Understanding The Taxation In Singapore

The Singapore tax system is one of the most important factors that make the nation become a well-known business attraction for many foreign investors. In addition to the appealing corporate tax rate, there are many more beneficial tax schemes and incentives.

Corporate income tax in Singapore

Singapore adopts a territorial basis of taxation. Specifically, a company established in the city-state is only taxed on the income which is:

• a Singapore-based source of income (arising within the Singapore territory), or
• a foreign-based source of income remitted to Singapore.

Regarding the corporate tax rate, it stood at 26% in 1997. Then, the figure experienced a gradual fall throughout the following years, before reaching 17% in 2010. And the flat tax rate of 17% remains to the present. Compared to other countries, Singapore’s current tax rate is relatively low and it helps the city-state to maintain its standing as one of the most favorable tax systems in the world.

Furthermore, the Singapore tax system is single-tier. Particularly, the business profits of a company are only taxed once and dividends paid by a resident company to the shareholders are not subject to any further tax. Singapore also eliminates the tax imposed on capital gains.

Personal income tax in Singapore

Any individual who earns income within Singapore is subject to personal tax in this nation. The personal tax may differ from person to person, depending on their residency status.

Personal income tax for Singapore tax residents

An individual is a tax resident in Singapore if he/she is:

• A Singapore citizen, or
• A permanent resident in Singapore, or
• Any foreigner who is physically present in Singapore for no less than 183 days.

Singapore adopts a progressive approach to personal income tax rates for tax residents, from 0% to 22%.

Personal income tax for Singapore non-tax residents

An individual is considered a non-tax resident if that person has a presence in Singapore for less than 183 days. The tax rates applied to non-tax residents are:

Regarding directors, non-residential professionals, and non-residential public entertainers, the tax rates range from 15% to 22%. Individuals can also legally make use of tax deductions (e.g., reliefs, rebates, expenses, and donations) to lower their payable taxes. Find out detailed information in our guide to personal income tax in Singapore for foreigners.

Goods and services tax in Singapore

Goods and Services Tax (GST), also known as Value Added Tax (VAT), is the consumption tax imposed on imported goods (collected by Singapore Customs) and levied on nearly all goods and services provided in Singapore. Until the 1st of January 2023, goods and services purchased from GST-registered businesses will be charged 7%. However, under the effect of Budget 2022, the GST rate will be increased to 8% on or after 1 Jan 2023, and businesses must account for the GST collected from customers in their GST returns.

Notwithstanding, there are still goods and services that are non-GST taxable as follows:

Goods

Zero-rated supplies

• Exported goods

Exempt supplies

• Sale and rental of residential property
• Importation and local supply of investment precious metals

Out-of-scope supplies

• Sale of goods from overseas to another overseas destination
• Private transactions
• Sale of goods within Free Trade Zone and Zero GST Warehouse

Services

Zero-rated supplies

• International services (under Section 21(3) of the GST Act)

Exempt supplies

• Financial Services in the fourth schedule of the GST Act
• Digital payment tokens

Out-of-scope supplies

• Sale of goods from overseas to another overseas destination
• Private transactions
• Sale of goods within Free Trade Zone and Zero GST Warehouse

GST requirements

There are two circumstances:

• A business must register for GST if its taxable turnover exceeds $1 million for the previous 12 months at the end of a calendar year, or at any time in the future when a company expects its revenue will be more than $1 million over the next 12 months.
• A business can voluntarily register for GST if its taxable turnover is no more than $1 million.

Property tax in Singapore

Property tax in Singapore is a tax imposed on the ownership of property whether the property is rented out, owner-occupied, or vacant. It is important to note that property tax is different from income tax imposed on earnings generated from the property.

• Annual value (AV) of a building is the estimated gross annual rent of that property if it were to be rented out. AV is determined based on estimated market rentals of similar or comparable properties.
• There are many tax rates based on the following categories:

Withholding tax in Singapore

A withholding tax in Singapore is the percentage that is withheld from a payment made by a Singapore source to a Singapore non-tax resident. The withheld amount then will be remitted to the government for tax purposes. For withholding tax in Singapore, non-residents comprise individuals and companies.

Non-resident individuals (who have a presence of less than 183 days in Singapore) are separated into 3 groups with different imposed tax rates:

Non-resident companies (that are controlled and managed in Singapore) will be imposed different withholding tax rates according to different types of income:

Tax incentives in Singapore

In addition to the relatively low corporate tax rate of 17%, many government authorities have offered many tax incentives to companies operating in some specific sectors. Below are some of the most common examples:

Manufacturing and services 

• Scheme and incentive

Pioneer Certificate (PC) & Development and Expansion (DEI) Incentive

• Target

Companies expanding their activities in Singapore

• Main benefit

Concessionary tax rate of 5% for PC or 10% for DEI

Finance and treasury activities

• Scheme and incentive

(1) Pioneer Certificate (PC) & Development and Expansion (DEI) Incentive

(2) Finance and treasure activities Finance and Treasury Centre (FTC) incentive

• Target

(1) Treasury management company operating in Singapore

(2) Licensed insurers providing quality services

• Main benefit

(1) Reduced tax rate of 8%

(2) Concessionary rate of up to 10%

Research, development, and innovation

• Scheme and incentive

Intellectual Property Development Incentive (IDI)

• Target

IP developers who have a good track record

• Main benefit

Reduced corporate tax rate of 5% or 10% on qualifying IP income

Trading

• Scheme and incentive: Global Trader Programme
• Target: Trading companies having substantial operations in Singapore
• Main benefit: Reduced corporate tax rate of 5% or 10%

Shipping and maritime

• Scheme and incentive

(1) MSI-AIS award

(2) MSI-SSS award

• Target

(1) International ship owners and operators

(2) Ancillary shipping service providers

• Main benefit

(1) Tax exemption on qualifying shipping income

(2) Concessionary tax rate of 10%

Tourism

• Scheme and incentive: Double Tax Deduction
• Target: Companies wanting to promote inbound tourism or expand their markets
• Main benefit: 200% tax deduction on qualifying expenditure

Double Tax Agreements

Singapore holds the view that double taxation constitutes a great impediment to its own economic standing as well as world trade. This results in the fact that Singapore has signed Avoidance of Double Tax (DTA) agreements with more than 80 countries.

The main purpose is to prevent a source of income from being taxed twice when transferring from Singapore to another country and vice versa. Furthermore, these double tax treaties also offer reduced and favorable tax rates applied to some specific types of income for both of the signing countries.

As for the scope, a double tax agreement applies to the residents of both signing countries (called the Contracting States), in which there is Singapore. Below is a list of key income types that are covered by a typical DTA agreement:

• Income from immovable property
• Business profits
• Shipping and air transport
• Associated enterprises
• Dividends
• Interest
• Royalties and fees for technical services
• Capital gains
• Independent personal services
• Dependent personal services
• Pension
• Government service
• Other income

Residents of both Contracting States are eligible for all the beneficial provisions regulated in a Double Tax Avoidance Agreement.

Should you have any further questions regarding taxation in Singapore, contact us via service@bbcincorp.com. BBCIncorp is always willing to help!