Singapore is widely recognised as a regional headquarters, investment and wealth-management centre. Its attraction is not simply its relatively low headline tax rate, and lack of a capital gains tax (CGT) regime. 

Singapore offers a comparatively straightforward tax system, an extensive tax treaty network and different tax outcomes depending on whether investments are held through a company, a family investment structure or directly by an individual. Singapore’s position as a global banking hub may also provide investors great opportunities and options.

The distinction of how one chooses to invest is critical. Establishing a Singapore company does not automatically make investment returns tax-free. By contrast, an individual who becomes a Singapore tax resident may find that many common forms of personal investment income are exempt from Singapore income tax.

Investing Through A Singapore Company

A Singapore company is generally subject to corporate income tax at the headline rate of 17%. The partial tax exemptions may reduce the effective tax rate on the first portion of chargeable income to a lower rate. However, a company whose principal activity is investment holding will generally not qualify for Singapore’s start-up tax exemption.

The starting point is to identify the character and source of each investment return.

Dividends received from a Singapore-resident company are generally exempt under Singapore’s one-tier corporate tax system. Corporate tax paid by the distributing company is treated as final, allowing dividends to be distributed without further Singapore tax in the hands of the shareholder.

Interest, rental income, foreign-sourced income and other recurring investment returns received by a Singapore company are generally taxable unless a specific exemption applies. 

Expenses incurred in producing that income may be deductible, but the deduction rules for investment-holding companies can be restrictive. Expenses must be connected with the production of the relevant income, while capital expenditure and expenses relating to non-income-producing investments will generally not be deductible.

Singapore does not ordinarily impose tax on capital gains. However, whether a disposal gain is capital or revenue in nature is determined by the facts rather than the description applied by the taxpayer. Relevant factors include the company’s intention when acquiring the asset, the holding period, the frequency of transactions, the method of financing and the nature of its wider activities. A company that systematically acquires and disposes of securities may therefore be treated as carrying on an investment-dealing business, with its profits subject to tax. 

Foreign-Sourced Dividend

Foreign dividend income earned by a company may be taxable when it is remitted, transmitted or brought into Singapore. Foreign income may also be regarded as received in Singapore when it is used to settle certain business debts or to purchase movable property that is brought into Singapore – a deemed remittance. 

A Singapore tax-resident company may nevertheless qualify for an exemption for foreign-sourced dividend income under sections 13(8) and 13(9) of the Income Tax Act.  Three principal conditions must be satisfied.

1. The income must have been subject to tax in the foreign jurisdiction from which it is received. 

2. The highest corporate income tax rate of the relevant foreign jurisdiction must be at least 15%. This is a headline-rate test rather than a requirement that the dividend must have borne tax at an effective rate of 15%.

3. The Comptroller of Income Tax must be satisfied that granting the exemption is beneficial to the Singapore-resident company. 

Corporate tax residence is therefore important to consider when planning. Incorporation in Singapore is not conclusive – residence depends on where the company’s control and management are exercised.  An internationally owned company must demonstrate substantive decision-making in Singapore through appropriately constituted board meetings, Singapore-based directors or executives, contemporaneous records and genuine commercial substance.

Where this exemption is unavailable, a company may be able to claim a foreign tax credit against Singapore tax payable on the same income. The credit is generally limited to the lower of the foreign tax suffered and the Singapore tax attributable to that income.  The company cannot claim a refund of foreign tax. 

The Single Family Office Framework

For families with substantial investment portfolios, Singapore also provides a structured single-family office framework.

Subject to approval by the Monetary Authority of Singapore (MAS) and continuing compliance, qualifying investment income and gains of the fund may be exempt under the Section 13O or Section 13U fund tax incentive schemes.

The exemption generally applies to specified income from designated investments earned by the approved fund vehicle. Management fees, employment income and other operating income earned by the family office remain subject to the ordinary tax rules.

Eligibility revolves around a minimum fund size, Singapore-based investment professionals, local business expenditure, assets managed from Singapore and prescribed local investment requirements. 

A family office structure may also support succession planning, consolidated reporting, philanthropy and institutional investment governance. However, it involves considerably greater establishment, staffing and compliance costs than direct personal investment.

Contrast With Investing As An Individual

The treatment of an individual investor is more favourable and considerably simpler than the other two options above.

In addition to the exemption of dividends paid by Singapore-resident companies under the one-tier system, foreign-sourced income received in Singapore by a resident individual is also generally exempt, except in certain circumstances, including where the income is received through a Singapore partnership. 

Unlike companies, an individual with foreign-sourced income remains exempt from taxation in Singapore even if the income is remitted to a Singapore bank account. 

Interest earned by individuals from deposits with approved Singapore banks and licensed finance companies is also generally exempt. Gains from shares, securities and other assets held as personal investments are also normally treated as non-taxable capital gains.

The result changes where the individual is carrying on a trade or business. Systematic and commercially organised dealing in securities may produce taxable business income rather than exempt capital gains. Interest from private lending, rental income and certain partnership or business receipts may also remain taxable.

