Alongside looking at income taxes for individuals, we will also focus on other forms of tax, including for companies and on capital gains overseas.
Whilst it shouldn’t be considered as tax advice, it is correct as far as we are aware at the time of writing.
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Investors choose Singapore for doing business for a variety of reasons. The key is the ease of founding a company and running a business.
Another advantage of Singapore is its tax regime, renowned for attractive tax rates for companies and individuals, tax incentives, no capital gains tax, one-tier taxation system and numerous treaties to avoid double taxation.
Tax is imposed on all income of individuals, including corporations, partnerships, trustees and groups of persons (excluding income from the sale of fixed assets), which is received in Singapore or from Singapore sources, as well as from certain foreign sources as a result of trade, work or business.
In this article, we will determine what kind of taxes exist in Singapore, in which cases they are payable and what is the responsibility for evading them.
The tax system in Singapore is based on a territorial principle, according to which taxes are paid on profits arising / received in Singapore.
In Singapore, the income tax is 17% – this is the standard tax rate when the company’s profit exceeds 300,000 USD. But the state provides companies with tax breaks that apply when the company’s profit is up to 300,000 USD.
Singapore also has various tax credits for the expenditure side of the business, such as rent, accounting fees, employee salaries, etc.
The state provides tax incentives for start-up companies that have just begun to operate, so they actively use the tax incentives provided by the state.
For example, from 2020, newly created companies in Singapore in the first three years of operation will receive a 75% exemption from the first 100,000 USD; further, the company receives 50% tax exemption up to USD 100,000.
Newly incorporated companies are also eligible for further partial tax exemptions, which effectively translates to around 8.5% of the tax rate on taxable income up to USD 100,000 per year.
Also, from January 1, 2003, Singapore adopted a single-tier corporate income tax system, which means there is no double taxation for stakeholders.
The tax paid by a company on its taxable income is the final tax and all dividends paid by the company to its shareholders are free from further taxation.
There is no capital gains tax in Singapore. Examples of capital gains include gains on the sale of property, plant and equipment, gains on foreign exchange capital transactions, etc.
The most difficult tax is the Goods and Services Tax (GST). In other countries, GST is known as value added tax or VAT.
The GST is a widespread consumption tax levied on the import of goods (collected by Singapore Customs – a government agency under the Ministry of Finance) and virtually all shipments of goods and services in Singapore.
Typically, the delivery is either taxed or exempt. A taxable offer is a standard or zero rated offer. Only the standard source is subject to GST at a rate of 7%.
GST exemptions apply to the provision of most financial services, the sale and lease of residential properties, and the import and local supply of investment precious metals. Products that are exported and international services are rated zero.
Here is a short description of Singapore taxes, but now let’s dive deeper and focus on income taxes for individuals, business taxes and other taxes.
- Income taxes for individuals.
Individuals’ income tax rates in Singapore are among the lowest in the world. In order to determine the Singapore individuals’ income tax liability, you first need to establish tax residency, the amount of taxable income, and apply the appropriate progressive rate to it.
- Singapore applies a progressive scale of personal income tax, starting from 0% and up to 20% for incomes above $320,000;
- no capital gains and inheritance tax;
- only income received in Singapore for individuals is subject to income tax in Singapore; income received abroad is not subject to taxation, except in certain cases;
- tax rules differ based on the tax residency of an individual;
- filing a tax return for individuals – employees in Singapore – April 15th each year. Income tax is estimated based on the income received in the previous year.
Individuals – residents of Singapore apply a progressive scale of taxes on their income, the data is shown in the table below.
An individual tax return is required if your annual income exceeds $ 22,000 or more. You do not need to pay taxes when your annual income is less than $ 22,000.
But you are required by law to file a tax return if you receive a notice from the Singapore tax department to provide it.
An individual is considered a resident of Singapore if he/she is:
- a citizen of Singapore;
- a permanent resident of Singapore (Singapore Permanent Resident) and permanently resides in Singapore;
- a non-resident who is staying or working in Singapore for 183 days or more in a tax year.
Tax residents pay taxes on their taxable income at the rates discussed above in this article. What is a taxable income? This is income subject to taxation for tax residents, defined as:
Total Income – Less: Expenses
Statutory Income – Less: Donations
Accessible Income – Less: Personal Reliefs
Now let’s discuss every point of this simple formula.
Total income means:
- income or profit from any business, trade, occupation or profession, entrepreneurship and partnership (partner income) received in Singapore;
- income or profit from wage labor, employment in Singapore companies;
- dividends, interest, investment income received in Singapore;
- rental income, royalties, bonuses and other income from property in Singapore;
- excluding qualifying profits earned abroad.
- qualifying costs of hiring personnel by Singapore companies;
- rental costs for offices in Singapore.
