Tax System of Singapore
Singapore’s tax revenue collection consists of corporate tax, personal tax, Goods & Services tax, and property tax. Simple, efficient, and attractive – this in a nutshell is how you can describe Singapore’s tax system. Yet, in spite of low tax rates for businesses and individuals alike, Singapore has consistently generated budget surpluses while developing an excellent infrastructure for the country. It is an economic many other countries are trying to emulate.
The article provides an overview of Singapore’s tax system and a quick summary of the corporate and personal tax rates currently applicable for different types of income in Singapore.
Internationally recognized as an important finance, commerce and trading hub of Asia, Singapore has used prudent fiscal policy to attract foreign talent and investment to its shores. It has implemented socially progressive policies that reward its residents and those who relocate to the country. Singapore’s attractive tax policy is an integral part of its long-term strategy to become the preferred destination for investment and talent from across the globe.
Inland Revenue Authority of Singapore (IRAS) is the main government agency that levies and collects all taxes in the country. IRAS also represents the country in international tax treaty negotiations and aids the Government in drafting tax legislations. It is also the body that performs property valuations for property related transactions in the country.
Entrepreneurs and companies based in Singapore enjoy several benefits that are usually not available in other countries. These include a single-tier taxation system; no tax on overseas income, no capital gains tax, no dividend income tax and no tax on assets acquired in inheritance or as gifts. Furthermore, the countries has adopted extremely streamlined and simplified tax filing procedures. Lastly, an extensive network of bilateral treaties on Avoidance of Double Taxation ensures that companies and individuals who receive income from abroad or have assets outside Singapore are not taxed by both countries.
Key features of Singapore’s tax system
SINGLE-TIER TAX
Under this system, profits are taxed at the corporate level and this is the only tax on such income. Dividend payments to shareholders are tax exempt.
ZERO TAX
Zero tax on capitals gains, dividends, or income received from overseas sources. No tax on assets acquired in inheritance or as gifts.
LOW TAX RATES
Low corporate (highest rate is 17%) and personal (highest rate is 22%) tax rate along with numerous tax incentives to reduce the effective tax rate.
NO DOUBLE TAX
An extensive network of Double Taxation Avoidance treaties means companies and individuals who benefit from income and assets abroad are taxed only once.
Corporate Tax
Singapore follows a territorial basis for corporate taxation. This means that only the income that is sourced from or received in Singapore is taxed. A company is required to file for income tax return on earnings derived from, accrued from or received in Singapore. A person or company’s income in other countries is not taxed by Singapore (contrast this with the US system which taxes such income). Companies are charged a flat tax rate of 17% on its chargeable income.
Singapore offers several incentive schemes that reduce the effective tax rate for most companies to well below the headline rate of 17%. For example, startup companies enjoys tax exemptions for the first three years whereby they pay no tax on the first $100,000 of chargeable income and only 50% of the tax on the next $200,000 of chargeable income. Furthermore, the government has extended Corporate Income tax Rebate for all resident companies until 2017 wherein they are given a rebate of 30% on their corporate income tax, capped at SG$ 20,000 per year. In addition, Singapore has special tax regimes for specific industries or sectors wherein it provides tax exemptions or reduced tax rates; these sectors include Banking, Fund Management, Shipping, and Leasing. As a result of these schemes, the effective tax rate for a company is often well below 17%.
One of the most attractive features of Singapore’s corporate tax policy is that there is no tax on capital gains, dividend distributions, or foreign-sourced income.
The table below summarizes the current corporate taxes that a new company will pay for its first three years.
Note 1
Singapore’s Minister for Finance announced in the 2015 Budget that the Corporate Income Tax Rebate will be extended to the Years of Assessment (YAs) 2016 and 2017. The Corporate Income Tax Rebate for YAs 2016 and 2017 is 30% of corporate tax payable, subject to a cap of $20,000 per YA. For YA 2013 to YA 2015, all companies were granted a 30% Corporate Income Tax Rebate capped at $30,000 per YA.
Unlike several other countries, Singapore does not charge corporate taxes for the following:
Note 2
A Singapore tax resident company can receive tax exemption on its specified foreign sourced income if certain conditions are met, seeherefor details.
For more details, see our article Singapore Corporate Tax Guide.