Selecting The Appropriate Structure

A company may be appropriate where investments are pooled, external investors are involved, profits will be reinvested or regional subsidiaries must be held. A family office may be appropriate for a sufficiently substantial family requiring professional investment management, succession planning and institutional governance.

Direct individual ownership may remain the most tax-efficient structure for a passive portfolio because of the exemption for many dividends, foreign receipts, bank interest and the cost of maintaining a corporate or family office structure.

The analysis must also extend beyond Singapore. An exemption in Singapore does not prevent another jurisdiction from applying CGT, controlled foreign company (CFC) rules, attribution rules, exit taxes, estate taxes or reporting requirements. 

The optimal structure is therefore one that aligns Singapore’s tax treatment with commercial purpose, governance, substance and compliance costs.

Over the past year I have spoken with many Australians who have relocated to Singapore to lead regional teams or expand their business operations.

A common theme is the structure of their “expat remuneration package”.

These packages often include benefits such as:

• Housing or rent
• School fees for children
• Annual home leave flights
• Tax equalisation arrangements

While these benefits can appear generous, many expatriates are surprised to learn how they are actually taxed in Singapore.

Benefits In Kind In Singapore

In Singapore, items such as rent, school fees and home leave travel are generally treated as benefits in kind arising from employment.

Unlike Australia, where fringe benefits tax (FBT) is imposed on the employer, Singapore taxes these benefits in the employee’s hands.

This difference is significant.

Even if your employer pays the expense directly — for example by paying your landlord or your child’s school fees — the value of that benefit is still treated as taxable income to you.

In practice, this means the tax on those benefits must usually be funded from your cash salary, which can create a financial burden that many expatriates do not anticipate when reviewing their package.

Understanding Tax Equalisation

Another term frequently used in expatriate assignments is tax equalisation.

Under a typical tax equalisation policy, the employee continues to bear a “hypothetical tax” based on their home country tax position, while the employer assumes responsibility for the actual tax payable in the host country.

The intention is to ensure the employee is no better or worse off from a tax perspective for accepting an overseas posting.

While this approach works well when employees move to higher-tax jurisdictions, the outcome can be very different in a low-tax environment like Singapore.

Because Singapore’s personal tax rates are relatively low, tax equalisation can sometimes mean that an employee effectively continues to bear the tax cost of their home country system, even though the actual tax payable in Singapore would otherwise be significantly lower.

The Key Takeaway

Expatriate remuneration packages can look attractive on paper, but the tax treatment of the underlying benefits is critical to understanding your real financial position.

For Australians relocating to Singapore in particular, the differences between Australia’s fringe benefits tax system and Singapore’s employee-taxed benefits regime can materially affect the after-tax value of your package.

Understanding these rules before accepting an international assignment can help ensure there are no surprises once you arrive.

A practical question many expatriates face as filing season approaches is – what tax reliefs and deductions are available when filing a Singapore personal income tax return?

This article focuses specifically on reliefs available to individuals who are tax residents of Singapore and hold a work pass issued by the Ministry of Manpower (e.g. Employment Pass, One Pass or EntrePass). Reliefs that are only available to Singapore citizens or permanent residents are intentionally excluded.

Key Terminology

Before diving into the reliefs, it is helpful to clarify a few commonly used terms:

Financial Year (Individuals)

For individuals, Singapore’s financial year follows the calendar year and ends on 31 December.

Year Of Assessment (YA)

The Year of Assessment is the year in which you receive your Notice of Assessment from the Inland Revenue Authority of Singapore (IRAS).
The YA relates to income earned in the preceding calendar year.
For example, YA 2026 relates to income earned in the year ending 31 December 2025.

Chargeable Income

This is your final taxable income after allowable deductions and reliefs.

Tax Reliefs

These are statutory deductions that reduce your chargeable income.

Personal tax reliefs can only be claimed by individuals who are tax residents of Singapore.  If you are a non-resident for tax purposes, you cannot claim personal reliefs when filing your return.

Common Reliefs Available To Expatriates

Below are the most commonly claimed reliefs by expatriates when filing their Singapore personal income tax return.

1) Earned Income Relief 

If you are employed by a Singapore business, this relief is automatically granted by IRAS.

The amount of the Relief depends on your age as of 31 December of the preceding year:

• Below 55: S$1,000
• 55 to 59: S$6,000
• 60 and above: S$8,000

2) Supplementary Retirement Scheme (SRS) Contributions

Foreigners are generally not eligible to contribute to the Central Provident Fund (CPF), which is Singapore’s mandatory retirement savings system.

As an alternative, expatriates may consider the Supplementary Retirement Scheme (SRS).

While SRS planning deserves a separate discussion, the key features are:

• Contributions qualify for personal tax relief in the year of contribution.
• Investment returns within the SRS account are tax-free before withdrawal.
• Generally, only 50% of withdrawals are taxable at retirement, subject to conditions.

For foreigners, the annual contribution cap (and corresponding relief) is $35,700, provided the contribution is made to an approved SRS operator within the calendar year.

3) Spouse Relief / Spouse Relief (Disability)

You may claim Spouse Relief if:

• Your spouse is not working, and
• Your spouse earns no more than S$8,000 per year (or foreign-currency equivalent), including income such as rental or investment income.

