GuideMeSingapore

Frequently our clients who are US citizens or green card holders but are residing in Singapore seek clarifications on their obligations to pay US taxes. While our company Janus does not offer US tax advice, we do work with our US-based partners on such matters. Here is some of the basic and general information provided by one of our US partners:

Are US citizens who are living, working and earning outside of the US, subject to income tax in the US?

Yes.  US citizens are subject to US taxation on worldwide income.  However, citizens may elect to take a credit against their US income tax liability for taxes paid to a foreign country.  The credit is subject to certain limitations, though.  Alternatively, citizens may deduct foreign income taxes in computing their US taxable income.  In addition, individuals (known as “qualified individuals”) who meet certain requirements as to residency or physical presence in a foreign country may be able to make an election to exclude from gross income all or part of their foreign earned income and also exclude or deduct certain amounts related to foreign housing costs.  “Qualified individuals” include individuals whose tax home is in a foreign country and is:

• A citizen of the US but a “bona fide resident” of a foreign country for the entire tax year or
• A citizen or resident of the US and who, during any period of 12 consecutive months, is present in a foreign country during at least 330 full days in such period.

Establishing “bona fide residency” is based on all the facts and circumstances, but some of the factors considered include:

• taxpayer’s intention;
• establishment of a home temporarily in the foreign country for an indefinite period;
• participation in the activities of the community on social and cultural levels, identification with the daily lives of the people, and, in general, assimilation into the foreign environment;
• physical presence in the foreign country consistent with the taxpayer’s employment;
• the nature, extent, and reasons for temporary absences from the foreign home;
• assumption of economic burdens and payment of taxes to the foreign country;
• status of a resident of the foreign country as contrasted to that of a transient or sojourner;
• the treatment of the taxpayer’s income tax status by his employer;
• marital status and residence of the taxpayer’s family;
• nature and duration of employment — i.e., whether assignment abroad can be promptly accomplished within a definite or specified time; and
• good faith in making the trip abroad — i.e., whether or not for purposes of tax evasion.

Are US green card holders who are living, working and earning outside of the US subject to income tax in the US?

Essentially, the rules are the same as above, except that the “bona fide resident” test doesn’t apply.  In other words, to be considered a “qualified individual” a green card holder would need to be physically present in a foreign country for the 330 days unless such individual is able to elect benefits under the bona fide residence test through an income tax treaty between the country of nationality and the US.

If they are subject to tax, is there any way to eliminate double-taxation?

See discussion of deductions, credits, and exclusions above.