Personal Tax
Singapore’s Personal Tax rates are progressive i.e. the percent rate increases as the income increases. The current tax rates for income brackets above $160,000 are set to increase in YA 2017. The table below shows both the current Personal tax rates for various brackets as well as the new rates that will be in effect from YA 2017 onwards.
Singapore does not charge taxes on the following types of personal income and these tax rates are therefore 0%.
While salary, bonuses, employment benefits such as housing and stock options are part of taxable employment income, overseas income derived from assets or employment abroad is not taxed by Singapore.
If a foreigner who is not a resident of Singapore receives employment income from a Singapore company, his or her income is taxed at the flat rate of 15% or at resident tax rates, whichever is higher; while the foreigner’s other income from Singapore sources is generally taxed at 20% unless specifically exempt or subject to a reduced treaty rate.
For more details, see our article Singapore Personal Tax Guide.
Tax Treaties
Singapore has signed Double Taxation Avoidance (DTA) agreements with 76 nations (as of this writing) including most of the significant economies in the Americas, Europe and Asia. The purpose of a DTA is to boost trans-continental trade and commerce by making it easier for businesses to expand their operations in several countries without having to worry about paying income tax multiple times e.g. in their domicile country and in the countries of their overseas operations.
To encourage seamless movement of capital, services and operations, Singapore has also signed free trade agreements with 15 individual nation countries and with member countries in regional groupings like ASEAN, Trans-Pacific SEP and Gulf Cooperation Council. Singapore is also a member of the Trans-Pacific Partnership which once approved will create the largest free-trade zone in the world.
Singapore is a signatory to Convention on Mutual Administrative Assistance in Tax Matters, developed jointly by OECD and Council of Europe. It has also signed Foreign Account Tax Compliance Act (FATCA) enacted by the US. Further, Singapore is bound by international trade obligations due to its membership of international conventions like WTO, Commonwealth, ASEAN and APEC.
For more details, see our article Guide to Singapore’s Double Tax Treaties.
Other Taxes
GOODS AND SERVICES TAX (GST)
Commonly knowns as Value-Add Tax (VAT) in other countries, GST is an indirect tax levied in Singapore on goods or services purchased by consumers. The current GST rate in Singapore is 7% and it is levied on domestic consumption only. Products and services sold to foreign consumers are exempt from GST tax. For more details, see our article Singapore GST Guide.
CUSTOMS & EXCISE DUTY
Singapore is effectively a duty-free port. While no duties are imposed on exports from Singapore, an import duty is levied on a small number of items such as petroleum products, motor vehicles, tobacco products and liquor. The duties are levied either at rates that are specific to the type of import or on ad valorem basis, i.e. the tax is charged in proportion to the price of the object being taxed.
STAMP DUTY
Stamp duty applies on documents relating to transfer of company shares and real estate property.
The stamp duty on transfer of company shares is very small.
Regarding real estate property, there are three types of duties payable on the sale, purchase, acquisition or disposal of properties in Singapore:
Buyer’s Stamp Duty (BSD)
Additional Buyer’s Stamp Duty (ABSD)
Seller’s Stamp Duty (SSD)
PROPERTY TAX
Property tax is assessed on real estate property and is paid by the owner. It is computed as a percentage of the annual value of all houses, land, buildings and tenements. The law makes a distinction between tax on residential land, properties that are Owner Occupied, commercial properties, and rented out properties. For more details, see here.
OTHER MISC TAXES
There are a few other taxes that are applicable in Singapore. For instance, Singapore charges foreign workers levy and airport passenger service charge for regulating the employment of foreign workers in Singapore. The country also charges betting taxes on revenue generated in lottery and gambling activity in the country. But in most cases, an individual or a company performing routine business in Singapore will not face any additional hidden taxes.
Final Thoughts
Singapore’s tax regime is a fine balance of incentives to promote free trade and commerce activity and checks to ensure that sufficient revenue is collected to allow the state to meet its social and economic objectives. The country has been able to create a mutually beneficial relationship between the state and its residents.
Due to Singapore’s reasonable and simplified tax policies, the country has one of the highest rates in the world for tax compliance from domiciled companies and residents. This symbiotic arrangement has enabled the country to create a world-class infrastructure that provides excellent quality of life for its residents and an increasingly attractive venue for global businesses to relocate, thereby creating a virtuous cycle.
