Singapore Tax System & Tax Rates
PERSONAL INCOME TAX
With one of the lowest personal income tax rates in the world, it is of little wonder that more and more entrepreneurs and young professionals are choosing to relocate to Singapore.
There are a number of factors which influence the amount of tax an individual is required to pay such as tax residency and chargeable income. Here are some key points about Singapore’s taxation system.
- Starting at 0%, Singapore has a progressive tax rate which is capped at 20% for income over S$320,000. This cap will increase slightly in 2016 to 22%.
- Singapore does not have capital gains, inheritance, or death taxes.
- Following a territorial system of taxation, individuals are only taxed for income earned within Singapore with a few exceptions.
- The tax rules vary depending on whether or not the individual is a tax resident or non-resident.
- Income tax is assessed on a preceding year basis, the filing date for individuals is April 15.
RATES FOR PERSONAL INCOME TAX
Tax residents in Singapore are charged on a progressive basis. Filing a return is mandatory for those with an income which exceeds S$20,000, those with income below this are not required to pay tax. However, in some cases, individuals with incomes below S$20,000 may be requested to complete a return by the Singapore tax department.
Different income tax rules apply in Singapore depending on the tax residency status of the individual. A tax resident is defined as an individual who is one of the following:
- A Singaporean citizen
- A Permanent Resident with an established home in the city
- A foreign national who has stayed or worked in Singapore for a minimum of 183 days during the tax year
Rebate for Tax Residents
For YA 2017, all tax residents will receive an income tax rebate of 20% of tax payable, up to a cap of S$500.
For further details, please visit the website of Inland Revenue Authority of Singapore at https://www.iras.gov.sg.
PERSONAL INCOME TAX FOR NON-RESIDENTS IN SINGAPORE
A non-resident is defined as an individual who has stayed or worked in the city for fewer than 183 days. For individuals who have worked in Singapore for 60 days or less, their income is exempt from tax. This excludes company directors, public entertainers, and those exercising a profession (professionals include foreign experts, translators, consultants, trainers, coaches, queen’s consuls etc.). Those who have stayed or worked for 61-182 days are taxed on income earned in Singapore. Chargeable income for these individuals is their total income less expenses and donations but they are not eligible for personal reliefs. Income is taxed at either 15% or the progressive rate depending on which is higher. Separate to this, director and consultant fees and all other incomes are taxed at a range of 15% to 22%.
FILING TAX RETURNS FOR PERSONAL INCOMES
All eligible tax payers must file a return by the 15th of April each year, penalties are imposed upon those who file past this date or fail to file altogether. Those who earn under S$20.000 a year are not required to file a return unless specifically requested by the tax authority. Even if you have not earned any income in previous years, you are required to declare zero income and file for a return. Returns can be filed online or by mail. During February and March, IRAS will send you either a B1, a B, or an M form depending on your tax resident status and whether or not you are self-employed.
Once you have filed, you will receive your Notice of Assessment by September. This is a tax bill which will indicate the amount of tax you are required to pay. It is possible to dispute your Notice of Assessment by notifying and stating your objections to IRAS within 30 days of the date of the notice.
Payment of taxes is required within 30 days of the date of the notice regardless of whether or not you have informed the authorities of your objection. A penalty is imposed for outstanding taxes after 30 days.
TAXATION ON OVERSEAS INCOME
Typically, income earned overseas and received in Singapore is not taxed and does not need to be declared. This includes overseas income paid into an SG bank account. However, there are some instances in which income overseas is taxable including when it is received in Singapore through Singapore based partnerships, when overseas employment is incidental to your Singapore employment (i.e. you work in Singapore, but must travel internationally for your job), and when you are employed internationally by the Government of Singapore. In these circumstances, the income needs to be declared as ‘employment’ or ‘other’ income on your form.
TAXATION ON EMPLOYER BENEFITS
Unless they are exempt from income tax or subject to an administrative concession, all of your gains and profits earned as a result of employment are taxable. This includes all employee benefits financial or otherwise. Some examples include accommodation or housing allowance, a company car, medical or dental reimbursement costs for yourself or your dependants, overtime, per diem allowances for business trips, transport allowance, and meal allowances.
SINGAPORE CORPORATE TAX RATE
The system prevalent in Singapore is called a one-tier corporate tax system, under which tax paid by a company on its chargeable income is the final tax. All dividends paid by a company are exempt from tax in the hands of the shareholders.
The corporate income tax rate since 2010 has been fixed at 17%. It is calculated on the basis of the company’s chargeable income, i.e. taxable revenues less allowable expenses and other allowances. But the effective tax payable comes out to even lower if one takes advantage of all the government incentives, subsidies and schemes.
Tax residence of company
A company is considered as a tax resident in Singapore if the control and management of the business is exercised in Singapore. “Control and management” is the making of decisions on strategic matters, such as those on company policy and strategy. Generally, the location of the company’s Board of Directors meetings, during which strategic decisions are made, is one of the key factor in determining where the control and management is exercised.
If the company has an executive director or key management personnel whom is playing important role in decision making based in Singapore is one of the key factor too in determining where the control and management is exercised.
In general, a company is considered non-resident in Singapore if the directors manage and control the business and hold board meetings from outside Singapore. This is true even if, for example, the lower level operations are taking place in Singapore. A company’s residence may change from one year of assessment to the next depending on the circumstances. A Singapore branch of a foreign company is generally not treated as a Singapore tax resident since the control and management is vested with an overseas parent company.
The basis of taxation for a resident company and non-resident company is generally the same with the exception of certain benefits that are available to resident companies.
- A Singapore tax resident company is eligible for income tax exemption scheme available for new start-up companies except for investment holding and property development company.
