Tax

[Jill]

Could someone please enlighten me we are currently negotiating a contract with a co in Singapore.  One of the things mentioned is tax equalized.  Could someone please explain what that is.  The contract goes as such:  Employees on such expatriate assignements are tax equalised with stay at home counterparts. To accomplish this we will deduct a hypothetical tax from your monthly salary.  

[Paul N]

Tax equalization refers to the process of the company taking over paying your taxes, and possibly reaping any said benefit.

If you are from the US, you can exclude the first 75K from taxation using the Foreign Earned Income Exclusion.  This results in you only playing taxes on the amount above that figure.  When you are tax equalized, the company figures out what taxes you would owe to both the IRS and Singapore, then pays that amount for you.  In turn, you pay the company a "hypothetical tax" amount equal to what you would have paid should you have remained in the US.  They figure your hypo-tax with all allowable deductions, so it is just like you never left home.

The negative part of this is that, depending on your compensation package, you can actually end up paying more in hypo-tax than you would were you to pay the balance after the FEIE and the overseas government's taxes.  It pays to sit down with an accountant familiar with the taxes in Singapore and the US and figure out the relative amounts.  You might find the deal is not as lucrative as you may have believed.

[Jill]

If I am from Australia where there is a reciprocal agreement with Singapore.  Can I assume that I would then only be taxed by Singapore IRS.

Thank you

[BTDT]

Jill,

Tax equalisation is standard in most MNC's. Some do it to a greater or lesser extent (eg bonuses may or may not be tax equalised). It can be quite complicated but in its most extreme form usually works like this.

Say you earn 100 in Oz. Out of this you deduct a notional amount for housing, say 15, and tax, say 40, giving you a net 45. This amount gets cost of living adjusted to Singapore, say x1.5 = 67.5 (actual is higher). You will get this net per month. On top the company will/may pay housing, school fees, car allowance, medical care, flights home etc. All the tax on these is borne by the company.

Tax equalisation is easy but generally moving to Singapore the company notionally deducts more than you are actually paying. If you are in an industry with high bonuses then excluding tax equalisation on bonuses is worth doing.

As for double taxation, if you are moving here for > 1yr you will become non-resident in Oz and will not be liable for tax on your non-Oz sourced income, salary etc. You will be liable for tax on Oz sourced  income, eg rents, but you can negatively gear and carry forward your losses for when you return. You can also satisfy your Australian tax liabilities on Australian dividends by simply having non-resident withholding tax (10%) deducted at source. Shares reinvested in a DRP do not attract NRWHT. Hope this helps