Tax Guide to Starting a Business in Singapore for Foreigners

Opening a business in a foreign country can be an exciting but challenging time, and there might be tax implications you need to know about. You should speak to our team about how starting a business abroad affects your tax obligations.

If you open a business in Singapore, you might have various tax obligations in Singapore and the United States. These countries have different tax laws, and you might be taxed on the same income by both. You should also understand the restriction Singapore imposes on foreigners opening businesses. You need the proper passes and paperwork to open a business, and how you are taxed depends on how your business is structured. While you might have tax obligations in two countries, there are perks and tax credits you can use to your advantage and reduce the amount of money you owe.

Call US Tax Help at (541) 362-9127 for assistance and guidance from our CPAs with your taxes in Singapore and the United States.

Tax Implication in Singapore and the United States

Many people want to open businesses in Singapore because of their favorable corporate tax rates. If you plan on opening a multinational business, Singapore might be a good place to do so. Many people open a business in Singapore while controlling and running the business from abroad. Many others move to Singapore to open a business, and the tax implications might be different.

Your business or company is obligated to pay taxes in Singapore if it is a legal tax resident of Singapore. If you live in Singapore, you might also have to pay income taxes in that country.

Contrary to many other countries, a company could do significant business in Singapore without being considered a tax resident. Tax residents in Singapore are businesses that are run, controlled, and managed from Singapore. This means your business could be incorporated in Singapore but not be considered a tax resident if you run the business from somewhere else.

You also must be mindful of your tax obligations to the United States. People living in foreign countries and running businesses abroad are often obligated to pay their U.S. taxes if they maintain their U.S. citizenship. As a result, you might be on the hook for taxes from two countries, although there are ways to reduce how much money you owe.

Restrictions on Foreigners Starting Businesses in Singapore

Singapore imposes its own unique rules and regulations for how businesses are operated. Opening a business in any country is complicated, and how you structure your business is a significant determining factor in how you pay taxes.

In Singapore, people seeking to start businesses often must have a local manager or director. This is an important rule to consider, especially if you plan to incorporate in Singapore but operate the business from elsewhere. For example, if you wish to open a multi-national company in Singapore, you must have an office based in Singapore with a manager or director based there.

You also need the proper work passes stipulating what kind of business you can open in Singapore. An EntrePass allows foreigners to open almost any kind of business and is the least restrictive. Depending on what kind of business you want to open (e.g., a sole proprietorship, partnership, company), you need a different pass.

If you plan to live in Singapore while operating the business, you might have to clear additional legal hurdles to remain in the country. This includes immigration citizenship requirements. Bear in mind that if you plan to live in Singapore while opening your business, you might have to pay Singapore taxes.

Tax Breaks or Benefits for Foreigners Opening Businesses in Singapore

After opening your business in Singapore, there is a good chance that your tax obligations will be complicated and costly. Many entrepreneurs owe taxes to the country where they opened their business and their country of origin. The United States allows people earning income abroad to take advantage of certain tax perks to help reduce their taxable income.

Foreign Tax Credits

If you have already paid taxes to the government of Singapore, you might be eligible for a foreign tax credit from the United States. A tax credit may offset the money you owe the United States as part of your federal income taxes. For example, if you owe $500 to the U.S. and have a $300 tax credit, you only owe $200 to the U.S.

Foreign tax credits are based on the taxes you paid in Singapore. This means if you paid the government of Singapore $500 in taxes, you might have a $500 tax credit in the United States. The tax credit is usually based on foreign income taxes. Other taxes related to your business or other ventures in Singapore might not be eligible for the tax credit.

You can claim a foreign tax credit using Form 116 for individuals, estates, or trusts. If you are a corporation, use Form 1118 to claim a foreign tax credit.

Foreign Earned Tax Exclusions

A foreign earned tax exclusion might also help you reduce the money you owe to the United States government after opening a business in Singapore. You might be eligible for the exclusion if you meet one of the following criteria:

  • You are a U.S. citizen living abroad for an uninterrupted period that includes a full tax year.
  • You are a U.S. resident alien who is a citizen of a country with which the U.S. has a tax treaty, and you live in a foreign country for a full uninterrupted tax year.
  • You are a U.S. citizen or resident alien and are physically present in a foreign country for at least 330 days during any 12 consecutive months.

The money you earn from your business in Singapore may be excluded, to a certain extent, from your taxable income in the United States. How much of your foreign income may be excluded depends on numerous factors, and the maximum limit is adjusted for inflation annually.

Call US Tax Help Today for Assistance

Call US Tax Help at (541) 362-9127 for help from our CPAs with your taxes in Singapore and the United States.