say you gave it up sometime in September. Then in 2022, when you're doing 2021 returns, you'll do a dual status return, which will be for January to whatever date in September, you gave it up. You will be doing a 1040 as a US person. And then from whatever time in September to the end of the year, you do a 1040 NR, NR being non-residents as a non-US person. So, duo status and you do something called an 8854, which basically tells the IRS goodbye. I'm gone. And that's it. We do deal with covered ex-pats, you trigger covered ex-pat status typically in one of two ways, if your net assets are in excess of $2 million at the time of which you give up your US citizenship, or if you're a long-term green card holder, like eight years or more, and you do have more than $2 million in net assets covered ex-pat, expatriate status can be triggered, or if the, your tax liability over the past few years has been an excessive, let say $60,000 or so, then you'll be considered a covered ex-pat and you will be subject to an exit tax.
You can speak to us if you want to calculate that exit tax, and perhaps put some measures in place to try and mitigate or reduce that exit tax liability. So that exit tax is calculated on a mark to market basis. You list all your assets on like a balance sheet, and you pretend so there's a deemed liquidation. Is that the date of the expatriation? If the asset is appreciated in value, like stock shares real estate, whatever, then whatever that delta is between basis and whatever the book value is, or market value is as at that time, there'll be subject to an exit tax calculation. So please reach out to us. We can, we can hold your hand and walk you through that process.
Next question. If I get stock options from my Singapore employer, what's a difference between how Singapore and the US taxes them. So, you know, we're talking about whether it's qualified from a US tax perspective, if it's qualified options and non-qualified options, let's assume it's non-qualified options, which it tends to be because Singapore, then you are paying tax. So, when you exercise that option, and there's a delta between the exercise price and the market price, then you would have, you would have received the benefit rate. So, whatever the market value is, less what you paid for it that you record that as income.
And then when you sell it on, then you have capital gains. So, if you sell on, if you sell the shares, normally there's a lock up period anyway, but let's say you're able to sell it within one year. Then you'll be subject to a short-term capital gain. And if you sell it beyond one year, so your holding period is more than one year, then you're subject to long-term capital gains from a US perspective, obviously in Singapore, there are no capital gains. I think, where people really get caught up would be this some deemed exercise rules, right? So, if it is that you have options.
So, for example, if you've got options and they did not vest as yet, normally they taxes on triggered both in Singapore, in the US until something vest, right? So, it actually comes to you when, you know, when it's not yet, there's nothing. If it's just an option or just, there's nothing tangible that you own them, there's nothing to tax. So, we tend to look both Singapore and US. We'll look at the vesting schedule, and when you get shares, and let's say, they're just an award for service rendered, then you know, that's pure income to you as at the data vesting. Now, one of the key differences between Singapore and the US and this is where people come to us complaining would be the deemed exercise rules that Singapore has.
So, if it is your contract comes to an end, or maybe you switch employers or whatever the case, typically when your stint in Singapore comes to an end and you are moving on to another jurisdiction or returning to the US and those shares did not vest. If those shares were earned, while you're working in Singapore, sorry, the options were or awarded to you while you're in Singapore, even though they didn't invest. And they only taxable when they've vested it, Singapore has these deemed exercise rules, and they will tax you on them, even though they have not vested. Now that can become a problem. The people who, for whom they will never exercise the option because they've left the company, or they don't meet the terms of the award of investing.
So, then, you know, we work with Boon Yip and his team, and it is possible to reach out to IRAS the inland revenue authority of Singapore and have a conversation with them and let them know, hey, you’ve left the company. We see this and with some of the bigger tech firms, US tech firms that have an operation in Singapore, they're leaving, but they are not entitled to the share. So, there will be no vesting. And once they, once IRAS sees the documentation and as a short that there would be no investing, then they deemed exercise rule would not typically be invoked. So, I'm just going to have a quick look at some of the other questions that are coming in.
Okay, great. Moving down to number five. I'm a Singaporean who studied in the US and I now have a green card. Okay. So, you're a green card holder and you living in Singapore. Okay, fine. My Singaporean father passed away and sorry to hear that. And I was named the beneficiary of his revocable trust, a Singapore revocable trust. What are the implications from a tax perspective? So, when your dad passed that revocable trust, which is known in US tax terms as a ground to a trust becomes irrevocable typically, or a non-grantor trust and irrevocable trust.