- A Singapore tax resident company can enjoy income tax exemption on foreign-sourced dividends, foreign branch profits, and foreign-sourced service income under section 13(8) of the Income Tax Act with certain conditions.
- A Singapore tax resident company is entitled to benefits conferred under the Avoidance of Double Taxation Agreements (DTA) that Singapore has concluded with treaty countries.
- Please note that the place of incorporation of a company is not necessarily indicative of the tax residence of a company.
Singapore tax treaties
A tax treaty between two countries is generally an agreement that specifies how the income earned will be taxed by the authorities of each country when a company is involved in doing business in both countries. The main benefit and objective of an income tax treaty is to help businesses avoid double taxation of their income.
Singapore has concluded tax treaties with more 50 countries and the list continues to grow. The treaties reflect Singapore’s continual efforts to help businesses in relieving double taxation and to encourage and facilitate the trade and investment opportunities across-borders.
Starting 2008, Singapore has gone a step further in providing unilateral tax credits to Singapore companies. According to the new policy, all Singapore companies that earned income from countries that don’t have double tax agreement with Singapore, will be allowed a tax credit on their foreign-sourced income from those countries.
For more details, please visit the website at https://www.iras.gov.sg.
General Tax Incentives
Listed below are general tax exemptions/incentives currently available to Singapore tax resident companies. Once these tax exemptions are applied to the taxable income, the effective income tax rate for small-to-mid size Singapore companies is reduced significantly.
- 0% tax on S$100K taxable income
The corporate income tax rate is 0% on the first S$100,000 taxable income for each of the first three tax filing years for a newly incorporated company that meets the following conditions:
- be incorporated in Singapore
- be tax resident in Singapore (Please see below the tax residency of company)
- has no more than 20 shareholders of which at least one is an individual shareholder holding at least 10% of shares
- 8.5% tax on taxable income of up-to S$300K
All Singapore resident companies are eligible for partial tax exemption which effectively translates to about 8.5% tax rate on taxable income of up-to S$300,000 per annum. The taxable income above S$300,000 will be charged at the normal headline corporate tax rate of 17%.
One-off Corporate Income Tax (CIT) Rebate for YA 2016 & YA 2017
According to the Singapore Budget 2016, every Singapore company will be eligible for a corporate income tax rebate. Singapore companies can claim a one-time 50% corporate income tax rebate on corporate income tax payable for YA 2016 & YA 2017, subject to a cap of S$20,000.
Income tax filing due date
Income tax filing due date for Singapore companies starting year 2009 is November 30.
The company has to file a complete set of returns including Form C, audited/unaudited accounts, and tax computation. The Form C is a declaration form for a company to declare its income whereas tax computation is a statement showing the adjustments to the net profit/loss as per the accounts of a company to arrive at the amount of income that is chargeable to tax.
Income tax basis period
In Singapore, corporate income is assessed on a preceding year basis. This means that the basis period for any Year of Assessment (YA) generally refers to the financial year ending (FYE) in the year preceding the YA. For example, in year 2008 you will be filing corporate tax return for your company’s financial year that ended anytime between January 1, 2007 to December 31, 2007. Your company’s accounts are prepared up to the FYE each year.
Singapore has implemented a withholding tax law (on certain types of income) to ensure the collection of tax payable to non-residents on income generated in Singapore. The tax withholding does not apply to Singapore resident companies or individuals. Under the law, when a payment of a specified nature is made to a non-resident company or individual, a percentage of the payment has to be withheld and paid to Income Tax Authorities. The amount withheld is called the withholding tax.
Industry specific and special purpose tax incentives
Singapore provides several targeted incentives to companies in specific sectors. Every business in the country, whether a startup, a small and medium enterprise (SME), or a foreign branch of an established business can avail these benefits if it is operating in the relevant section.
The Inland Revenue Authority of Singapore (IRAS), which is the tax authority of the country has several tax schemes which help businesses reduce their taxes. SPRING Singapore also offers funding schemes especially targeted towards the growth of the startups in the country. Besides the tax and funding schemes, there are other business incentives (in the form of grants or preferential treatment in other areas) that are available in the country. Government authorities such as the Economic Development Board (EDB), International Enterprise Singapore have designed these incentives to attract companies to Singapore and to promote entrepreneurship and innovation in the country.
To find more, please visit the following government authorities in Singapore which offer and administer business incentives for Singapore entities:
1. Singapore Economic Development Board (EDB) at https://www.edb.gov.sg
2. International Enterprise Singapore (IE Singapore) at https://www.iesingapore.gov.sg
3. Monetary Authority of Singapore (MAS) at https://www.Inmas.gov.sg
4. Inland Revenue Authority of Singapore (IRAS) at https://www.iras.gov.sg
5. SPRING Singapore at https://www.spring.gov.sg
6. Maritime and Port Authority of Singapore (MPA) at https://mpa.gov.sg
Depending on the incentive or grant being sought, applications will need to be made at the relevant approving government authorities. Upon application, the relevant government authorities have certain discretion in administering the incentives and grants, and therefore the incentives and grants available may be negotiated, reviewed and agreed on a case-by-case basis. In general, award periods may vary from 3 to 10 years depending on various metrics set by the relevant authorities.
Singapore is a country with one of the lowest tax rates in the world. But on top of its low rates, the country provides numerous tax incentives and cash grants to help the growth of businesses thereby reducing the effective tax rates even further. Additionally, the hassle-free legal system and efficient business policies make Singapore a very attractive place for entrepreneurs to start their business. The country also provides a natural hub for expansion to Asia and Australia. If you wish to set up a new business, Singapore is a very attractive choice for these reasons.