The relief amount is:

• S$2,000 – Spouse Relief
• S$5,500 – Spouse Relief (Disability), if your spouse is certified as having a disability

4) Qualifying Child Relief (QCR) / Child Relief (Disability)

You may claim relief for each dependent child, subject to meeting the qualifying conditions.

Importantly, your child does not need to reside in Singapore to qualify. However, the child must not earn more than S$8,000 per year (or foreign-currency equivalent).

The relief amounts are:

• S$4,000 per child – Qualifying Child Relief (QCR)
• S$7,500 per child – Child Relief (Disability)

Key conditions that must be satisfied:

• The child must be unmarried, and be:
  • your biological child,
  • your spouse’s child,
  • a legally adopted child, or
  • a step-child from marriage
• The child must be:
  • below 16 years of age, or
  • 16 years or older and studying full-time at any time during the year

Where both parents are working, only one parent may claim the QCR for each qualifying child.

Key Changes From YA 2026

For individuals who have been in Singapore for several years, it is worth noting that some reliefs have now been discontinued.

Foreign Domestic Worker Levy (FDWL) Relief

From YA 2025 onwards, working women are no longer able to claim relief for the levy paid in respect of a foreign domestic worker.

Course Fees Relief

From YA 2026, Course Fees Relief is no longer available.

It is also important to note that course fees are generally not deductible as employment expenses, even if the course is related to your role or qualifications. While completing a course may improve career prospects or lead to a promotion, the cost is typically treated as a personal expense, particularly if incurred before any change in employment or remuneration.

Relief Caps

Under Singapore tax law, the total amount of personal reliefs that an individual may claim is capped at S$80,000 per Year of Assessment.

Deductions (Separate From Reliefs)

If you incur expenses in the course of carrying out your employment duties, you may be able to claim a deduction, provided:

• The expense was incurred wholly and exclusively for your employment, and
• The expense was not reimbursed by your employer.

Good record-keeping is essential. Examples include:

• Detailed travel logs showing the purpose of meetings attended
• Working papers supporting any home-office claims, including how the portion of rent claimed was calculated

Donations

One deduction which is commonly missed are donations.  

Cash donations to an approved Institution of Public Character (IPC) for local causes are tax-deductible.

Key points to note:

• Approved donations are deductible at 2.5 times the amount donated (i.e. S$2.50 deduction for every S$1 donated)
• The recipient charity must be approved and based in Singapore
• Donations made to foreign charities are not deductible, even if the underlying cause relates to Singapore

While the range of reliefs for work pass holders is more limited than for citizens or permanent residents, careful planning — particularly around SRS contributions, family-related reliefs, and donations — can still result in meaningful tax savings.

Reliefs and deductions are not automatic. Claims should be supported by proper documentation and made with a clear understanding of the underlying conditions. Where circumstances are complex — such as overseas dependants, cross-border income, or mixed employment arrangements — seeking timely professional advice can help ensure compliance while optimising outcomes.

Over the past 12 months, I’ve spoken with a growing number of families relocating to Singapore. In many cases, one spouse relocates for a Singapore role, while the other relocates as the “trailing spouse” and holds a Dependant’s Pass.

In today’s post-COVID world, it’s increasingly common for the trailing spouse to continue their existing role remotely for an overseas employer. If that’s your situation, there are two practical questions to address early:

1. Are you permitted to work while in Singapore on a Dependant’s Pass?
2. If you do work remotely, what are your Singapore tax obligations?

This article focuses on the second question, but it starts with a quick immigration checkpoint—because the two topics are often confused.

Working In Singapore While On A Dependant’s Pass: The Key Checkpoint

A Dependant’s Pass (DP) allows you to live in Singapore, but it does not automatically give you the right to take up employment with a Singapore-based employer.

If you later decide to work for a Singapore company, you will need to obtain an appropriate work permit which is issued by the Ministry of Manpower. 

For trailing spouses who continue working for an overseas employer, the position is different. The key practical distinction is whether your work is for / provided to overseas-based organisations or clients, or whether you are providing services to Singapore-based organisations or clients.

If in doubt, it’s worth clarifying this upfront, especially where your role involves local clients, Singapore contracts, or any form of business development in Singapore.

Singapore Tax: Two Concepts Matter Most

Once you are physically working from Singapore, your tax position usually comes down to:

• Tax Residency (resident vs non-resident tax treatment), and
• Source Of Employment Income (whether the income is treated as Singapore-sourced).

These two concepts drive both your tax rate and your filing position.

Tax Residency: It’s About Time Spent (And Sometimes Intention)

For individuals, Singapore tax is assessed on a calendar-year basis and filed in the following year (Year of Assessment).

Under the Singapore Income Tax Act, if you are in Singapore for 183 days or more in a calendar year, you are typically taxed at resident rates for that year.

There are also administrative concessions that can result in resident treatment in certain cases where the employment period spans multiple years. The practical takeaway is that even if you arrive part-way through a year, you may still be treated as a tax resident of Singapore depending on your facts and duration of stay.