- grants to charitable organizations in Singapore.
Tax credits (Personal Reliefs):
- special tax credits for individuals – taxpayers (eligible course fees, earned income relief, parent relief) in Singapore.
Taxable income is post-deductible income to which the income tax rate (in our case) is applied.
- Income taxes for non-resident individuals.
An individual is considered a non-resident for tax purposes in Singapore if he is a foreigner who has stayed or worked in the country for less than 183 days in the tax year.
Non-resident income is taxed as follows:
- Income from hired labor is exempt from taxation if the non-resident stays in Singapore for a short period of 60 days or less a year.
- The exemption does not apply if the non-resident is a director of a company, an entertainer (presenter, entertainer) or performs his professional duties in Singapore (for example, is in Singapore on a long business trip).
- This rule applies to foreign specialists, foreign lecturers, queen consuls, consultants, trainers, coaches, etc
- If a non-resident stays in Singapore for 61-182 days a year, his income will be taxed in Singapore.
- He can apply for tax compensation or subsidy. But tax credits do not apply in this case. Income is taxed at a rate of 15% on a progressive scale as for residents of Singapore (table above), which increases depending on the tax base;
- Fees to directors, consultants and other income are taxed at the rate of 20%.
Filling in a tax return is an annual obligation for every taxpayer in Singapore. All completed forms must reach the Singapore Tax Department by April 15th.
You do not pay income tax if your annual income is less than S $ 22,000. But you must file a tax return when asked by the tax office to provide it.
Even if you did not have any income for the previous year, you need to declare zero income on your tax return form and submit it by April 15th. You must complete and file your tax return if your annual income is S $ 22,000 or more.
You can choose to file your tax return online or by mail. The Internal Revenue Service of Singapore (IRAS) will send you the appropriate paper forms of the appropriate category of return (as below) during February – March:
1. For individuals – tax residents – Form B1.
2. For the self-employed (self-employed in Singapore) – Form B.
3. For individuals – non-residents – Form M.
You will have to pay a fine if your tax return is late or not filed. After completing your tax return, you will receive a Notice of Assessment or tax bill by September. In this form, you will see the amount of tax payable.
If you do not agree with the amount of tax calculated by the tax authority, you can inform the tax office within 30 days from the date of receipt and indicate the reason for disagreement.
You must pay tax in full within 30 days of receiving the Notice of Assessment, regardless of whether you agree or disagree with the tax assessed and whether you filed a complaint disagreeing with the estimated amount. In case of non-payment within 30 days, you will be charged a fine.
Tax regime for income earned abroad
In general, income earned abroad received in Singapore after 1.01.2004, not taxed. It includes foreign income that is deposited into bank accounts in Singapore. You do not need to declare such income. There are a number of circumstances in which foreign income (earned abroad) is taxed:
- If received in Singapore through Singapore partnerships;
- Employment abroad that generates such income, secondary and additional to your main job in Singapore. You must travel abroad as this is a condition of working in Singapore;
- You are employed outside of Singapore by the Government of Singapore.
You need to declare qualifying income earned abroad under employment income or other income on your tax return.
Capital gains tax, inheritance tax and real estate tax
Capital gains tax can refer to investment profits that arise from transactions in assets such as property, financial assets (stocks and bonds), and intangible assets such as goodwill. As already mentioned in this article, there is no capital gains tax in Singapore.
Inheritance tax is a tax that you must pay on inheritance – assets that were inherited after the death of the owner. In Singapore, the tax is called Estate Duty and has been abolished since 2008.
- Corporate Income Tax in Singapore.
The corporate income tax rate in Singapore from 2010 to the present day is 17%. All types of organizations and companies doing business in Singapore are required to pay tax on their profits earned within Singapore. But companies that are tax residents of Singapore and non-resident companies have some differences:
- The tax rate can be changed in relation to the concluded agreements on avoidance of double taxation for non-resident companies
- Presence of tax breaks and schemes of full or partial tax exemption for resident companies
- A resident company is obliged to pay tax on all earnings received outside the country and redirected to Singapore (only if this income has not been taxed at least 15% in the country in which this income was received)
Tax residence in Singapore is assigned to a company if its control and management is carried out in Singapore at the level of the annual meeting of directors and making major decisions on the company.
Since 2010, each company, regardless of its affiliation, has been taxed at a general rate of 17%. But there are two types of tax incentives for resident companies: a Full or Partial Tax Exemption scheme.
Full tax exemption is available for the first 3 years for new companies. Participation in this scheme is available for all types of new companies, except for: organizations whose main activity is an investment holding, or the development of real estate for its sale and / or investment.
The maximum exemption for one tax year is equal to a full tax exemption of $ 200,000 in profits ($ 100,000 + $ 100,000). As a result, the total amount of tax paid on the first $ 300,000 of income is $ 17,000. Any additional income above the first $ 300,000 will be taxed in full at a general corporate tax rate of 17%.
