The Tax System and Tax Rates in Singapore

As in all other countries across the globe, the Singapore tax system aims for a strong society, vibrant economy and cleaner environment through effective management of fiscal policy of government expenditure and taxation for revenue generation with the objectives of achieving economic growth and providing essential public goods and services. 

Singapore’s tax policy revolves around a competitive tax rate both for corporations as well as individuals. The government is ever concerned about corporate taxation in Singapore and constantly strives to reduce it for the growth of industries, trades and investments.

How has Singapore’s Tax System Developed over the years?

The Singapore Income Tax Ordinance Tax was introduced by the British Government in 1947 though the actual tax assessment started in November 1948. The year 1960 witnessed the Inland Revenue Department (IRD) formation when all the agencies entrusted with the administration and collection of different types of revenues were brought under one roof. 

Soon after Singapore’s independence in 1965, significant changes were made to the Income Tax Act. The revised ordinance became operational on 1 January 1966 with another 12 acts coming under its purview by 1970.

Singapore started investing heavily in staff training and technology in 1970. For space savings, microfilming was put into use in 1972 and to reduce manual income tax file handling, property tax billing and collection were also computerised that year. However, these efforts proved to be inadequate as the department faced some serious issues including a huge increase in unassessed and uncollected tax and an acute shortage of manpower.

What are the Most Important Milestones in Singapore Taxation during 1980 and Beyond?

Post-independence, Singapore witnessed rapid economic growth due to its strategic location and several government initiatives were undertaken to amend its policies including considerable reduction of corporate and individual tax rates, from 40% to 33% during the late 80s and a gradual shift from direct to indirect tax policies during 1990.

The Goods and Services Tax (GST) was introduced in 1994 on domestic consumption and is now applicable to all goods and services supplied in Singapore with the financial services and residential properties kept out of GST.

The 21st century Singapore has been marked with rapid progress in technology, innovation and business practices with a greater need for overseas talents and investments. The government introduced several additional measures limiting corporate and individual tax rates at 17% and 20% respectively.

What are the main features of the Singapore Income Tax System?

The main features of the Singapore tax system are as follows 

  • A progressive tax rate
  • A territorial basis of taxation with tax levied on Singapore sourced income, Foreign sourced income is taxed unless the income has been already subjected to taxes in a jurisdiction with headline tax rates of at least 15%
  • A single-tier corporate tax system with dividends being tax-free
  •  A maximum corporate tax rate of 17% 
  • A maximum personal tax rate of 22% for an income exceeding SGD 320,000 for residents and a flat rate of 15% to 22% for non-residents
  • A uniform GST rate of 7% for maintaining a balance between the income and consumption towards achieving a non-inflationary economy 
  • Withholding tax applied to Interest, royalties, rental income from movable properties, director’s fees, management and technical fees to the non-residents
  • The tax year is the calendar year from January 1 – December 31 for individuals and the tax filing deadline is April 15 
  • Corporates can decide their financial year and the tax filing deadline for a corporate tax return is November 30. There are professional corporate tax filing services in Singapore that can assist business entities in timely compliance to avoid penalties
  • Taxes are paid for the previous year with the current year as assessment year
  • No capital gains tax and capital loss expenses not permitted as deductions
  • Singapore has entered into Double Tax Avoidance Agreements with many countries to corporates lower tax burden

Who is the governing authority of the Singapore Tax System?

The Inland Revenue Authority of Singapore (IRAS) is responsible for the administration of taxes in Singapore and is also the largest revenue agency. 

It was established on 1st September 1992 by legislation and as a statutory board under the Ministry of Finance. With this conversion, IRAS was incorporated by the ‘Inland Revenue Authority of Singapore Act’ to perform the functions previously carried out by the Inland Revenue Department.

The conversion was not merely a change of name rather entrusted IRAS with the complete autonomy and flexibility of managing the financial resources of the country and achieving a greater standard of tax administration services as well as a bigger role in the country’s tax policy-making decisions. The economic and tax environment existing in other countries has also been monitored by IRAS to identify areas for development and review tax policies.

IRAS takes an active role in promoting enterprise and growth by adhering to friendly and competitive tax policies. It also represents the Singapore government in tax treaties and formulating tax laws.

What are the types of Taxes in Singapore?

The following types of taxes are applicable in Singapore

  • Income Tax on the income of individuals and companies
  • Property Tax on the property owners depending on the assumed rental values 
  • Motor Vehicle Taxes excluding import duties
  • Customs and Excise Duties levied on certain products e.g. motor vehicles, tobacco, petroleum products and liquors
  • Goods & Services Tax (GST) on all goods or services, including imports  
  • Betting Taxes on private lottery, casinos & sweep-stake
  • Stamp Duty on commercial and legal documents e.g. shares and immovable property etc.
  • Other taxes include the foreign worker levy and passenger service charge at the airport

What are the Tax Rates in Singapore?

Corporate Tax Rate

Business entities with an income up to 300,000 SGD are levied an effective tax rate of 8.5% and income from businesses exceeding 300,000 SGD attracts a rate of 17%.

Singapore doesn’t impose any tax on capital gains and the tax payable on dividend distribution to shareholders is also nil. Foreign-sourced income not brought into Singapore is also tax-free and if brought into Singapore, tax is levied at a maximum of 17% subject to certain conditions.

Personal Tax Rates

No individual tax rate on income of less than 20,00 SGD annually and then a progressive tax rate applies with a maximum of 22% tax rate for an income of more than 320000 SGD.

Takeaway

A competitive tax rate as well as a business friendly tax environment is the essence of Singapore tax system and facilitates the inflow of foreign investments and talents into the country. However, outsourcing reputed and professional taxation services in Singapore is highly recommended to optimize the available tax benefits and ensure compliance with the tax law on an ongoing basis.

Author Bio:

Mr. Pankaj Kumar is a member of ICAI (Indian Institute of Chartered Accountants of India) since 2002. He has over 17 years of experience in cross border advisory, international taxation, structured finance, trade finance and management consulting. He advises MNCs and SMEs on formation of cross border corporations and business structures and structuring commercial transactions. Previously he has worked with Amicorp Group, DM Ventures, Amba Research (Singapore) and ICICI Bank.He primarily manages Client Advisory, Relationship Management & Business Development amongst group strategies and identification of new business opportunities.

He primarily manages Client Advisory, Relationship Management & Business Development amongst other responsibilities in Advisory & Secretarial capacity on the board of client companies, managing large and key client relationships along with driving the identification, execution of new business opportunities.

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