Source Of Income: Where You Perform The Work Usually Drives Taxability

Singapore operates on a territorial basis. For employment income, the key question is – where were you physically located when you performed the duties that generated the income?

If you are physically in Singapore performing the work (even if your employer is overseas), that employment income is generally treated as Singapore-sourced and therefore taxable in Singapore.

A common misconception is that salary paid into an overseas bank account is “outside Singapore tax.” In practice, the bank account location doesn’t change where the work was performed.

Filing Your Singapore Tax Return As A Remote Worker

If you are not on a Singapore payroll, your income will not be automatically included in your tax return. You will need to declare the income manually.

Practically, that means you should plan to maintain a clean set of records for the year, including:

• Your employment contract and/or confirmation of role scope
• Pay statements and bonus confirmations
• A simple schedule of days in/out of Singapore (particularly if travel is frequent)
• Details of any benefits provided (e.g., allowances, housing support, reimbursements)

If you are paid in a non-SGD currency, you will need to convert the amounts into SGD for reporting. Consistency matters—use a sensible, supportable conversion basis and retain the exchange rate support you used.

Singapore’s individual filing season runs in March–April each year, and it’s important to complete the filing on time once you are within the filing population.

Don’t Ignore The “Double Tax” Question

Depending on your home jurisdiction, you may still have ongoing tax obligations there even while living in Singapore (for example, due to tax residency rules or worldwide taxation). In those cases, the same income can appear in two systems.

This is where forward planning matters—particularly around:

• Tax residency positions (home vs Singapore)
• Availability of treaty relief (where applicable)
• Foreign tax credit mechanisms (typically in the home jurisdiction)

Action Points For Trailing Spouses Working Remotely From Singapore

If you are currently working remotely from Singapore (or planning to), consider the following checklist:

• Confirm whether your work is purely for overseas-based organisations/clients, or involves Singapore-based entities/clients
• Track your days in and out of Singapore
• Confirm whether your employment income is Singapore-sourced based on where duties are performed
• Build a clean annual income summary (salary, bonus, allowances, benefits)
• Plan early for March–April filing so you’re not reconstructing information last-minute

If you would like support assessing your residency position, income sourcing, or filing approach, we can help you map the issues and keep the compliance process straightforward.

Get insights from our CST Principal and international tax specialist, Matthew Marcarian as he shares his in-depth knowledge of the complexities of living and working as an Australian Expat in Singapore in a podcast episode of Money Side Up with Jarrad Brown and Will Cant.

This podcast episode will highlight the tax and residency obligations in Singapore, preparation for repatriation, and effective tax planning if you have already decided to move or work in Singapore.

To find out more about Singapore Tax for Australian Expats, you may listen to the podcast on Spotify.

When you live and work solely in one country, tax residency is straightforward. However, if you are living away from your home country or living between multiple countries, then determining tax residency is complicated.

One of the difficulties in determining tax residency is that the laws applied to residency differ in each country. This means you may simultaneously meet the residency requirements in multiple countries within a given tax period. Alternatively, if you live a particularly transitory life, it may be difficult to identify primary residency.

Note that tax residency is different to citizenship or visa residency. This article discusses what you need to know about tax residency.

Why Residency Matters

As each country has their own rules for taxation, it is important to know which country has taxation rights over you as an individual resident. This is why residency is such a foundational concept.

Being a tax resident of multiple countries has potential implications on how your worldwide income is taxed. Generally, your country of residence has primary taxing rights over your income. It also raises double taxation concerns, with competing tax jurisdictions aiming to potentially tax the same income. As countries sometimes tax the same income, a dual tax resident could face significant tax consequences. For this reason, tax treaties between countries exist to help resolve conflicting taxation rights, including determining tax residency.

As this can be a particularly complex issue it is important to ensure that you consult with qualified tax professionals who are familiar with the tax laws of each country. The following information provides a general overview of the potential tax consequences of being a tax resident in multiple countries.

Taxation Rights

Once residency is determined, your country of residence will have the primary taxing rights. Income that is taxable from other sources will be taxed as income earned by a non-resident.

Double Tax Agreements (DTAs) between countries cover a range of factors to help mitigate double taxation issues, including who has primary taxing rights of specific types of income and can include limitations on the taxing rights of the country where the taxpayer is a non-resident.

For countries that tax on a territorial basis, the country of residence might only legislate taxation over income derived from the country of residence, or foreign income that is remitted into the country.

However, countries that tax on a worldwide basis assess all income earned by the individual, regardless of the source of income.

In either case, DTAs, and other tax relief provisions help alleviate the impact of being taxed in multiple countries. This typically means that when you pay foreign tax on foreign sourced income, your country of residence will count this tax towards the tax they assess on this income.

Tax Residency

As each country has its own rules for determining residency, your first step is working out whether you are a resident in each country that you are connected to. To give an example of how this works we consider the tax residency rules of Australia, Singapore, the USA and the UK.

Tax Residency In Australia

How Residency Is Determined

There are a number of tests used to determine residency in Australia, which are essentially designed to determine whether Australia is your home. This means that you are an Australian tax resident if you reside in Australia, or intend to reside in Australia for a significant period of time, and you have a permanent home there.