Companies wishing to take advantage of this benefit are required to qualify for the following three points:
- The company must be registered in Singapore
- The company must have Singapore tax residence for the period of the reporting year
- The company must not have more than 20 shareholders during the entire period of the request for the benefit, where:
- All shareholders are individuals “directly and for profit” (directly) holding shares in their name
- At least one shareholder is an individual “directly and profitably” (directly) holding at least 10% of the shares issued by the company
- Partial tax exemption is available for companies starting from the 4th year of existence or for companies that for some reason were unable to take advantage of the full exemption scheme.
- VAT in Singapore.
Value Added Tax in Singapore is called Goods and Services Tax (GST) and is 7%.
Almost all trade in goods and services that takes place within Singapore falls under this tax.
The sale of goods does not include trade and rental of real estate, as well as the import and local distribution of expensive metals. When exporting goods, 0% tax is charged. Certain licensed financial services, as well as services that qualify as international, do not fall into the category of service provision.
An entity is only required to register to file a GST if one of the following two conditions is met:
- Turnover for the last 12 months after the end of any quarterly month (March, June, September, and December) is more than 1 million Singaporean dollars
- It is expected that the turnover in the next 12 months will exceed 1M Singaporean dollars (for example, due to the concluded sales contracts)
As soon as registration for the filing of GST occurs, the company is entitled to charge this percentage on its products.
This GST, assessed and collected from all products, is subsequently paid to the Singapore government tax authority.
At the same time, GST included in the amount of goods that the company buys to further provide its products or services is subject to deduction. Thus, this tax is levied only on value added at each stage of production of goods or provision of services.
- Additional taxes.
Singapore is famous for its single-tier tax system. Namely, after the company has paid corporate income tax, further payments to shareholders are no longer subject to any corporate taxes.
- The tax on dividends distributed to shareholders is 0%.
- Capital gains tax is 0%.
- Tax on income earned outside of Singapore and not transferred to Singapore is 0%.
- Tax on income earned outside of Singapore but transferred to Singapore may be taxed at rates ranging from 0 to 17 percent (depending on the type of business and the existence of a double taxation treaty)
Plus other taxes like:
- Motor vehicle taxes – these are taxes levied on motor vehicles in addition to import duties. The purpose of these taxes is to limit the number of cars owned and reduce road congestion.
- Customs and Excise Duties – Singapore is a free port with relatively few import and excise duties. Excise taxes are mainly levied on tobacco products, oil products and alcoholic beverages. In addition, import duties apply only to a limited list of goods. These goods primarily include vehicles, tobacco products, alcoholic beverages and oil products.
- Betting Taxes – this is a tax levied on private lotteries, betting and sweepstakes games.
- Stamp duty – this one is levied on commercial and legal documents related to securities, shares and real estate.
- Others – This includes major taxes such as the foreign worker levy and airport passenger service charge. The Foreign Workers Levy is intended to regulate the employment of foreign workers in Singapore.
About IRAS (Inland Revenue Authority of Singapore)
The Inland Revenue Authority of Singapore is the government’s chief tax administrator (tax office).
IRAS collects taxes, which account for about 70% of the government’s operating revenues, which supports the government’s economic and social programs to achieve quality growth and an inclusive society.
IRAS also represents the government in negotiating tax treaties, drafts tax legislation and provides advice to the government on property valuation.
IRAS (Inland Revenue Authority of Singapore) checks tax returns and imposes fines when there are errors, omissions and inconsistencies.
IRAS takes into account individual circumstances in determining penalties, when there is no evidence of any intention to evade taxes. The liability can be as follows: a fine of up to 200% of the amount not paid for tax; a fine of up to 5,000 USD and / or imprisonment for up to three years.
There are different types of tax crimes in Singapore that are criminalized.
The sanction is determined depending on the type and severity of the crime. The sanctions include a fine and / or imprisonment, depending on the qualification of the crime.
In cases where an error / omission / discrepancy in the tax return was made with the intention of evading taxes, the taxpayer may, in accordance with the law “On Income Tax”, face up to 400% of a fine of the tax amount; a fine of up to 50,000 USD and / or a fine of imprisonment for up to five years.
It can be concluded that Singapore is famous for its reputation for business capacity, since the system is stable, clear and accessible for its implementation for both small and large businesses.
Singapore is a relatively tax-efficient country for expats. Taxes on locally sourced income are competitive, and 0% on overseas income and capital gains.
From an investing point of view, it always makes sense to invest in a third country, which is neither your country of residency or nationality, for tax reasons.
That is especially the case in a country which doesn’t charge taxes on overseas income like Singapore, Thailand or Malaysia.