Personal income tax rates in Singapore are some of the lowest in the world. These low tax rates were chosen by the Singaporean government, which believes that low income tax rates bring many benefits to the country. This has been proven to be true, as Singapore is one of the world’s most economically prosperous and developed countries today. The low personal income tax rates of Singapore have contributed to the country’s economic success.
How Singapore’s Personal Income Taxes Benefit the Country
One important reason why the low personal income tax rates in Singapore have been good for the country is the fact that low taxes help drive the country’s economy. The less tax money paid by taxpayers, the more money they will have to spend. This extra money allows them to buy more products. This in turn causes an increase in economic activity to take place, and this has been the case in Singapore for many years. The results of this can be seen in Singapore’s continued economic growth and development.
Low tax rates also encourage higher levels of productivity and product quality. This is because taxpayers now have a greater incentive to be more productive because they will have more money for themselves. This in turn leads to increased quality of all goods and services produced. Once again, this is of great benefit to the economy – a fact that has not been lost on either the Singaporean government or taxpayers.
History of Singapore Income Tax Rates for Residents
Personal income taxes were first imposed on Singapore tax residents in 1948. This was the primary effect of the Income Tax Ordinance, which had been introduced in 1947. When Singapore tax residents were first subjected to Singapore income tax, the highest possible tax rate at the time was 30%. As the years passed, the government frequently reduced the tax rate. Since the turn of the century, however, the resident tax rates in Singapore have been fairly constant. In 2005, for example, the highest possible tax rate that could be imposed on a Singapore tax resident was 22%, the same as the maximum tax rate today. The two most recent changes to the maximum personal income tax rates in Singapore were in 2006, when it fell from 22% to 20%, and in 2017, when it was restored to 22%.
Until the 2003 Year of Assessment (YA), there had been a personal tax relief of S$3,000 available to those who were eligible. This relief was subsequently incorporated into Singapore’s personal income tax structure. In certain YAs, such as 2002, 2008, 2009, and 2011, there were one-off tax rebates offered to individual resident taxpayers. The last such rebate was in YA 2017. It was a personal tax rebate worth 20% of tax payable and could be used by all individual tax residents of Singapore. However, it was only available for up to a maximum value of S$500.
Even if you are not eligible for any tax reliefs, we at Paul Hype Page & Co can still help you reduce your tax burden. Our well-trained team of tax specialists will do their best to make sure that you do not have to pay an exorbitant amount of tax. By engaging with our tax team, you can be assured of high-quality service and excellent results.
How Singapore Tax Residents Pay Personal Income Tax
Personal income tax is imposed only on the income sourced from within Singapore. Any earned income derived from outside Singapore is exempt from taxation. The amount of income tax imposed on an individual depends on the individual’s tax residency status in Singapore. This is because of the difference in the amounts of income tax that residents and non-residents have to pay.
Singapore’s resident income tax rates are progressive. The more one earns, the higher the percentage of this money is to be paid as tax. Personal tax rates for residents range from 0% to 22%. Those who have earned between S$0 and S$20,000 in chargeable income over the course of the YA do not have to pay any personal income tax, while those who have earned more than S$320,000 in chargeable income over the course of the YA must pay Singapore income tax at the maximum rate of 22%. Non-residents are taxed at the flat rate of 15% or the resident rate, depending on which amount is higher. There is no capital gains tax in Singapore. Any remuneration resulting from business activities conducted by a company which has its management and control exercised in Singapore are taxable regardless of where the funds are made available to the taxpayer.
In Singapore, those who are tax residents are those who are Singaporean citizens. Singapore permanent residents with a permanent home there, or foreigners who have lived or worked in Singapore for 183 days or more during any part of the year. Every YA runs from January 1 to December 31 in each calendar year. Therefore, it is concurrent with the calendar year. 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 preceding the YA.
Personal Tax Rates for Residents
Taxable Income and Types of Income
Taxable income is the net income remaining after deduction of expenses, donations, and personal reliefs.
According to IRAS, taxable income is the amount remaining after personal reliefs are deducted from assessable income. Assessable income is statutory income after the deduction of donations, while statutory income is the amount remaining from total income after expenses are deducted.
Total income is defined as gains or profits from carrying on any business, trade, profession, or vocation either as a sole proprietor or partner in a partnership. It also includes gains or profits from any employment dividends, interests, investment income rents, royalties, premiums, or any other profits arising from properties.
Expenses are defined as qualified employment-related and rental-related expenses.
Donations are defined as donations to qualified charitable organizations.
Personal reliefs are defined as support to dependents, academic tuition, professional development expenses, and premiums paid on life insurance policies.
Tax Treatment of Income Earned Overseas
Generally, overseas income received in Singapore is not taxable. This includes overseas income brought into Singapore and paid into a Singapore bank account. However, there are certain circumstances in which overseas income is taxable.
Overseas income received in Singapore through partnerships in Singapore is taxable. If a taxpayer’s overseas employment is a relevant part of the taxpayer’s Singapore employment, the income earned abroad is taxable. Income earned abroad by those working outside Singapore on behalf of the country’s government is also subject to taxation.
Double Taxation Agreements
Double taxation agreements (DTAs) are an important part of Singapore’s tax system. They prevent taxpayers who would otherwise pay tax money to tax authorities in more than one country from doing so. Singapore is part of DTAs with many countries all over the world. Countries which are part of DTAs are known as treaty countries.
