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.
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%
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.