If you are an Australian permanent resident who is living and working overseas on a temporary basis, you may still be considered a tax resident of  Australia. If you have not established a permanent place of abode outside Australia, then your Australian tax residency will continue. A permanent place of abode is a place where you live and consider your home. This means you may still be considered an Australian tax resident even if you are not physically present in Australia for a given tax year. Individuals who are not Australian citizens may also remain Australian tax residents if they travel overseas for short periods of time, while maintaining their home in Australia.

In an income tax year where you become or cease being a resident you will be considered a part-year tax resident.

Income Taxes as a Resident

Australian tax residents are assessed on worldwide income. This includes all forms of income including capital gains.

Tax Residency In Singapore

How Residency Is Determined

In Singapore you are a tax resident when you are physically present in Singapore for at least 183 days in a calendar year.

Income Taxes as a Resident

Singapore tax residents are typically only required to pay tax on Singapore sourced income, or foreign income that is brought into Singapore. Singapore does not tax capital gains.

Tax Residency In The USA

How Residency Is Determined

In the USA, all US citizens and dual citizens are required to lodge a tax return to declare their worldwide income, regardless of their tax residency.

Non-citizens are tax residents if they hold a Green Card that legally allows permanent residency.

Tax residency is determined by a physical presence test. This test requires physical presence in the USA for at least 31 days in the relevant calendar year, after being present for a specific number of days totalling at least 183 days over the preceding two years.

Income Taxes as a Resident

Both citizens and tax residents of the USA are taxed on their worldwide income. Citizens are taxed on worldwide income even if they no longer reside in the US and do not meet the residency test. There are some foreign earning exclusions for individuals who meet specific requirements.

Tax Residency In The UK

How Residency Is Determined

In the UK you are a tax resident under the Statutory Residence Test. This test considers a range of factors including the number of days you are present in the UK, your connections to the country, and other relevant criteria.

The UK has an automatic overseas test. This means if you spend less than 16 days in the UK (or less than 46 days if you have not been a UK resident for the previous 3 tax years), or you are working abroad full-time and spend less than 91 days in the UK, then you are a non-resident.

There are three automatic resident tests:

1. You are present in the UK for at least 183 days.
2. Your only home is in the UK for at least 91 days in a row, and you visited or stayed for at least 30 days in the tax year.
3.  You worked full time in the UK for any period of 365 days and at least one of those days falls in the tax year you’re checking.

Where you do not meet either automatic test the “sufficient ties test” will determine if you are a resident. This test considers your UK connections, including family, accommodation, work, and physical presence, over a number of years.

Income Taxes as a Resident

UK tax residents are taxed on their worldwide income. However, non-UK sourced income may be exempt from UK taxation in certain circumstances.

Dual Residency

As can be seen from the various residency tests of just these four countries, there is variety in how residency is determined and the tax implications this could lead to. Given the variation in tests, you could easily be considered a resident of multiple countries over a single tax year.

When an individual is a tax resident in multiple countries the next step is to determine if there are tie breaker rules contained in a DTA. These rules provide guidance on determining an individual’s primary place of residence.

Residency Tie Breaker Rules

Most countries adopt the Mutual Agreement Procedure, specifically Article 4 of the OECD Model Tax Convention, to resolve dual residence situations. Accordingly, there is a fairly standard set of tie breaker rules across various DTAs. These tiebreaker rules are outlined as follows:

1. Permanent Home – Where you have a permanent home in one country but not the other, you will be a resident of the country where your home is located.
2. Centre of Vital Interests – The country in which you have closer personal and economic connections will be your country of residence. This may include family and personal ties, social and economic activities such as work and club memberships, and where you keep your main assets.
3. Habitual Above – Where neither of the previous tests assist, the country where you regularly abide or reside in will be your country of residence.
4. Nationality – Where none of the previous tests assist you will be a resident of the country in which you are a national.

In most cases an individual will be able to determine their residence using one of these tie breaker rules.

When it comes to Australia, Singapore, the USA and the UK, most of these countries adopt comprehensive DTAs between one another, in which Article 4 of the OECD Model Tax Convention is essentially utilised. This includes the DTAs between the following countries:

• Australia and Singapore
• Australia and the USA
• Australia and the UK
• Singapore and the UK       
• The UK and the USA

Notably, there is no DTA between Singapore and the USA. This means that dual residents of Singapore and the USA will need to rely on the taxation rules and access to tax relief options in each country in order to avoid double taxation.

Dual Tax Residents

In very rare cases an individual may have sufficient ties to multiple countries in which they are either not a citizen, or in which they hold dual citizenship, leading to a situation whereby they may not be able to effectively use tie breaker residency rules to accurately determine their country of residence. This creates a complex situation wherein no country has clear priority for determining tax residency and a decision regarding residency is subjective.

This situation could theoretically lead to an individual being subject to taxes being assessed on their worldwide income in multiple tax jurisdictions. The Mutual Agreement Procedure contained in some DTAs enables a taxpayer to request the competent authority in one country to engage with their counterparts in another country to resolve double taxation.