And you are there for the beneficiary, US exposed beneficiary of an irrevocable trust or foreign irrevocable trust or foreign non grandchild trust, recommended you do get a qualified advice. And to be fair, the trustees in Singapore are pretty clued up. So, once they know you have a green card, they're going to tell you, hey, you need to get advice. And so, you should follow them. Because what that means is that you'll be subject to disclosure on your tax returns on your US tax returns. You'll be subject typically subject to disclosure. Not there, there may be some elections that could be made to delay the disclosure and your returns, but ultimately the bottom line is that they will be disclosure in your returns.
And the nature of the disclosure on your personal tax could change as the beneficiary of a foreign trust is a function of what's in the trust and the nature of the distributions from the trust. So please speak to either our team, you can reach out to us or any one of the US qualified teams in Singapore, and there probably about 10 of us. So, pick whoever you feel comfortable with and have that conversation, because the longer you delay, the more penalties and interest in saw that may accrue to you, even though you haven't gotten anything, you did not take anything from the trust by merely being a beneficiary, you will have the U S tax implications. So please get advice.
Next question. I’m US citizen a Singaporean, I'm going along a long-term PR. So, this person is a US citizen and a permanent resident of Singapore, of assets and investments of around 10 million. And I want to lead them to my Singaporean wife and our kids in a way that avoids probate and its tax efficient. So, I would, well, we are tax advisors, so not really like investment advisors. So, we need to strive to tread carefully, but a 10 million, you should be above the threshold for some of the private banks in Singapore, such as bank of Singapore and, so on.
Yeah. Some of the Swiss private banks as well, we may be able to onboard you. So have that conversation because one of the simpler and more elegant solutions that we see our clients use is to just form a trust, a foreign ground, to a trust, basically a revokable trust. So, what that does is by having a revokable trust, once you pass on, it becomes irrevocable typically, and you'll avoid probate for the assets that are in the trust. And it goes to the beneficiaries, the named beneficiaries of the trust.
And you also get some element of asset protection as well, which is important, especially if the children are younger and maybe still in school and whatever. So, they may need some sort of protection or guidance as to how their assets should be enjoyed or consumed. So, I would speak to a private banker. And if you don't have one, because some of them are gun shy. When it comes to US exposed persons, you can reach out to us. And we can introduce you to trustees in Singapore that do manage assets for US exposed person. So that's something we can do for you. And that's no problem at all.
Number eight, I've been in Singapore for a while, and I have not filed US taxes. How can I catch up? You are not alone. Lots of people, it just kind of slips your mind. You know, you get caught up in other things. You forget, whatever the situation may be. So as to how it is treated, it really depends on whether your non-compliance was willful, non willful. So that concept of willfulness is not discussed in tax code. So, we look at case law and what the case law tells us is that if it is that you intentionally sought to avoid your responsibility.
So essentially towards the side of tax evasion. So, you intentionally avoided and evaded that known legal duty. Then you may be on the side of this spectrum where you need to do some sort of voluntary disclosure. And now there was an offshore voluntary disclosure program up to a few years ago, but it was discontinued under the Trump administration. So, but we, there are ways of voluntarily disclosing your situation in the IRS manual that we work with attorneys to walk you through that process. If it is your non-compliance is deemed to be non willful. So, you didn't intentionally, you know, just forgot whatever we can work with you. And what is called a streamlined compliance procedure. So that is, typically what probably 90% of our clients use to go through. They are coming clean to the IRS. It's important to understand the way the IRS works, just like most tax authorities, most tax authorities, even the one in Singapore. They prefer you come to them before they come to you. If it gets to the stage where they have to chase you, it's not, the conversation is not as pleasant as when you come to them first and saying, hey, I made a mistake. I didn't declare X, Y, and Z. Here are the prior year returns because, and in the US system anyway, and the streamlined, it's an amnesty orbit name.
