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How can Foreigners Benefit from Singapore Income Tax Act?

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How can Foreigners Benefit from Singapore Income Tax Act?

2021-02-09T12:53:20+08:00January 15, 2021|0 Comments

When you work, you want to take as much money as you can be paid. However, how much you eventually end up with is determined by the tax master and the Tax Act of that jurisdiction where you reside. Singaporean income tax is one of the lowest worldwide. The tax rate for non-resident is higher. It is usually calculated at a flat rate of 15% or sometimes at the same rate as that of residents depending on the one which brings the highest tax amount. However, tax-resident foreigners are entitled to certain tax benefits. Otherwise, foreigners who do not qualify as tax residents do not get tax reliefs.

A Foreign Tax Resident

The Inland Revenue Authority of Singapore defines a foreign tax-resident as one who has lived and worked in Singapore for more than 183 days in a year (permanent residents) or anyone who has no Singapore origin. These categories of foreigners are entitled to certain reliefs and reductions. These 183 days include public holidays, work leaves, work trips, weekends, and overseas holidays.

A tax resident is also one who has been in Singapore for three uninterrupted years even if he/she did not complete the 183-day- stay requirement in his/her 1st and 3rd year.

Types of incomes that are taxed in Singapore

Personal Income Tax

According to the Income Tax Act of Singapore, there are two categories of income that are taxed: personal income and corporate income. Personal income tax is the tax paid by all Singaporean taxpayers on an individual basis when they earn $22,000 per year.

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Corporate Tax

Corporate Tax is the income that is made by companies in Singapore. When Singapore company makes a profit outside Singapore, , the entity will pay taxes for that profit. However, there are certain exemptions for income earned outside Singapore. In deciding whether the money received into Singapore from outside is foreign-sourced, the transaction which bore the profit and the physical location in which the transaction took place is taken into consideration. Such that if there is no known physical location outside Singapore, the income is treated as one that had been earned in Singapore and taxed as such.

To determine whether money has been received into Singapore yet derived from outside, the Singaporean Inland Revenue Authority,(IRAS), refers to any money that the Singaporean banks receive from outside on behalf of any Singapore-based company. Income received from outside may also include any payment method to the Singapore-based company that has been brought from outside such as money orders, cash, or cheque. It is also good to be aware that according to IRAS, any money that comes from outside to clear your Singaporean debts, increase your supply, or as a movable asset is considered income received from outside and may be subject to taxation. However, your income received from outside Singapore may not be taxed, if the income was already taxed from outside Singapore where it was earned even if they don’t have a double taxation treaty with Singapore, or if the income tax rate of that outside jurisdiction is 15% and above.

How can a foreigner benefit from Singapore Income Tax?

A foreigner who temporarily works in Singapore is exempted from taxation if they work in Singapore for less than 60 days (about 2 months). The Income Tax Act of Singapore exempts foreigners who find themselves stranded in Singapore due to a pandemic that goes beyond their 60-day stay, from income taxation. Foreigners whose income is earned from temporary assignments to duties which they could have performed overseas are exempted from income taxation.

As a foreign tax resident, you are entitled to a progressive income tax rate just as the residents of Singapore. A tax resident foreigner is not taxed for income that he/she brings into Singapore. All tax-residents who have been assessed in the last three years qualify for other tax benefits for the next five years. In as much as he/she must be a tax resident in the first assessment year, he/she is not mandated to be a tax resident in the five years of favorable tax treatment. He/she is categorized as Not Ordinary Resident (NOR) in Singapore, and he/she is taxed just as a Singaporean resident.

A NOR tax resident is not taxed when he/she contributes to a non-mandatory pension fund to his/her foreign country. The non-NOR foreigners are taxed when their employers make such contributions. Income tax Act of Singapore exempts a foreign tax resident who has been out of Singapore for 90 days (about 3 months) of business from income taxation provided his/her income derived from Singapore employment totals $160,000.

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A glimpse into the local’s tax rate

Residents get a progressive tax rate ranging from 0% to 22% for income of $320,000 and below for income of $22,000 or more per year. The Singaporean Income Tax Act exempts the taxation

of foreign-sourced personal income. However, if the income is received into Singapore as corporate income, it will be taxed with certain exemptions.

Who considered a non-resident/foreigner according to Singapore’s Income Tax Act ?

In Singapore, the income tax act defines a non-resident as one who has worked or lived in Singapore below 183 days in that particular tax year.

If you are in Singapore for a temporary work assignment of fewer than 60 days, you are exempted from personal income tax. However, if you are a Company Director, foreign professional, consultant or trainer, or anyone deemed to be in this category of professionals, you are not free from tax even if you are in Singapore for less than 60 days.

If you are in Singapore for 61 to 182 days per tax year, you will be charged income tax either using the 15% flat rate or the floating rate depending on the one which brings the highest tax amount.

If you are a Director or a Consultant, your fees will be taxed using a flat tax rate of 15% to 22%

Summary

The Inland Revenue Authority of Singapore is very professional and friendly such that you will be reminded of your tax obligations and also you can file for an extension of the tax filing date. However, for your tax filing date to be extended, you are to submit your request by the last day of March. Also, if your tax relief claims are equivalent to the previous year’s amount, your tax returns may be waived. Besides, you can reduce your tax total amount considerably by taking advantage of schemes available in Singapore.

When you intend to leave Singapore because your contract/visa has expired, or when retiring, ensure you file your tax returns. Also, when you are changing your job assignment, ensure the human resource of your current employment informs the Inland Revenue Authority of Singapore of your intended employment decision so that you are cleared for taxes and you get to pocket the compensation added to you.

How can Foreigners Benefit from Singapore Income Tax Act? FAQs

According to the Singaporean Income Tax Act, can my tax residency change?2021-01-15T10:10:58+08:00

Yes, you can change your tax residency. Upon the expiry of your one-year work visa which had qualified you for tax residency, your tax residency is revised depending on the total days worked or lived in Singapore. If the total days do not reach the 183-tax residency requirement, you are allowed to declare as a non-resident for tax purposes, and as such your income earned in Singapore is taxed at a 15% tax rate.

Is the income of Singaporeans returning from other jurisdictions taxed?2021-01-15T10:10:38+08:00

There is a temporary exemption from taxation of income earned overseas by the returning Singaporeans.

Is the income that I get from selling my personal properties in my foreign country taxed?2021-01-15T10:10:16+08:00

Yes, according to the Income Tax Act, the money that you get from selling your personal properties and then bringing the proceeds thereof into Singapore, is considered money received into Singapore and as such subject to taxation.

Also, if you use the proceeds thereof to purchase assets for your Singapore-based company and then shipping the property into Singapore, it is considered income received into Singapore and as such subject to taxation. And the worth of that property received into Singapore is that amount that was paid for it at first. Otherwise, if the company receiving the income or asset into the Singaporean banks, is not having an office in Singapore, they are not taxed.

What determines whether an income is to be taxed in Singapore?2021-01-15T10:04:37+08:00

According to Singapore’s Income Tax Act, whether a foreign-sourced income is taxed are based on the following factors:

  • The jurisdiction in which it has been earned. Whether it was earned from within or outside Singapore.
  • The jurisdiction from which it has been received. Is it among the tax treaty jurisdictions?
  • Whether a foreign-sourced income has been received into Singapore.
  • Whether the income received into Singapore has been taxed from outside.

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