Singapore uses a territorial system of taxation. Under this system, taxation is charged on an individual or company’s income accruing in or derived from Singapore or received in Singapore from outside Singapore. If income related to international trade is to be counted as Singapore-sourced, the trade activity must take place in Singapore. If such is not the case, the income will be deemed to be foreign-sourced.
There is no capital gains tax imposed. However, gains that stem from certain short-term real property transactions are usually regarded as income-related gains. Therefore, these gains will have income tax imposed against them.
Types of Tax
There are many different types of taxes which are imposed in Singapore. Income tax is imposed on individuals’ and companies’ income. Property tax is imposed on people who own properties. The tax amount to be paid is based on the properties’ expected rental value. Motor vehicle taxes are imposed on motor vehicles. They are intended to reduce car ownership and, in doing so, ease traffic congestion. Excise duties are imposed on alcoholic beverages, tobacco, and petroleum products. These items, as well as motor vehicles, are also subject to customs duties. The Goods and Services Tax (GST) is imposed on consumption. It is paid when goods or services are purchased, or when imports are made. Prime Minister Lee Hsien Loong has stated that Betting taxes are levied on sweepstakes, betting, and private lotteries. Casino tax is levied on casinos’ gross gaming revenue. Stamp duties are imposed on commercial and legal documents related to shares, stocks, and immovable properties. The foreign worker levy is imposed to regulate foreign workers’ employment. There is also an airport passenger service charge, which must be paid by passengers leaving Singapore by air. This charge is part of the Singaporean government’s efforts to make Singapore tourism more lucrative.
Income Liable to Taxation
Several forms of income are considered by the authorities to have been sourced in Singapore. As such, these types of income are subject to taxation. Such income includes the following: royalties, interest, technical fees, management fees, rent for moveable properties, business profits earned by a non-resident who is partly carrying on a trade in Singapore, employment income, income earned by non-residents as a result of cable or wireless operations, and profits earned by non-residents who are owners or charterers of aircraft or ships.
Income received in Singapore is also subject to either corporate or personal income tax. Income which is classified under this category will fall in one of three groups. The first is money or assets which are remitted to, transmitted into, or brought into Singapore. The second is money or assets used in or towards the settlement abroad of any debt which was incurred in respect of a trade or business that is carried on in Singapore. The third is money or assets used to purchase any movable property that is brought into Singapore, to the extent that the relevant money or other assets concerned represent the taxpayer’s income. Each of these categories of income will be taxed accordingly. According to the IRAS, foreign income applied towards investments in another country will not be treated as having been received in Singapore at the point of reinvestment if it never arrives in Singapore.
Income accruing in Singapore is to be taxed. Income accruing abroad is usually not. However, if income accruing abroad is received in Singapore by a taxpayer who is a Singaporean resident or who owns a branch or permanent establishment in the country, the income will be taxed as necessary. To determine the source of trade or business and therefore where the income is accrued, four factors can be used. They are the location of entry of contracts and where acts under the contracts are performed, the location of employment of capital, the location of passing of title to goods, and the location of permanent establishments, if any.
There are several classes of income which are subject to taxation. These include gains or profits from any trade or business, profession, employment, or vocation; dividends, interest, or discounts; rents, royalties, premiums, and any other profits arising from property; any pension, charge or annuity; and any other gains or profits of an income nature.
Tax Resident Status
Individuals, companies, trusts, and partnerships may all be regarded as tax residents in Singapore. An individual, excluding the director of a company, will be deemed to be a tax resident if the individual either lived or worked in Singapore for at least 183 days during the year directly before the current year of assessment (YA).
A company will be regarded as a resident if it exercises its management and control in Singapore. The location of a company’s management and control is the location where most or all of the company’s board meetings are held. A company’s resident status is important because it will determine if the company is liable to Singapore tax regarding dividend payments or foreign-sourced income. It also determines if the company is subject to Singapore withholding tax with regard to certain categories of interest, royalties, and management fee payments. Withholding tax only applies to specific types of payments. Finally, the company’s tax resident status or lack of it will also give information on whether the company may use double taxation agreements to claim any reliefs, or if the company is eligible for double tax credit relief.
Trusts are residents if the trustee of the trust is a resident at any time during the YA in which income is earned or if, during the YA in which income is earned, the trust’s management and control are located in Singapore. Management and control of a trust are determined in a similar way as those of a company. A registered business trust is a resident if the trustee of the registered business trust carries on a business or trade in Singapore and if its control and management are located there. Partnerships whose management and control are in Singapore are also regarded as tax residents.
In certain situations, the country of which a person is a tax resident may be in dispute due to domestic legislation in another country. Tax treaties may be referred to so as to reach a decision regarding this matter. This is because such treaties often contain criteria which serve as tiebreakers.
Residents and non-resident individuals pay taxes at different individual tax rates. As Singapore’s taxation is progressive, those who earn more money are subject to higher tax rates. Non-residents are taxed at rates based on whether they have lived or worked in Singapore for at least 61 days of the relevant YA. Thus, tax resident status determines the extent of one’s tax liability.
Tax Years, YAs, and Basis Periods
Income tax in Singapore is always charged on a preceding-year basis. In a preceding-year basis, income from any source for any YA is measured by income from the same source in the previous year. A YA is defined as the one-year period in which income tax is calculated and charged. Every YA begins on January 1 and ends on December 31. Hence, a YA coincides with a corresponding calendar year. Income tax returns are tied to the relevant YA.
The basis period for any YA is the period of income relevant to that same YA. This basis period is the calendar year directly before the YA in question. However, companies may use a different financial year that might not necessarily match up to the standard calendar year. Companies which opt to do so will have a different basis period applied to them. These companies will also have their accounts made up to a date which is not the standard date of December 31.
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IRAS (Singapore’s Tax Authority) governs Singapore’s tax system, helps develop a stronger economy, better environment and a more vibrant economy. All companies, regardless of industry, have a legal duty to pay taxes.
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