And you get to avoid the penalties, both civil and criminal, and the penalties can be pretty aggressive. When you look at them, you know, it can be $10,000 for each unreported entity that you've invested in. It could be up to 50% of the value of your bank account per year. So, we saw a case of a resident of Florida that had a bank account outside. Actually, there was one with a bank account in Singapore as well. I'm thinking about, I don't know what happened to that guy. He had one I think DBS in Singapore, there was another guy who had one in Switzerland. He had a million dollars in an account. And the IRS deem that he did not report it for three years. So, the charge they went after the maximum was 50% each year. So, they charged him $1.5 million as a penalty and an account with a million dollars in it. So that's how aggressive they can be. So, you always want to get to the IRS before they get to you. And that's the point and how do they get to you because of something called the financial account tax compliance act, or FATCA every financial institution. Every institution is licensed by the monetary authority of Singapore is legally obligated to conduct KYC exercises. Know your customer exercises to ask the team whether any of the account who is a US exposed. And even if you open new account with another passport because many of us have more than one passport, right? And you did not declare if it is that the financial institution suspects that you are US exposed. Even if you deny it, they're legally required to report you in all the same. So that creates checks and balances in the system. So, the bottom line is, it just makes sense to come clean to the IRS before they find you. So, which streamlined, there's a look back period. So even though you may not have filed for like 10 years, the look back, period is three years. He just filed it last three years, which the due date has already passed. And the last six years for FBARS and again, interest, but usually no penalties. And, and you're good to go. And of course, you write a statement, and you promise to do the right thing going forward. If you want to discuss that for the please feel free to reach out to the US qualified tax advisor choice. So, you can email us, reach out to us at offices, and we'd be happy to help you. Next question, okay, somebody sent a message. Will you all be publishing the recording? It looks like I'll be unable to join due to the Jewish holidays. Apologies. When we set the date, we didn't realize, I knew it'd be Labor Day, right? But I didn't realize it would be infringing on a religious holiday.
We would try our best not to do that in the future. We need to be sensitive. But to answer your question, yes, it will be published on Facebook. That'd be published on wherever you can even get your favorite podcasts, whether it's iTunes, SoundCloud, Google play, Amazon. We publish it over 20 platforms. So, it will be available. The easiest place is probably to get it in YouTube, It's HTJ.tax. That's our challenge on YouTube, on Facebook again, it's HTJ.tax, do a search and it should pop up and on Facebook, it will be available immediately. It's being live streamed right now. So, once we'd done it be available for viewing right after.
Next question, in the US companies have access to various tax credits to help businesses during the health crisis and the lockdowns. Are this similar support for foreign owned companies in Singapore. Boon Yip, this one is for you.
BOON YIP YEE:
Okay. Right? Yes. So, if you look at the Singapore tax system is on third basis, so you're respective of your status. So, if your traits, I mean if your income is generally in this directory, okay. You're entitled to the scheme, right? So, a very good example would be foreign branch. Okay. Sorry, Singapore branch of a foreign company. So, okay. They are just like a typical company in Singapore. So, they enjoyed incentives that a normal company in Singapore and most of the tax rules are the same applies to them. So do the grants for COVID that giving out to the employer. So, they do enjoy.
Okay. That's great. Thank you very much for that.
So, we're getting some other questions coming in now, but I'm just going to try to stick to the order just out of being fair. Right? Next question. It would be number 11, for investing in stocks. And I guess this would be shares traded on US exchanges. Is it better to use a US bank account, a Singapore bank account, or if I have a non-resident alien spouse, I guess he or she's married to a Singaporean, the Singapore account, and I'm not sure questioner, what would you mean by better, but what just keep in mind?
Well, let's create some context from a tax perspective, the treatment, whether you as a US person invest using a US bank account, and presumably you address or Singapore would be the same because any gains reported on your us tax return, as they would normally be in any losses would be deductible, subject to passive activity loss rules. So, it's business as usual. Now, if it is that your partner who is Singaporean present Singapore and not a US person, if they invest in US shares, then their tax treatment will be slightly different in that this dividend or depending on what the security maybe interest. So, dividends and interests will be subject to FDAP bruise at that stands for fix something, periodic, fix discretionary annual periodic income, something like that. Sometimes forget what that acronym stands for, but basically, it'd be subject to 30% withholding. Now, that withholding is reduced by treaty, but because Singapore has no tax treaty with the US there's no reduction. So, he or she has a non - US person investing shares in Tesla, Microsoft, or whatever. The dividends will be subject to 30% withholding, but capital gains are tax free.
