US Expats Look To Home As Tax Changes Bite

by Mary Swire, Tax-News.com, Hong Kong

01 December 2006

A substantial number of US expats living in Singapore are considering returning home as a result of changes to income tax laws passed by the US Congress earlier this year, according to a survey.

The survey, conducted by the American Chamber of Commerce in Singapore during October and November 2006, polled 585 members, and received 144 responses. It found that almost 40% were thinking about returning home to avoid being hit by increased tax. Half of the sample also believed that the tax changes would prompt employers to hire less US workers abroad.

The Tax Increase Prevention and Reconciliation Act (TIPRA), signed by President Bush in May 2006 increased the amount that can be earned free from US taxes to $82,400 from the previous level of $80,000. However, income earned by expats above this threshold is now typically subject to higher tax rates. Furthermore, high housing costs, much of which previously could be excluded from the computation of US tax, will now be treated as a taxable benefit and taxed often at 30% to 35%, making many individuals worse off, or leaving the employer to pick up the extra bill. The legislation is retroactive to January 1, 2006.

“These tax changes are disastrous for Americans abroad and for American business. No other developed country imposes such onerous taxation on the earnings of its workers abroad and our members are seriously concerned about the financial impact on them and whether it is worth remaining overseas selling American goods and services," stated AmCham Executive Director, Nicholas de Boursac.

"For many the true impact of the tax changes has not yet even begun to sink in. Some will only realize the full impact as 2006 personal tax returns are completed in March and April 2007. Many companies possibly do not yet realize the impact either as over 90% of our surveyed members indicated that their companies had not yet issued any guidance to them on the tax changes," he added.

AmCham says that the financial impact will be felt most by those American expatriates who are not tax-equalized and whose employers do not absorb the additional tax impost. 66% of those surveyed are not tax-equalized, and of this group, 30% expect a tax increase of between US$5,000-15,000, while a third expect increases of more than US$15,000.

AmCham warned that even those US expats who are not directly financially impacted by the changes will still be affected because companies will hire less expensive employees.

“Basically, employers will hire Australians, Canadians or Europeans who do not cost as much as Americans,” noted de Boursac.

"As well as being inequitable to Americans abroad, these tax changes are just bad policy. By making Americans more expensive to hire, it will mean fewer Americans working abroad. This will be bad for US exports and US businesses, ultimately reducing US global competitiveness," he warned.

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