Singapore taxpayers have several options that they may utilize to reduce their income tax burden. Tax reliefs, tax deductions, and the NOR scheme are just a few of the ways by which eligible taxpayers can avoid having to pay their usual amount of income tax.
Every taxpayer is required to pay personal income tax. Everyone would like to save money on the income tax that they owe the tax authorities. Each country has its own methods for reducing taxpayers’ tax burdens. In Singapore, there are five ways by which a taxpayer may save money on taxes to be paid.
Methods of Reducing one’s Tax Burden
1) If the taxpayer is a tax resident, the taxpayer is entitled to certain tax reliefs and deductions. Among the tax reliefs that can be claimed by residents include Life Insurance Relief, Earned Income Relief, and Supplementary Retirement Scheme (SRS) Relief. Deductions may also be claimed if they are related to employment expenses, business expenses, certain types of donations, rental expenses, research and development (R&D) expenditure, or various other categories. Starting from the 2018 year of assessment (YA), there is an overall tax relief cap of S$80,000. Taxpayers may continue to claim reliefs for which they qualify, but they may not have more than S$80,000 deducted from the total amount of income tax due.
2) If the taxpayer is not a Singapore tax resident, Avoidance of Double Taxation Agreements (DTAs) may be used by the taxpayer to avoid being taxed in both the taxpayer’s country of residence and Singapore. A DTA specifies all taxing rights between Singapore and the other country involved regarding income generated from economic activities between the two countries. Only tax residents of Singapore or the partner country may benefit from the effects of the DTA.
3) By using the Not Ordinarily Resident (NOR) scheme, a taxpayer could benefit from either Tax Exemption of Employer’s contributions to Overseas Pension Fund, Time Apportionment of Singapore employment income, or both. A taxpayer qualifies for the NOR scheme if the taxpayer had not been a Singapore tax resident for the entirety of the three-year period before the YA in which the taxpayer applies for the scheme. The taxpayer must also be a tax resident during the current YA in order to be eligible. A taxpayer with NOR status will have it for five years.
4) Taxpayers who are required to travel abroad for work purposes and work for a non-Singaporean employer may claim time apportionment of employment income under the Area Representative Scheme. To qualify for this scheme, a taxpayer must fulfill the following criteria: being employed by a non-resident employer, being based in Singapore for geographical convenience, being required to travel abroad to fulfill job duties, and having remuneration paid by the non-resident employer and not charged to the accounts of a Singapore-based permanent establishment. Permanent establishments are defined as fixed places where business activities are carried out.
5) A taxpayer may claim any expenses incurred against the taxpayer’s employment income and benefit from tax deductions for any approved charitable donations. Tax-deductible donations include donations of cash, shares, land, buildings, or artefacts to approved bodies or organizations. Donations under the Public Art Tax Incentive Scheme (PATIS) are also tax-deductible. Tax deductions are only given for donations that were made during the preceding year. The value of the tax deduction that can be claimed is 250% of the value of the donation made.