So non-US person investing in us shares typically capital gains, a free the exception would be if the underlying assets may be real estate. So real estate is treated separately, but just normal securities will be tax-free. So, it matters less where the bank account is and more who the ultimate beneficial owner of the investment will be, or what structure that you use. So, I hope that helps you. Next question, I'm a US citizen and Singapore PR another person, right? Do I
have to declare forward slash, how do I declare my CPF account?
So, I think you anticipated the answer. Yes. You certainly do have to declare your CPF. So many people don't and especially those who use US tax teams outside of Singapore, they honestly don't know what a CPF is, and there's no real guidance to explain to them how to be, how to be treated. But we have actual guidance from the IRS back in the days for those who've been in Singapore long time, when the US embassy in Singapore had an IRS desk in the embassy back in the days when they had the budget, they issued a memorandum, which explained what the CPF is from a US perspective and how it should be treated. So, we have that memo because we've been here for a while, but essentially it is treated the interest. You get your annual statement from the CPF portal. You just log in and you can download it. And the interest or dividends, depending on how long you've been in the CPF or whatever, that will be declared as income on your schedule B and the amount in the CPF account is declared on your FinCEN 114 or your FBARS, FBARS stand for foreign bank account report. So, on FinCEN 114/FBARS that's just a report. There are no tax implications to that. But the returns, even though you didn't get anything from the CPF is just to retain in the fund. That's reportable on your Schedule B. And if you trigger a Form 8938, otherwise known as the FATCA form, the CPF goes there as well. So that's a great question, Lindsey, you really do need to make sure that your tax team is reporting your CPF.
Next question, there's a Swiss dependent passholder married to a US citizen need to file taxes. Is she has her trading, her money invested in his trading stocks. So, I’ll divide that question in two, right. So, if you, as you say, a Swiss dependent, so you're not a US person, but you are married to a US person. If it is that US person, your partner has a choice as to whether to file separately or jointly. If your partner is filing separately, then no, your name goes into return because the IRS is nosy like that. They want to know who US prisons are married to, but you don't declare any of your income. If it is that you elect to file jointly under Section 6013G, you can make an election for your non- US spouse to file jointly with you. Then yes, all your income and everything is going to be cleared as if you were a US person. But typically, the answer is no, you don't declare your stuff. Now, if you have you, then the second part of your question, like you're investing in trading and stocks, it depends on where the stocks are. If it's on the SG exchange, Singapore exchange, or if it is in Europe, basically outside of the US then no, it's not subject to US reporting once your US partner is non-involved in it. It's not subject to us reporting if it is it's your shares or you have invested in the US and US securities. Then it would be treated. As I mentioned before, the dividend and interest will be subject to 50% of that withholding and capital gains will be tax-free. Okay.
So, I'm going to switch to Facebook because there've been some questions coming through on Facebook. Well, so thanks for those in zoom we've and asking questions. So, James is asking I'm new to Singapore, and yes, I'm aware that you get to exclude the first 100K of income and then pay. Okay. Right. So, James is just commenting on the foreign earned income exclusion, which is the main benefit of this Section 911 of the tax code that accrues to US persons who are living and working outside of the US. So, he mentioned one educator. So, I think for 2020, for 2020 might be like 107. It moves up with him with inflation each year. So, each year the IRS declares how much it is, and absolutely correct James, that amount of money is sheltered from Us taxes. And what is earned above that will be subject to tax at whatever the marginal rate is. And you can benefit from Section 911 in one of two ways. It could be as a bonafide resident, or the physical presence test physical presence test is what everyone understands because it's quantitative and its objective. So, once you spend, and no more than 30 days, let's say in the US you don't spend more than a month in the US. And you're main living and working outside, you quantify physical presence test, and you enjoy the foreign and income exclusion. The other way of qualifying for it is under the bonafide residence test. And that is subjective and more qualitative. So that's a test of intent. So basically, the IRS is asking, well, you know, where's your heart, where's your real home. So, it asks leading questions on the form 2555, like, you know, where's you whiz, who's your employer, where's your employer located? Is your employee in Singapore? Do you in Singapore? like rent your apartment? Do you rent your home? Do you own in your own home? What visa are you in Singapore under because if you're there on a tourist visa that's not compelling. So basically, looking for indicia that indicates that you are bonafide resident of whatever foreign jurisdiction it may be. And once you establish that, then you get to enjoy the foreign income exclusion as well. So that's the main benefit for ex-pats working overseas.
