There are the two principal tax systems - source jurisdiction and residence jurisdiction. Source jurisdiction or sometime known as territorial tax system refers to a country that taxes income as a source within its borders.
Some countries may also impose tax based on residency, called residence jurisdiction, whereby all income (domestic and foreign sourced) is subject to taxation.
Singapore practices territorial tax system. This means that a Singapore citizen who works in Singapore is only taxed for his Singapore source income. He is not taxed by the Singapore government for foreign source income such as property rental in another country.
On the other hand, a United States citizen or resident is being tax for his income on a worldwide basis.
And you know what? Only three of the 37 jurisdictions with income taxes have territorial-based systems (Hong Kong, Singapore, and Taiwan). This is one of the advantages of being a Singaporean. I brought up this point because many Singaporeans migrate without finding out about the new countries’ tax system. A most famous one is Australia which practices residence jurisdiction in its tax system. Many Singaporeans who migrated to Australia got a shocked by its draconian tax system. They thought that pasture is greener “the other side” but was not prepared for a system that tax one’s income on a worldwide basis.
The lesson? Educate yourself to financial freedom because nobody cares for you except yourself.
This article also appeared on CPF Board's IMSavvy blog corner:http://www.cpf.gov.sg/imsavvy/blog_post.asp?postid=410028623-163-8277094363
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