Some countries in the world are categorized as tax havens. However, despite the reputation of the loaded term "tax haven", having such a status is not necessarily a bad thing. This leads to the subsequent question: is Singapore one of the world's tax havens, and if so, why is such the case?
Tax havens are a controversial topic in the world today. Many people have been accused of using countries which are tax havens for their own financial gain. One of the countries which some people occasionally believe to be a tax haven is Singapore.
Before looking into whether Singapore is even a tax haven in the first place, the definition of what a tax haven is must be discussed.
A tax haven is a location in which effective tax rates imposed on foreign investors are extremely low. Some tax havens also offer financial secrecy. A tax haven may either be an independent country or a territory owned by one. Tax havens may either be traditional or corporate tax havens.
Traditional tax havens openly advertise their low tax rates or even absence thereof. However, this openness about tax rates also causes them to be involved in fewer tax treaties than most other countries and territories. Countries which are often cited as traditional tax havens include Liechtenstein, the Bahamas, Samoa, and Mauritius.
Corporate tax havens are locations in which tax laws comply with the Organization for Economic Co-operation and Development’s (OECD) guidelines, there are non-zero headline tax rates, and base erosion and profit shifting (BEPS) can be used to reduce the location’s effective tax rates. Examples of countries which are often classified as corporate tax havens are Ireland, the Netherlands, and the United Kingdom. There are also countries such as Luxembourg and Switzerland which are both traditional and corporate tax havens at the same time.
Now that the criteria of what makes a country a tax haven have been discussed, Singapore’s status as a tax haven (or lack thereof) can be properly discussed.
Singapore Income Tax
Income tax in Singapore is divided into the corporate and personal. Although there are many types of taxes imposed in Singapore, income tax is by far the most well-known and notable. Income tax, as well as most other taxes in Singapore, is imposed and collected by the Inland Revenue Authority of Singapore (IRAS). Everyone in Singapore who has fulfilled certain financial criteria is required to pay income tax.
Singapore Corporate Tax and Incentives
Singapore’s government has for many years worked on its intricate tax policy to bring to the point at which it is today. The tax rate imposed on wealthy foreign investors is relatively low, at just 22% for those in the highest tax bracket. The corporate tax rate in the country is 17% of all chargeable income earned by a company. However, this rate could be further reduced through certain incentives which IRAS has put in place. Some of these incentives include the Productivity Solutions Grant (PSG) as well as tax incentives offered to start-ups in Singapore. There are also tax exemptions offered to certain foreign banks, global trading companies, and offshore funds.
Why Singapore’s Corporate Tax Rate Is Low
The government of Singapore has intentionally kept the country’s corporate tax rate low. It has done so in order to stimulate the level of business activity conducted in the country. The lower cost of conducting business activities in Singapore would thus draw the interest of many a business owner. Today, many business owners from all over the world have come to Singapore in order to establish and operate a business there. The government of Singapore has always been known to be one which is pro-business, and the country’s low corporate tax rate serves as evidence of this fact.
Personal Income Tax Rates
The personal income tax rates which exist in Singapore today are also extremely low and another reason why the country is a tax haven. The highest possible tax rate which exists in Singapore today is 22%. This is one of the lowest maximum tax rates in the world. Due to Singapore’s use of a progressive tax rate system, anyone who earns less than S$20,000 every year is excused from paying any tax. Furthermore, there are also no taxes imposed on either capital gains or certain varieties of dividend deemed to be non-taxable. In general, Singapore’s income tax rates have fallen significantly over the years.
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Other Reasons Why Singapore Is a Tax Haven
The level of confidentiality and privacy as related to financial and tax matters is also extremely high in Singapore. It has some of the world’s strictest laws which guarantee the rights to privacy of all who own offshore bank accounts there. There is also no need to disclose the identities of beneficiaries of corporations based in Singapore to the relevant authorities. The fact that Singapore companies can also be incorporated through the use of nominee directors and shareholders, as well as the lack of regulations limiting nationalities of those who are allowed to incorporate a company in Singapore, is also worth mentioning because it further increases the level of confidentiality in the country.
The overwhelming general consensus regarding Singapore is that the country is not only a tax haven, but also one of the world’s most prominent. Studies and lists from all over the world and verified by some of the world’s leading financial and tax experts are virtually unanimous in declaring Singapore as a tax haven. A study by Zucman in 2018 ranked Singapore as the world’s third-most dominant tax haven. The Financial Secrecy Index released its own set of rankings in 2018 as well. These rankings put Singapore in fifth place, while ITEP’s 2017 study ranked it seventh. Singapore also serves as the Asia-Pacific headquarters for many major technology firms from abroad. This is due to its favorable tax policies and relatively low corporate tax rates, as well as the fact that Singapore can also serve as a pathway to other financially viable locations in the region such as Taiwan and Hong Kong.
However, despite the international stigma that comes with being a tax haven, having tax haven status is not necessarily bad for a country. Many of the countries and locations which are classified as tax havens enjoy excellent standards of living, high levels of citizen welfare, high development and per capita income levels, and much connectivity and accessibility with the rest of the world. Countries such as the Netherlands, Switzerland, Ireland, the United Kingdom, and Luxembourg are some of the world’s most developed and prosperous. Such is also true of Singapore.
Nevertheless, regardless of Singapore’s status as a tax haven, the fact that Singapore’s government has gone to such lengths to enhance its status as an international business center and a hub for global commerce will only encourage business owners and investors from all over the world to continue to conduct business activities there.