Next question, I'm a US citizen on a local contract in Singapore. What type of deduction, if any, can I use when doing my US returns aside from our kids? We no longer own anything back home.
Thank you. Well, that's a great question. So, the main deduction will it be well, the housing deduction as well, which is also on the Form 2555, along with the foreign income exclusion. So that's a big one, and in the housing, deduction is determined by the IRS, and they publish a table every year. So obviously Singapore is a high-cost jurisdiction. So, the amount that you get to deduct for your housing deduction can be much higher than let's say, KL or Jakarta next door. So that's a key deduction that you want to make sure that you're enjoying and you getting along with that, you can get you utilities as well. So, your SP, your SP billings not phone, not stuff like that, but your SP bills, you can get out as well. And the other deductions mainly were around unreimbursed business expenses. I'm assuming because you're on a local contract. So un-reimbursed business expenses that used to be a big deduction, but after the tax cut and jobs act, and the President Trump in 2017, that the ability to enjoy that has drastically reduced in addition to which the standard deduction was pushed up. So have a talk with your tax advisor, make sure that you're getting your housing deduction and go through your unreimbursed business expenses and maybe any medical expenses cause medical costs of medical care of healthcare in Singapore is pretty high. So, if it is that you have bills of that nature, they may allow you to get a deduction on schedule.
Okay. I'm just going to look around to see if any more questions, again, feel free to type it in the chat box below if you have those questions. All right hey, another question continuing on my previous question. Does she need to file taxes in Singapore? Okay. This is the US citizen married to a Swiss dependent passholder. Does she need to file taxes in Singapore. I leave that one to Boon Yip. So, this is a follow-up question from Brandon. So, US citizen married to a Swiss dependent passholder living in Singapore and the non-US person, Swiss citizen, okay. She he's corrected Swiss citizen. She is not employed, but she does have passive income, investment income arising from outside of Singapore. Would it be taxable income?
So, he's an individual. So, if you don't have any income, employment income or trade from Singapore business income, you are not required to file any tax. Okay. So, all investment incomes. Okay. So, if you hold stocks, right, you did receive dividends there are tax rate. Okay. You don't have to declare in the Singapore tax. And of course, if you have some interests, you did some investment and you receive some interests, and they do level is not text.
I hope that answers your question. Trading?
BOON YIP YEE:
Yeah. Yeah. You have to, again, it is starter basis. So is if you have trade in Singapore, obviously you need to file tax irrespective of tax paying position, unless you are your company's dominant. Okay. So, no activities, just subject to secretary and expenses, then you don't have to file tax. And there's actually an avenue for you to submit an exemption from filing an old tax to the IRAS. Okay. So, if you are trading company, be it partnership, sole proprietorship, or a private limited company, you are required to file tax.
Right? So, overseas investment definitely that, will not definitely, but potentially no to taxation on overseas investment income. But if it is that you have trading income, even though the trade may not be done within Singapore, but you are managing the trading business and it's happening outside of Singapore, but because management and control of whatever the operation is, is being exercised in Singapore, even though the income may be earned, and going into bank account outside of Singapore. The point is that the management and control of whatever the trade is, is happening in Singapore, therefore it may be subject to Singapore taxes. Okay. That's pretty clear. And please feel free to reach out to Boon Yip up directly to have that deeper dive into that topic.
BOON YIP YEE:
So, sorry. That's another question about the personal trading. So, I'm unsure what is personal trading? So perhaps it's just like personal trading can be deemed a sole proprietor, can also be deemed a partnership. Okay. It's not a corporate. So, you have to, if you make a, if you have trading income, you have to file tax. There's no such thing as a personal trade competition. Okay. It goes into your personal tax. So, whatever trade income you have to prepare a separate PNL, all the business expenses, okay, directly, actually below to generating of income in the production of income allowable, and you have to come to a profit and that profits, these tax that bring them down to your personal tax level and you will tax according to your tier. Yes. So the highest trade in Singapore is 22%, its quite high.