When income is earned from a treaty country by a Singapore taxpayer, the taxpayer claim the tax benefits under the DTA that provide either a tax exemption or reduction. To enjoy such benefit, the taxpayer must submit a Certificate of Residence (COR) to the foreign country’s tax authorities to prove Singapore tax residency status.
DTAs also provide relief for double taxation that would otherwise be imposed on Singapore companies. They do so by allowing the Singapore company to claim tax credits on the foreign tax suffered against its Singapore tax payable on the same income. Such credits are known as double tax relief (DTR).
Tax Treatment of Employer Benefits
All local and foreign gains and profits received through business activities are taxable unless they are specifically exempt from income tax or are covered by an existing administrative concession. The gains or profits include all benefits, whether in money or otherwise, paid or granted in respect of employment.
Examples of taxable benefits received from an employer include, but are not limited to, the following:
Fixed monthly meal allowances
Fixed monthly allowances for transportation if mileage on private cars are reimbursed
Car furnished by employer
Accommodation and housing allowance
Refunds of medical and dental treatments for dependents other than the employee, employee’s spouse, and employee’s children
Per diem allowances (such as allowances provided on overseas trips for business purposes) as long as the amount is beyond the acceptable rates
These are taxed immediately when they are enjoyed by individuals. However, certain non-cash benefits are taxed using certain formulas, leading to lower taxation on these benefits. Thus, a compensation package has been structured specifically for executives to help them reduce their individual tax liability in Singapore.
Here are some examples of such benefits which may be received as part of employment:
Furniture and furnishings provided
Food, clothing and hotel accommodation
Home leave passage
Car and chauffeur
Income tax paid by employer
Insurance premium paid by employer if employee is a stated beneficiary according to company policy
Subscriptions, entrance fees, memberships
Filing of Personal Income Tax Returns
It is mandatory for every taxpayer to file annual personal income tax returns to IRAS. All completed forms must be submitted to Singapore’s tax department by April 15 every year.
Those who are Singapore residents, hold a relevant work visa, earn more than S$20,000 in chargeable income over the course of the tax year, or who have received a letter from IRAS inviting them to file personal income tax returns are required to do so. They must file personal income tax returns regardless of the amount of annual income earned during the previous year. Those who do not have any income over the previous year must declare this fact in your tax form and submit it by April 15. Individuals do not have to file Form C; only companies do.
After filing the personal income tax returns, the taxpayer will receive a Notice of Assessment (NOA) or tax bill by September. The tax bill will indicate the amount of tax to be paid. Those who disagree with the tax amount must inform the tax department within 30 days from the date of the tax bill. The reasons for objection must also be clearly stated.
Everyone who receives a tax bill is to pay the full amount of tax within 30 days of receiving the Notice of Assessment. This applies regardless of whether they have informed the tax authorities about the objection. If the tax remains unpaid after 30 days, a penalty will be imposed.
Filing an income tax return can sometimes be a difficult and time-consuming process. Any errors made during this process can have grievous consequences. Fortunately for you, we at Paul Hype Page & Co can ensure that you do not have to experience these consequences. Our team of tax experts will work with you so that all your income tax returns are properly filed and all your other tax-related matters are handled adequately.
IRAS and Its Roles
IRAS is the Singaporean government’s primary tax administrator. It oversees all activities related to tax purposes in Singapore. It is also the government’s representative regarding tax treaty negotiations with other countries. IRAS also drafts tax legislation and advises the government on the value or properties.
IRAS has 14 different divisions which each deal with a specific part of Singapore’s tax system. Among the most important and well-known of these divisions are the individual income tax division, the corporate tax division, the international tax and relations division, and the revenue and corporate services division. These, along with the other divisions, work together to ensure that IRAS covers every aspect of the country’s tax system in the best way possible.
Each division then belongs to one of four groups. These groups are the following: the individual group; the business group; the international, investigation, and indirect taxes group; and the corporate and services group.
The individual income tax division and individual group oversee everything related to personal income tax in Singapore. Therefore, they are in charge of areas such as resident tax rates, tax exemptions for individuals, and any other areas related to personal income tax.
Personal Income Tax for Residents FAQs
What if you are a Singapore tax resident? What If you receive foreign income?Tiwi2020-07-01T11:16:54+08:00
When your company earns foreign income from a treaty country, you may wish to claim the benefits under the DTA that entitles a company not to pay tax or to pay tax at a reduced rate in the foreign country. To enjoy this benefit, you would need to submit a COR to the foreign country to prove that the company is a Singapore tax resident. To find out more about the application process, please refer to Applying for Certificate of Residence.
When you receive foreign income in Singapore, you may be taxed on the income. In the case where the benefit under the DTA is not an exemption of tax, but a reduction of tax rate, the Singapore company will also suffer tax in the foreign country. In this way, the same income is subjected to taxation twice.
The DTA provides relief for this double taxation by allowing the Singapore company to claim a credit of the foreign tax suffered against its Singapore tax payable on the same income. This credit is known as a double tax relief (DTR). To find out more about this relief, please refer to Claiming Double Tax Relief.
How Singapore personal income is assessed?Tiwi2020-07-01T11:15:50+08:00