Over the past several weeks, many US citizens living in the region have been discussing US President George W Bush's signing last month of the Tax Increase Prevention and Reconciliation Act of 2005, which may increase their personal income taxes.

In Hong Kong and Singapore, there were reports last week that many Americans were considering sending letters to their congressman asking for the adverse provisions of the new Act to be repealed.

Judy Benn, executive director of the American Chamber of Commerce in Thailand, said many overseas Americans, through their American Chambers of Commerce, have selected this Monday as a "Fax Congress Day", to protest the tax increase. "In response to this legislation, our most powerful weapon is a mass response from outraged Americans," she said.

But the immediate effect of the legislation on most US citizens living and working in Thailand will be minimal.

"Most Americans employed by multinationals in Thailand are on [compensation] packages that feature income-tax equalisation schemes," said John Cifor, a tax and legal services partner at Deloitte Touche in Bangkok.

Many foreign corporations, particularly American ones, use income-tax equalisation schemes so that US citizens pay the same amount of income tax no matter where they are working around the world.

The companies "equalise" their income-tax payments and, ostensibly, US citizens working for multinationals overseas are not affected by different income-tax rates in different countries. The companies pay higher taxes if employees are working in higher tax-rate countries such as Thailand and benefit from lower payments in lower-taxed territories such as Hong Kong.

Prior to the new Act, which is retroactive to January 1, US citizens working overseas received an initial tax exemption on the first US$80,000 (Bt3.08 million) of income earned outside the US. They were also permitted to deduct from their taxable income a reasonable amount for foreign housing expenses.

Under the new rules, the initial $80,000 will be indexed for inflation annually, but taxpayers will not be able to reduce their gross overseas income by $80,000 and then begin applying the lowest tax rates to their remaining income.

Instead, they must now calculate their tax payments at the marginal rate as if the initial $80,000 had not been excluded. This new "stacking" provision forces income in excess of $80,000 to be taxed at much higher marginal rates.

The new rules also limit the foreign housing exemption to about $12,000 per year. In Hong Kong, where rents for many US families are often higher than $12,000 per month ($144,000 per year), many US expats who are not on tax-equalisation schemes were moaning and groaning last week in the expectation that their taxes will skyrocket.

In Thailand the new rules will not cause so much pain, even to individuals who pay their own taxes, because top marginal tax rates here are higher than effective US rates. In cases where the US citizen has no income source in the US, a foreign tax credit for the Thai income tax payments will continue to offset the US tax on such foreign income.

However, Cifor pointed out that one small group of Americans may suffer under the new rules.

"Employees who qualify for the 15-per-cent maximise tax rate, offered to those who work for regional headquarters, will be affected because their marginal income-tax rate is lower than those in the US," he said.

Opponents of the new measures claim that the extra costs, which in many cases are borne by US corporations through tax-equalisation schemes, will increase the overseas costs of US corporations and reduce their competitiveness.

A report published last month by the Asia Pacific Council of the American Chambers of Commerce argued further that the higher taxes may force US companies to send fewer American executives abroad.

"Americans residing and working overseas promote the export of US goods and services and spread American culture and tastes, and this increases the demand for American products and services, lays the foundation for future US export growth and spreads American values," it said.