Managing Dual Tax Residency

In summary, determining residency is an important factor because it determines which tax jurisdiction has primary taxation rights.

DTAs exist to help mitigate the risk of double taxation by providing tie breaker rules in determining residency and placing restrictions or limitations on taxation rights over certain types of income, as well as providing tax relief through the recognition of foreign tax credits.

Where no DTA exists, or where an individual’s residency cannot be determined, other provisions are required to mitigate the impact of double taxation. 

Tax residency can be a very complex area and it is recommended you seek specialist international tax advice for your particular situation. 

Many private clients heading to abroad may already have a trust in their home country or a 3^rd Country.

Historically trusts have been attractive vehicles because they offer people the potential of protecting their wealth from external attacks, but it can also help lower the burden of taxation on a family group.

For those who do not have a trust as yet but who are considering establishing a trust, a great deal of thought and planning needs to go into it.

We make sure our clients understand the four golden rules of setting up a trust:

1. Ensure the bank or financial advisory firm managing your money does not own the trustee company that will be the trustee of your trust. This prevents a conflict of interest.
2. Understand how you can unwind the trust arrangement.
3. Recognise that long-term solutions require tax contingency planning before you sign on the dotted line. As your residency can change, so can your tax position.
4. Make sure you understand how you can access trust income and/or capital to pay taxes that may become due on the gains of the trust.

Before delving into some further issues associated with trust management, I will cover just a few central points about how trusts work for those who may not have worked with trusts.

How Trusts Work

A trust is an arrangement whereby a trustee has a fiduciary obligation to deal with property over which they have control for the benefit of one or more beneficiaries who are able to enforce such an obligation.

Beneficiaries may be individuals, corporations, or indeed other trusts (such as a charitable trust).

All trusts have a trust deed. 

At a high level, this is a document that outlines the rules that the trustee must follow in relation to the property they control.

Common objectives for utilising trusts are to protect assets and ensure that beneficiaries are deable to benefit financially from the trust in a manner that suits the family group and in accordance with the wishes of the settlor of the trust.

The discretionary trust is the most common trust used by business owners and investors. 

They are generally set up to hold family and/or business assets for the benefit of providing asset protection and tax-planning benefits for family members.

The Trust Deed: Its Importance

The trust deed is the most important document of a trust as it establishes and defines terms and conditions upon which the trust must be operated and managed.

More specifically, the trust deed sets out the beneficiaries of the trust, as well as the end date of the trust and the conditions upon which the trustee holds the property for the beneficiaries.

Actions undertaken outside the provisions set out in the trust deed can be deemed by a court of appropriate jurisdiction to be null and void. 

The implications of an action being null, and void can reach further than the act simply being treated as if it did not occur.

An invalid act of a trustee can result in unwanted taxation implications for the trustee, and a breach of the trustee’s duties can lead to personal liability for damages or alternatively unwanted consequences for beneficiaries.

The best approach in dealing with trust management and planning is to treat every trust deed as unique and therefore refer to the provisions in the deed prior to taking any action.

How Are Trusts Taxed?

While a trust is regarded as a taxpayer in some countries (e.g., Australia), in other countries this is not the case. 

In some countries, the beneficiary is taxed on gains accruing in the trust; in others, it is the original settlor who suffers the tax burden.

Changing Residency With a Trust

One aspect of trust management and planning to get right when you have a trust is to ensure that assets are not unwittingly ‘exported’ into certain tax jurisdictions when you change your tax residency status.

If you want to set up a trust, then before you move to a particular country it is important to understand how a trust determines its residency status under the laws of that country.

In Australia, a trust is regarded as a tax resident of Australia if one of the trustees is a tax resident of Australia. 

However, in other jurisdictions, the concept of central management and control of the trust is used to determine the residency status of the trust.

It is important to work through all the residency aspects likely to impact your trust when you move around with an existing trust.

The key point to note is that it can be a useful exercise to transfer assets from an individual to a trust prior to changing residency and heading overseas. 

However, like most things, this strategy has its pros and cons.

Trusts Heading Overseas: Residency Determination

In the Australian context, where an individual trustee of an Australian trust changes residence, then, often, the trust will also change its residence.

In these cases, you need to make sure that when the trustee changes its residence, the tax consequences are identified.

Before you depart you need to consider whether it is beneficial to you and your family for the trust to stay a resident in your home country where it was established or if it makes sense for the trust to move with you to your new country.

If the immediate and ongoing tax consequences of keeping the trust in its particular form are not advantageous to you then we can discuss alternative strategies with you.

Such strategies may include replacing the trustee of the trust with a company that is domiciled in the jurisdiction to which you are moving and make the trust subject to the laws of that jurisdiction. 

In other situations, it may be more appropriate for a replacement trustee to be appointed in a third jurisdiction and have the trust reside in a 3^rd country.

The purpose of the discussion here is to highlight the fact that planning for a departing trust is very important.

Our approach to this area is to recognise that trusts are long-term family vehicles, and just because a client may move to a new country, it does not mean that they should have to wind up their trust and forgo all the benefits that it has provided them.