It's quite high for Singapore, but for the US you know, in other jurisdictions, it’s still very attractive, Singapore, so, okay. Thanks for that Boon Yip. And of course, Brandon, if you want to have that conversation, please reach out to Boon Yip and you guys could, you know, have a more meaningful exchange on that and Boon Yip is happy to help. You're welcome.
Shawn is asking if you're earning below the foreign income exclusion, is there any significant advantage to hiring a tax advisor? What kind of costs shall you expect? So, it really depends on your personal situation. You know, at the end of the day, the tax codes, they may be complex, you know, in the federal side, it's between 8 and 9 million words. And then each state has its own thing going on. So, it could be quite involved, but I've seen ex-pats who are happy to take a dive into it and to explore it and understand it on their own. So, if it is that you want to do that, I'm sure you, you are perfectly able to do that. Otherwise, you can speak to us or any other tax advisor that does international US Singapore tax. In terms of our fees, just as an indicative fee of federal returns, they start at 800 Singapore dollars. So, if it's a simple federal return with no investments, no PFIC’s, no whatever, it's just a pure salary and there's no status, no nothing. And it's below the foreign income exclusion threshold. You're looking at about 800 SGD. So, you know, especially if you knew to working outside of the US, you may want to have a look around and look at the way the tax rules are different for international, as opposed to US domestic. Even if you use, I know a lot of people try to use not QuickBooks, but TurboTax. Turbo tax from Intuit, which is probably the largest tax software provider in the US, so they have a suite of software starting at the lowest end of the scale they have TurboTax, I think. And then they go all the way up to Pro-series, Lacerte and all sorts of. So, they’re running a business obviously, and, you know, I respect that, but the point is that for Turbo Tax is kind of built for lower income US domestic returns, because when it comes to international returns, not all the forms are available in TurboTax. So, you'd have to manually prepare them and add them to the return. Because the reason why is that they would include the international forms, but they'll charge you more for that. So, you need to create a pro-series or a Lacerte, one of the others, which have a much higher price point.
So, my point is have a look at the software, have a look at the forms that are required and try it out. And if you feel comfortable doing it, go for it. Otherwise, you may need to enlist some professional help. Any other questions, I'm just going to have a quick look at what they're saying on. Okay. So, I have another question. Are we able to deduct rental housing costs, even though my company pays half or some of the rent, right? So, this is a question about the housing deduction, which goes into the Form 2555. Yes, you can. So, if it is that they, your company's giving you a housing allowance that is taxable income to you, and that's part of your gross income anyway. So, it matters not what the allowance is for, you know, whether it's for school or it's for that trip back to the US once a year or a maid or driver or whatever. Right? All the income is treated as gross income, and it's purely taxable. We just want to see what the dollar amount is, and that is taxable income on your 1040. Now, if it is that you do use some of that to pay for rent, then it would be a deductible as a housing deduction on the Form 2555.
So basically, it's going in one side and out the other, if that makes sense, it's coming in at the top and then you get a deduction for below. So, any other questions or, alright, thanks. I think that's it. Thank you very much for, for joining us. If you want to reach out to Boon Yip, for those on zoom, you can see his email address and you can look for Boon Yip on LinkedIn as well. His email addresses. Boon Yip you want to tell everyone how you can be reached, you're on mute. You need to unmute yourself Boon Yip.
BOON YIP YEE:
Sorry. Okay. So, I've just sent across my email address and feel free to just send me any questions you have, and I will try my best to address them.
Okay, great. And for those on different platforms or listening to the audio only version it's email@example.com. So that's firstname.lastname@example.org. And our email address is on the US side, it'll be email@example.com and we look forward to seeing you at the next live stream. Everything that we do is on our website at HTJ.tax, you can see our upcoming live streams, or you find ways to reach out to us. We also have a rich library, you know, we have literally thousands of articles on US tax and international tax in general, as well as hundreds of videos, we do a video every day with a tax advice that we think would add value to you as you plan your career and your plan, your investments in your businesses. So again, thanks for sharing of your time, and we'll see you next time. Bye-bye
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