Who is Singapore Tax Collector?

In Singapore, taxes are only to be levied by the legal authorities; namely, the Inland Revenue Authority of Singapore (IRAS), as specified in the

  • Income Tax Act (to be referred to as the Act) of 1948.
  • Another law related to taxes in Singapore is the Economic Expansion Incentives Act (EEIA) of 2005,

IRAS one of the Singaporean government’s statutory boards and is related to the Ministry of Finance. Throughout the 1990s, IRAS placed much emphasis on lowering direct taxes. The major tax-related development of the era was the introduction of the Goods and Services Tax in 1994. This tax would be applied to all goods and services purchased in Singapore, excluding residential properties and financial services. It is in existence to this day.

Since the beginning of the 21st century, IRAS has emphasized policies which promote investment in Singapore and which are intended to attract foreigners to live and work there. However, it is also worth noting that over this period, tax rates in Singapore were severely reduced. Today, the corporate income tax rate is 17% and the maximum individual income tax rate is 22%.

3 Ways Your Income Be Liability to Tax

The phrase “accruing in or derived from Singapore” in the income tax Act describes the territorial scope of Singapore’s tax system. This means that Singapore has the right to tax income if the source of the income is in Singapore.

Singapore also uses deemed-sourced provisions to remove the uncertainty of applying source rules based on case principles. Deemed-sourced provisions create a source of income in Singapore where none may exist under general tax law.

Income Deemed to be Sourced in Singapore

The Income Tax Act (ITA) contains provisions that deem the source of certain types of income to be in Singapore. These types of income include:

  • royalties
  • technical fees
  • management fees
  • employment income
  • profits of non-resident owners or charterers of ships or aircraft
  • income of non-residents from cable or wireless undertakings, and
  • rent from movable property

Income Deemed to be Received in Singapore

The Income Tax Act (ITA) contains expression “income received in Singapore” has an expanded meaning for income tax purposes and is defined to include monies or other assets which are:

  • remitted to, transmitted or brought into Singapore;
  • used in or towards the settlement outside Singapore of any debt which was incurred in respect of a trade or business that is carried on in Singapore; or
  • used to purchase any movable property that is brought into Singapore,
  • to the extent that the relevant monies, or other assets, concerned represent the taxpayer’s income as opposed to capital.

Income Accruing in Singapore

Income which accrues in Singapore will normally be subject to tax but income which accrues outside of Singapore will not be subject to Singapore tax unless it is received here by a taxpayer who is either resident here or who has a branch or permanent establishment here.

Here are the factors that have to be taken into consideration but are not necessarily limited to, in determining the source of trade or business:

  • where contracts are entered into and where acts under the contracts are performed;
  • where capital is employed. For instance, the ownership of patents, trademarks or stocks of goods in Singapore may give rise to a source of income in Singapore;
  • where title to goods passes;
  • whether a permanent establishment exists in Singapore.

Which Period is your Income being Taxed

In Singapore, income tax in the year of assessment (YA) is calculated based on the income in the previous financial or calendar year.

Year of Assessment (YA): The YA is the year in which income tax is calculated and charged. Each YA begins on 1 January and ends on 31 December.

Basis Period: The basis period is the calendar year preceeding that YA.

Eg. Your personal tax is being calculated during the calendar Year of 2010 for income earned from Basis period between 1 January 2009 to 31 December 2009.

Companies are allowed to adopt a different financial year other than a calendar year. A different basis period applies to businesses whose financial year end is not 31 December.

Eg. For a company with a June financial year end, the basis period for YA2010 is from 1 July 2008 to 30 June 2009. In this case, the income earned in this period is subject to tax in the year 2010 (YA2010).

Types of Tax

  • Income Tax-Income tax is chargeable on income of individuals and companies.

  • Property Tax-Property tax is imposed on owners of properties based on the expected rental values of the properties.

  • Motor Vehicle Taxes-These are taxes, other than import duties, that are imposed on motor vehicles. These taxes are imposed to curb car ownership and road congestion.

  • Customs & Excise Duties-Singapore is a free port and has relatively few excises and import duties. Excise duties are imposed principally on tobacco, petroleum products and liquors. Also, very few products are subject to import duties. The duties are mainly on motor vehicles, tobacco, liquor and petroleum products.

  • Goods & Services Tax-GST is a tax on consumption. The tax is paid when money is spent on goods or services, including imports.

  • Betting Taxes-These are duties on private lottery, betting & sweepstake.

  • Casino Tax-The casino tax is a new tax levied on the casinos’ gross gaming revenue.

  • Stamp Duties-This is imposed on commercial and legal documents relating to stock & shares and immovable property.

  • Others-The two main taxes are the foreign worker levy and the airport passenger service charge. The foreign worker levy is imposed to regulate the employment of foreign workers in Singapore.

Individuals
A person who is physically present or who exercises employment (other than as a director of a company) in Singapore for 183 days or more during the year preceding the year of assessment is regarded as a Singapore resident for tax purposes.

Companies
A company is regarded as resident in Singapore for tax purposes if its management and control are exercised in Singapore.

Trusts
For Singapore income tax purposes, a trust is generally taken to be resident where:

  • the trustee of the trust is resident at any time during the year in which income is earned, or
  • the management and control of the trust is in Singapore at any time during the year in which income is earned.

A registered business trust is considered resident in Singapore if:

  • the trustee of the registered business trust, in its capacity as such, carries on a trade or business in Singapore, and
  • the control and management of the business is in Singapore.