Given our international tax and trust knowledge, we will be able to help our client make important decisions such as this.

Trusts Arriving Abroad

Moving around the world while being in control of trusts is complicated and should not be done lightly.

Arriving in another country with a trust and no plan is a recipe for disaster.

Where a new individual client has changed their residence and they are the trustee of a foreign trust, it is clear that this trust is also likely to become a resident of the arrival country.

In other cases, even if the client ceases being the trustee before they change their residence specific jurisdictions tax income on ‘pre-migration transfer of assets’ to foreign trusts. 

It is also likely that the trust deed may need a review as some of its definitions and terms may have no meaning in the new country the trust is being exported to.

Even if the trust is residing in a 3^rd country, a review of the trust deed from the perspective of the laws of the new country is warranted.

Other concepts, which might be recognised abroad, such as ‘community title’, might be used in the trust deed, but these concepts might have no application in the arrival country.

The arriving trust may still have reporting obligations in the country in which it was established. 

It may also be the case that there are foreign protectors or other people who have an ongoing role in the management of the trust.

You should consider how they are affected in terms of reporting based on the country you are moving to.

This is particularly important if the arriving trust has a business or significant assets.

Often, the cost base of trust assets must be understood on the day the trust first enters a new country.

Usually this will be the market value of the assets on the day of the trust’s arrival, but not always.

While your move abroad is an exciting time for most people and full of challenges and new opportunities, considering the tax issues of how your trust would be affected by your move is essential.

Similar to the need for you to plan your departing tax issues on the way out of your home country there is a major need to plan what your tax profile will be when you arrive in your new country. 

Sometimes, however, it is easy to assume that arriving in another country has no tax consequences and that can make things difficult.

A recent client example springs to mind.

David Smith (not his real name), an expat relocating from Singapore to the US (upon his retirement), decided to access his Australian superannuation fund.

What a mistake that was.

In Australia, pension payments for those over 60 years of age are tax free.

This is, however, not the case in the US.

David had worked out that he and his wife could afford to live in the US the way they envisaged, based on paying no US federal or state tax.

They were quite shocked when we told them that the US would tax David’s Australian-sourced pension stream.

It was not a great conversation.

Key Items To Consider

Set out below are some of the key things you need to consider ahead of your arrival:

• Complying with the requirements of more than one tax jurisdiction (are tax credits available for any foreign tax paid?)

• Accounting for a new tax and legal system (are you moving to a country that has a civil law regime or a common law regime?)

• Understanding the tax issues associated with moving to the arrival country (does the country you are moving to have a general anti avoidance regime that targets tax planning?)

• Considering how foreign assets are accounted for (is foreign income exempt or is it non-taxable there is a big difference between the two)

• Locating other professional service providers to work with (do not assume your foreign tax advisor has international tax experience as this is often not the case)

How Will Your Assets Be Treated?

In some jurisdictions the moment you arrive in the country you are treated as having bought all your foreign assets at the market value of the date you became a tax resident.

This means that a ‘cost base’ has been established for your foreign assets.

Then when you sell those assets in future – a gain or loss can be worked out in relation to those assets. Australia is one such jurisdiction that treats your assets this way.

Other jurisdictions such as the US – do not give you this ‘step up’ in value.

This is a serious problem as you can end up paying a lot of tax to the Internal Revenue Service – based on the original cost of your assets which may have been many years ago.

This is grossly unfair, as most of any gain will have happened while you were a US non-resident – particularly if you sell the asset shortly after you arrive in the US (you may want to sell foreign assets to buy a house in the US for example!)

Your arrival must be carefully planned as the ramifications of an ill-prepared arrival can be costly. 

If you undertake a proper tax planning exercise before you leave, then the thrill of arriving in your new country is not shaken up by the bad news of unintended tax issues. 

Moving abroad is one of the most challenging things that many of us will do.

My move to Singapore in March 2004 was a completely foreign experience in so many respects. There are so many logistical challenges to deal with that often tax planning is left until you arrive.

This of course is way too late.

This article covers some issues to address ahead of time.

Exit Taxes

An example of an issue that frequently arises is the issue of ‘exit tax’; that is, the act of leaving one country may trigger the deemed sale of all your assets held in your home country. 

Hence, it pays to know if the country you are leaving has an ‘exit tax’ as this can have quite serious consequences for you.

Tax Elections

It is also worth considering whether you can exercise any ‘tax elections’ as to how you may be able to obtain concessional tax treatment as you depart your home country.

For example, in Australia, one of the things to consider depending upon the particular asset, is whether you choose to be treated for tax purposes as ‘retaining some of your assets’.

Though you may move abroad, that does not mean that all your assets need to go with you.

Lodging an election to retain some of your assets for tax purposes in your home country, may give you a bit more flexibility as to the tax treatment available when you decide to sell them.

Creating a Trust in a 3rd Country

For a number of reasons, including tax planning, asset protection and risk mitigation, many people wish to hold their assets in a third country, through some type of trust.

Part of the planning you may choose to do before your move to a new country, is considering whether you should establish a pre migration trust in a 3rd country before you move to the country where you will work.

