Tax System in Singapore
Singapore is a unique place where businesses and high-net-worth individual can benefit from the efficient tax regime in Singapore. In a snapshot, corporation can expect to pay a maximum of 17% income and an individual can expect to pay a maximum tax of 15% (unlike other countries where you have to pay as high at 40% for corporate and individual tax. With such tax regime, it encourages foreign businesses and entrepreneurs to set up their business in Singapore.
Additionally, Singapore is regard as the most business friend country in the world. The Singapore company registration process only takes 1-3 working days and on top of the low tax regime, you can expect to get a lot of grant reliefs and support as a foreign entrepreneur operating a start-up business. There is even no dividend, capital gain and inheritance tax in the republic.
You can see below to understand further on the Singapore tax system:
Pillars of Singapore Income Tax system
- Income earned in Singapore by individual, partnerships or companies through trade or professional activity or business is subject to income tax in Singapore and may also be subject to overseas tax depending on the tax regime of the country you are dealing with overseas.
- Territorial criterion is the basic principle of taxation in Singapore: if you are a tax-resident and the source of your income is in Singapore, this revenue is subject to the local taxes. However, in reality, this principle is quite complex as incomes earned overseas (such as dividends, revenues of the Branch Office, service revenues, and so on) can also be taxed in Singapore in some cases.
- In determining the tax, not only the localisation of the source of the income matters but also its nature and the way it was transferred to Singapore. For example, if the foreign revenue wasn’t brought to Singapore, it isn’t subject to the corporate tax.
- Corporate tax in Singapore is among the lowest on the world – 17%. Such tax policy helps Singapore to attract crowds of investors and hold its status of the country (city) with the best investment potential (according to the BERI’s report in 2015). Another advantage of Singapore corporate taxation is its one-tier structure which means that after the corporate tax was paid, company’s revenue is no longer subject to the dividend or capital gain taxes.
Additionally, new private limited companies can enjoy much lower rates: 0% tax rate for the first 100k SGD of net income and 8.5% rate for the next 200k SGD. Exemptions are also available: the company whose total income doesn’t overpass 300k SGD gets exempted 75% of its first 10k SGD of income and 50% of the rest 290k SGD of income.
- Personal income tax in Singapore is imposed depending on the tax residence. Individuals-residents pay the tax at the rate that grows gradually along with their income: for example, you don’t pay the tax at all for your first 20k SGD earned. Next 10k SGD will cost you 2%, another 10k SGD – 3.5%, then 7% for the next 40k SGD and so on until your income reaches 320k SGD. Starting from this income, the tax is capped at 20%. The tax rate for the non-residents is flat 15%.
Tax residence differs from the country’s residence. Even if you aren’t the Singapore’s citizen or a Singapore Permanent Resident, you still can be Singapore’s tax resident if you spend over 183 per year in the country. This also refers to foreign employees/directors hired by Singaporean companies. If you work less than 183 days in Singapore, your income will be taxed as that of the non-resident. If you spend less than 60 days a year in Singapore, you are tax-exempt.
- Goods and Services Tax (aka Value-Added Tax) is also among the lowest in the world – 7%. It is imposed on goods and services that are imported to Singapore and offered inside it with such exemptions: financial services, property leasing and selling, and precious metals. Products and services Singapore exports are also tax-exempt (0% GST rate). Companies whose annual sales turnover exceeds 1 million SGD (or is expected to exceed soon) must get registered for paying the GST. They must add the value of this tax to the cost of their products and services and pay the difference to IRAS afterwards.
- Special payments a company or a person makes to non-residents (rentals, interests, royalties, technical service fee and so on) are subject to the Singapore withholding tax. Making the payment, you withhold a certain percentage of the amount and then submit this percentage to the IRAS as the withholding tax.
- Filing for individuals and corporate bodies is different. For filing the personal tax, a traditional calendar year that starts on the January 1 is taken into account. Taxes for the previous calendar year must be filed no later than April 15. As for companies, every corporate body can decide for its own financial year. Tax returns must be filed until every November 30 for the financial year that ends in the preceding calendar year.
- Singapore has signed treaties with over 70 countries that help Singapore-based businesses avoid double taxation: for example, a company that got dividends abroad pays a certain tax only once; the same tax isn’t imposed in Singapore. If the country where you earned your profit doesn’t have a double-tax agreement with Singapore, it is possible to ask the Singapore Ministry of Finance for the tax exemptions on a case-by-case basis or claim the foreign tax credit if the foreign tax is already paid.
- Singapore doesn’t impose a capital gain tax, but a capital loss won’t work as your tax deduction as well.
- Group Relief: companies that are parts of one group can transfer their losses (or claim them) between each other, for example, one company that bears losses can pass its unutilised donations or unabsorbed allowances to another company of the group. This principle doesn’t work for foreign-source losses and investment allowances. To qualify for this Relief, companies of one group must have synchronised accounting periods. Except the income taxes, Singapore has lots of other specific taxes for different kinds of situations:
- Property tax must be paid by the owner based on the property’s annual rental value. The tax will increase progressively depending on this value and on whether the owner occupies the property or not.
- Road Tax (vehicle licence) must be paid by the owners of motor vehicles. This way the government controls road congestion. Owners are to undergo the road tax renewals every half a year or a year in order to be allowed to use their cars. There are also special fuel taxes (duties) for petrol and non-petrol vehicles which goal is to deter excessive usage of fuel that pollutes the air.
- Excise and Import Duties are imposed on very few types of imported products such as tobacco, liquors, petrol, and motor vehicles. Singapore is famous for its “free” port policy.
- Stamp Duty is paid when legal or business documents concerning shares and real estate (transferring shares, lease agreements, mortgages, and so on) are issued.