Partnerships
A partnership is resident in Singapore if the management and control of its business is exercised in Singapore.

Dual Residence
An entry may be considered resident in more than one country by application of the relevant country’s domestic legislation. If this is the case, the tax treaty entered into between Singapore and the relevant country may contain a tie-breaker test to determine the country of residence.

Latest Tax Incentives In Singapore

A tax incentive is a government measure that is intended to help its citizens to increase the amount which they may spend or save by reducing the amount of tax that they must pay. The Singaporean government ensures its citizens and especially its entrepreneurs pay a low amount of tax to increase the viability of all business activities which are conducted within Singapore through the Inland Revenue Authority of Singapore (IRAS), the nation’s tax collection authority.

Pioneer Tax Incentive

This incentive may be claimed by companies that are part of the manufacturing industry. The companies which are manufacturing approved products or provide approved services may claim the incentive. Such companies can apply for the tax incentive for a duration lasting anywhere between five and 15 years for each qualifying project under this tax incentive. The corporations which benefit from this tax incentive may also apply for post-pioneer profits to be taxed at a lower rate through the Development and Expansion Incentive. To qualify for this tax incentive, applicants must be creating employment opportunities for Singaporeans, by creating or introducing new skills and expertise in the country, can expand business operations and create economic benefits, and commit to developing all manner of infrastructure during any manufacturing projects.

Development and Expansion Incentive

The Development and Expansion Incentive is only available to companies whose eligibility for the Pioneer Tax Incentive has expired. This tax incentive is intended to be used by businesses involved in business activities that add a high degree of value such as involvement in manufacturing projects. The tax incentive reduces the amount of tax to be paid by an amount of between 5% and 10%. The period over which a business may claim this tax lasts for 40 years.

Corporate Income Tax Rebate

The Corporate Income Tax (CIT) rebate was started in Singapore in 2013. The details of this rebate will differ from year to year and will be mentioned in the Singaporean government’s budget for each particular year. The rebate can be enjoyed by individual taxpayers as well as companies. The primary reason the government introduced this rebate is to increase the level of ease of doing business in Singapore to restructure the economy of Singapore to assist in economic growth as well as help in the restructuring effort. In 2020, the rate of the rebate has been set at 25% and the amount which may be claimed has been capped at S$15,000.

Tax Exemption for New Startups

The Singaporean tax authorities also provide a special tax exemption for new businesses and startups in the country within their first three assessment years. This is one of the ways the Singapore’s government increase the level of investment and entrepreneurship within the country. This scheme is available to companies in any industry except for those which are involved in the development of properties for sale. It provides a 75% exemption on the first S$100,000 of normal chargeable income that has been earned as well as a subsequent 50% exemption on the next S$190,000 of normal chargeable income earned.

Wage Credit Scheme

Employers and creditors alike benefit from the Wage Credit Scheme. Under the scheme, the government of Singapore will co-fund wages of employees who have received up to a 15% wage increase and earn up to a S$5,000 gross monthly salary. Eligible employees are those who have also received Central Provident Fund (CPF) contributions from a single employer for at least the calendar months during the preceding year, have been on the current employer’s payroll for at least three calendar months in the qualifying year, and must not also be the business owner of the entity in question.

Conclusion

Singapore’s intricate, carefully-crafted tax system main purposes is to attract many a foreign investors companies and talents to Singapore. If not for its judicious use of tax policy Singapore would not have achieved the level of economic prosperity that it currently enjoys.

If you are a foreigner thinking of setting up a business or as an individual in Singapore, it is crucial to have tax advice on Singapore tax residency, income source and incentives for your company or personal tax planning.

FAQs

Why are partnerships not regarded as tax entities?2020-07-02T11:59:39+08:00

Although a partnership conducts business operations, the owners of a partnership are to be regarded as individuals. Therefore, they are to be taxed as individuals or as corporate partners. They are thus taxed based on the share of the partnership income which they have generated. 

Why must Singapore have tax exemptions on international air travel and shipping income?2020-07-02T11:59:00+08:00

The countries to which these tax exemptions apply are heavily involved in shipping and air routes to and from Singapore. Therefore, these exemptions encourage the people of these countries to continue to engage with and conduct business activities in Singapore.

What are the most recent changes to Singapore’s income tax rates?2020-07-02T11:58:08+08:00

Singapore’s current maximum personal income tax rate is 22%. This represents an increase from the prior maximum rate of 20%. On the other hand, the corporate income tax rate has steadily declined over the years. It once sat at 26% but is now at 17%. 

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2 Discussions

  1. Heamkumar August 8, 2019 at 2:29 am - Reply

    Malaysian if resign from singapore job within 1month how much tax have to pay?

    • Kumaran Tiwiyah August 9, 2019 at 11:13 am - Reply

      Income tax rates depend on an individual’s tax residency status. You will be treated as a tax resident for a particular Year of Assessment (YA) if you are a: 

      Singapore Citizen (SC) or Singapore Permanent Resident (SPR) who resides in Singapore except for temporary absences; or
      Foreigner who has stayed / worked in Singapore (excludes director of a company) for 183 days or more in the previous year. i.e. the year before the YA.

      Otherwise, you will be treated as a non-resident of Singapore for tax purposes.
      The employment income of non-residents is taxed at the flat rate of 15% or the progressive resident tax rates (see table above), whichever is the higher tax amount.

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