Often this will lead to a better tax outcome than ‘taking all your assets’ with you.

Many countries do not have tax regimes which tax foreign trusts, and therefore, income accumulating therein is not taxable in the country of your tax residence.

Tax Regime For Expats

In the planning phase of where you might go to work overseas, one important consideration is to consider whether the country you are moving to has a ‘concessional’ or ‘modified’ tax regime for expats.

Some countries, have particularly favourable tax regimes for expats.

As an example, some concessional tax regimes e.g., Japan, Belgium, Korea to name a few, may only tax expats on income arising in their country during the first five years of the expat’s tax residence in the country. 

These transitional rules are generally designed to provide an incentive to work in their country.

Other countries, such as the US, tax expats living in the US on passive income accruing in their home country structures.

Unique Residency Status

Another factor for you to consider when planning your move abroad, is the type of residency that you, the ‘departing expat’, will be taking up in your new country.

In some countries, there are unique residency statuses that can have different tax implications for you. 

An example of this includes the ‘temporary resident’ status in Australia.

This type of residence status imposes a different tax outcome as compared to general residence, and they can provide some additional flexibility in your tax position upon arrival.

Restructuring Your Existing Company or Trusts

It is vital to understand how your existing tax structures may have to be ‘restructured’ before you leave the country.

In some cases, a restructure may only involve changes to the office holders of a company or trustee of a trust.

For example, the residency of the trustee determines the residency status of a trust in Australia. 

If the intention is to keep the trust a tax resident of Australia, then this may be achieved simply with the resignation of the current trustee (the departing expat) and the appointment of another individual who will remain in Australia.

In other cases, it may be possible to issue or transfer shares to a family member to ensure that the company you have in your home country is not caught by the controlled foreign corporation rules when you arrive in your new country.

Most expats moving overseas will have some form of pension or superannuation plan.

In my experience changing one’s tax residence does not of itself impact how that pension plan is treated in most jurisdictions. However, some particular complex jurisdictions, like the United States of America, have egregious tax laws that often cause unintended consequences for arriving expatriates.

A US Example

One of my clients moving to the US was adversely affected by the international tax rules of the US with respect to foreign pensions. My client, Peter, had built up a sizeable superannuation (pension fund) balance in Australia. It was the product of 30 years working in the film and entertainment business. Over the previous ten years, Peter had been a senior executive working for a chain of movie theatres in Singapore. As such, international tax had not crossed his mind much. Peter and his wife, Helen, had grandchildren living in Santa Monica. They were keen to retire and enjoy the good life in a new location. Peter had calculated that he would be able to fund his future Santa Monica lifestyle through a combination of personal savings and by accessing his Australian pension. Everything was set.

Pension payments in Australia were tax free, so Peter thought that Uncle Sam would also not tax them. Unfortunately, that was not the case. In the US, such income streams are taxable if you are a US tax resident. We stopped Peter sending his pension to the US in the nick of time. We collapsed Peter’s Australian pension and enabled Peter to take his capital to the US and invest it in the US tax efficiently. Disaster averted.

This case study highlights why, in order to enjoy your pension, you must consider the impact of foreign tax laws when you are changing jurisdiction.

Countries have different rules

In delivering service to clients, we consider the impact of any overseas move on their home country pension. The underlying motivation for establishing a pension fund is typically based on a desire to save funds for retirement so that there is no reliance on government pensions. 

Thus, it means that having the maximum amount available in the pension plan that is not eroded by taxation, is a primary objective. It is folly to think that a tax-advantaged regime in one country with respect to pension funds will axiomatically apply in another country. That is rarely the case.

Moving your Pension Plan

We have extensive knowledge of the taxation issues relevant to pensions and superannuation. 

This enables us to assist clients with compliance and planning in relation to this important area of their lives. When expats leave their home country to move abroad, there are many aspects of tax that need to be considered prior to departure and pension fund planning is often a priority.

For those expats that have their pension fund in the UK, it may actually be worthwhile moving their pension with them. There are particular rules to address this. A Qualifying Recognised Overseas Pension Scheme (QROPS) is an overseas pension scheme that meets certain requirements set by Her Majesty’s Revenue and Customs (HMRC). A QROPS can receive transfers of UK pension benefits without incurring an unauthorised payment and scheme sanction charge.

In Australia, for example, pension funds are only considered to be complying under the governing legislation if they remain within the Australian tax jurisdiction. This means, that the trustee must remain an Australian resident. Therefore, in the case of an expat, relocation can inadvertently trigger a tax liability. Steps need to be taken prior to departure.

Complying in multiple countries

Similarly, many expats arrive in a new country with their home country pension fund in place.  Therefore, they must adhere to the rules in their home country and their arrival country in relation to this pension fund. One of the specialist skills we possess is in advising clients how foreign pension plans will be treated as they move around the globe. We can assist clients on QROPS and other similar regimes.

Moving abroad is an exciting time for most people. If you undertake proper planning with respect to your pension plan before you leave, then the thrill of arriving in your new country is not shaken up by the bad news that you have created unintended tax issues by leaving your home country in an unplanned way.