Singapore Tax System & Tax Rates
Investors turn to Singapore for establishing their operations for several reasons. The ease of setting up and operating businesses is a prime motivator. Another central determinant is Singapore’s tax regime – well-known for its attractive corporate and personal tax rates, tax relief measures, absence of capital gains tax, one-tier tax system, and extensive double tax treaties
Current Tax Rates in Singapore
Corporate Tax Rates
(For more details, see Singapore Corporate Tax Guide)
|Tax rate on corporate profits for up to 300,000 SGD||Effective tax rate at 8.5%|
|Tax rate on corporate profits above 300,000 SGD||17%|
|Tax rate on capital gains accrued by the company||0%|
|Tax rate on dividend distribution to shareholders||0%|
|Tax rate on foreign-sourced income not brought into Singapore||0%|
|Tax rate on foreign-sourced income brought into Singapore||0 – 17% subject to conditions|
Personal Tax Rates
(For more details, see Singapore Individual Tax Guide)
|Tax rate on first 20,000||0%|
|Tax rate on next 10,000||2%|
|Tax rate on next 10,000||3.5%|
|Tax rate on next 40,000||7%|
|Tax rate on next 40,000||11.5%|
|Tax rate on next 40,000||15%|
|Tax rate on next 40,000||18%|
|Tax rate on next 40,000||19%|
|Tax rate on next 40,000||19.5%|
|Tax rate on next 40,000||20%|
|Tax rate on above 320,000||22%|
|Tax rate on capital gains||0%|
|Tax rate on dividends received from Singapore company||0%|
Singapore Income Tax System – Key Facts
- Singapore follows a territorial basis of taxation. In other words, companies and individuals are taxed mainly on Singapore sourced income. Foreign sourced income (branch profits, dividends, service income, etc.) will be taxed when it is remitted or deemed remitted into Singapore unless the income was already subjected to taxes in a jurisdiction with headline tax rates of at least 15%. Although the concept of locality of the source of income seems simple, in realty its application often can be complex and contentious. No universal rule can apply to every scenario. Whether profits arise in or are derived from Singapore depends on the nature of the profits and of the transactions which give rise to such profits.
- Singapore corporate tax rate is capped at 17%. By keeping corporate rates competitive, Singapore continues to attract a good share of foreign investment. Singapore follows a single-tier corporate tax system, where tax paid by a company on its profits is not imputed to the shareholders (i.e. dividends are tax free).
- Singapore personal tax rates start at 0% and are capped at 22% (above S$320,000) for residents and a flat rate of 15% to 22% for non-residents.
- To increase the resilience of taxes as a source of government revenue, Goods and Services Tax (GST) was introduced in 1994. The current GST rate is 7%. The balanced mix of tax on consumption and income reduces the vulnerability of revenue intake to adverse changes in economic conditions and strengthens the resilience of Singapore’s fiscal position.
- Interest, royalties, rentals from movable properties, management and technical fees, and director’s fees paid to non-residents (individuals or companies) are subject to withholding tax in Singapore.
- For personal taxes, the tax year is the normal calendar year i.e. January 1 – December 31. Deadline for filing personal tax return is April 15. For corporate taxes, a company is free to decide on its financial year. Deadline for filing corporate tax return is November 30. Taxes are paid on a preceding year basis.
- Singapore has no capital gains tax. Capital loss expenses are correspondingly not allowed as deductions.
- Singapore has concluded more than 50 bilateral comprehensive tax treaties to help Singapore companies minimize their tax burden.
Types of Taxes in Singapore
- Income Tax - chargeable on income of individuals and companies.
- Property Tax - imposed on owners of properties based on the expected rental values of the properties.
- Estate Duty - abolished since February 15, 2008.
- Motor Vehicle Taxes - taxes, other than import duties, that are imposed on motor vehicles. These taxes are imposed to curb car ownership and road congestion.
- Customs and Excise Duties - Singapore is a free port and has relatively few excise 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. This kind of indirect tax is also known as Value Added Tax (VAT) in many other countries.
- Betting Taxes are duties on private lottery, betting & sweep-stake.
- Stamp Duty 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.
Singapore Tax Governing Authority
The Income Tax Act of Singapore is the governing statute regarding corporate and individual taxation matters.
The Inland Revenue Authority of Singapore (IRAS), was formed in 1960 and was formerly known as the Inland Revenue Department. It integrated all the key revenue collection agencies into one body, enabling the administration and collection processes to become more streamlined and better managed. IRAS has also made its mark as an efficient tax administrator and a service-friendly tax collector.
IRAS is responsible for collecting income tax, property tax, goods & services tax, estate duty (abolished since 15 Feb, 2008), betting taxes and stamp duties. As the main tax administrator for the Ministry of Finance, IRAS plays a role in tax policy formulation by providing policy inputs, as well as the technical and administrative implications of each policy. IRAS also actively monitors developments in external economic and tax environment to identify areas for policy review and changes. It aims to foster a competitive tax environment that encourages enterprise and growth. The other non-revenue functions performed by IRAS include representing the government in tax treaty negotiations, providing advice on property valuation and drafting of tax legislation.
Brief History of Taxation in Singapore
Debated since before World War I, income tax was introduced briefly during World War I and II to raise revenue for the war effort. But the tax was unpopular, and with many opposing the need for it, income tax stayed off the agenda.
The end of World War II highlighted the need for new infrastructure and fresh sources of revenue, giving renewed impetus to the introduction of income tax.
In 1947, Income Tax was introduced in Singapore under the British colonial government. In 1948, the Income Tax Act was imposed. The Act was based on the Model Colonial Territories Income Tax Ordinance 1922, which was devised for British colonies at that time. Therefore, Singapore’s tax laws share common historical roots with those of Malaysia, Australia, New Zealand and South Africa.
With Independence in 1965, Singapore promoted a policy of rapid industrialisation and building an export oriented industrial base, to stimulate growth and employment. Hence in the 1960s, labour-intensive industries were encouraged by tax incentives. The Economic Expansion Incentives Act was introduced in 1967. Companies which managed to grow their exports enjoyed as much as a 90% tax exemption on the increased export income. Interest paid on foreign loans granted to a local industrial company was tax-exempt.
In the 1970s, growth of the service sector was high on the government’s agenda. Tax policy played its part in the financial sector with the exemption of interest on Asian dollar bonds from 1973. Shipping was also actively promoted. Income from the operation and charter of Singapore ships drew tax exemptions. Tax measures to support urban redevelopment were also introduced. Different property taxes were also phased out. Tax policies in the 1970s were also influenced by social needs. Contributions to the Central Provident Fund were tax deductible and other tax relief measures were introduced.
As Singapore became more developed, it became a more expensive place for businesses in the 1980s. Measures to revamp the economy, with the aim of making it more competitive was introduced. Changes to government policies, incentives and taxes were considered. The late 1980s marked a significant shift towards lowering both corporate and individual taxes. In 1987, corporate tax rates were lowered from 40% to 33%.
This period witnessed major changes in tax policies. There was a shift towards lower direct taxes and the focus was on indirect taxes. The trend towards indirect taxation resulted in the introduction of the Goods and Services Tax (GST) in 1994. It is a tax on domestic consumption and applies to all goods and services supplied in Singapore except for financial services and residential properties. It was in this period that the trend of lowering corporate and individual tax rates accelerated.
2000 and beyond
This has been the phase of innovation and entrepreneurship. A number of measures were, and are being introduced to attract foreign talent and investment. Tax rates were further lowered and currently capped at 17% for companies and 20% for individuals. This period witnessed the introduction of group relief and the one-tier corporate tax system.
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