The Singapore income tax system is one of the most direct and simplest tax systems in the world due to the Singapore government maintaining a low tax rate by taxing on consumption rather than income. But if you are still facing issues, this guide provides you with all you need to know about how to pay tax in Singapore.
Singapore Tax System Summary
To understand how to pay tax in Singapore, you must first know more about the Singapore tax system.
The economy of Singapore is founded on free market economy with no limits on foreign business ownership. Profit repatriation and capital importation are also freely permitted. Since 2009 (or YA2010), the standard corporate tax rate in Singapore has been 17%, which is low in comparison to other major economies across the globe.
The chargeable income for corporate tax is taxed at a flat rate of 17%, whereas capital gains are not taxable in most cases. The Singapore tax system consists of three types of taxes: Individual Income Tax, Corporate Income Tax, and Goods and Services Tax.
What is Individual Income Tax?
All income earned in Singapore is subject to the Singapore tax system. In general, foreign-earned income brought into Singapore is tax-exempt and is not required to be reported on an individual’s Income Tax Return. This includes foreign income deposited into a bank account in Singapore. However, foreign income is subject to tax in Singapore if:
- It is obtained through Singapore partnerships.
- Individuals’ overseas work is incidental to their Singapore employment, meaning that they are compelled to travel abroad as part of their work in Singapore.
- Individuals are employed by the Government of Singapore outside of Singapore.
- People have a trade or business in Singapore, and you have a trade or business overseas that is integral to your commerce in Singapore.
If the persons’ earnings from their job abroad are subject to taxation in a foreign country, they can seek double taxation relief.
Each person is assigned a tax status of “resident” or “non-resident” depending on whether they spend more than 183 days in Singapore during the year.
A person is considered a resident of Singapore if they are physically present in the country, or are actively engaged in gainful employment, for at least 183 days in any calendar year, or for a continuous period of at least 183 days spanning two calendar years, or for three calendar years in a row.
Under certain circumstances, regional representatives who work for the Singapore representative office of an international company may be eligible for a concessionary tax rate on a portion of their income determined by the number of days they spend in Singapore. While cash wages are not subject to taxation in Singapore, rewards in kind are.
Income earned from short-term work (defined as less than 60 days) is not taxable. Directors of companies, performers on stage, and licensed Singaporean professionals are exempt from the 60-day limit. Experts and native speakers from other countries, royal counsels, trainers, consultants, and coaches are all examples of professionals.
The Inland Revenue Authority of Singapore (“IRAS”) must be notified when a foreign employee’s employment contract is set to expire, the employee decides to work for another company, or the employee plans to leave Singapore for more than three months.
To ensure that the foreigner pay all income tax before departure from Singapore, the employer is obligated to withhold payment of all monies owed to the foreigner beginning on the date the foreigner notified the employer of their plan to leave the job or exit Singapore.
Rate of Individual Income Tax
As a tax resident, after deductions for allowable expenses, charitable contributions, and tax credits, the remaining income is liable to income tax which is a progressive rate of 0% to 22%. The first S$20,000 of taxable income is tax-free.
Employment income earned by non-residents is subject to taxation at either the progressive resident tax rate or the flat rate of 15%. Taxes on director’s fee, consultation fees and all other income is subject to a flat 22% tax rate.
Personal Tax Relief
Under the Singapore tax system, taxes paid by individuals can often be lowered by claiming certain deductions, such as those related to allowable expenses, gifts, reliefs, and refunds.
Employees may be eligible for tax breaks for costs “solely and exclusively” related to generating taxable revenue from their jobs. This means they forked over their own cash to cover business-related outlays, including travel, entertainment, subscriptions, etc.
The expense can be reimbursed if the following situations are met:
- You incurred the expense while carrying out official obligations;
- Your employer did not compensate you for the expense; and
- The expense was neither private nor capital in purpose.
Meanwhile, tax exemptions and rebates are permissible if:
- The person is a resident of Singapore for tax purposes, and they meet the eligibility requirements.
- Certain taxpayers’ groups are targeted for tax relief and rebates in order to advance particular social and economic goals.
What is Corporate Income Tax?
Wondering how to pay tax in Singapore if you open a business here? Singapore follows a territorial basis of taxation. Revenue tax is charged on corporations’ net income from Singapore sources as well as foreign-sourced income brought into Singapore.
Non-resident Singapore corporations and enterprises are taxed on the same basis as resident Singapore businesses and corporations.
Singapore has a one-tier corporation tax structure, which implies that the corporate tax imposed on a company’s chargeable income is final and does not apply to dividends given to shareholders.
Furthermore, Singapore has signed tax agreement with approximately 100 countries to avoid double taxation.
Companies or persons that must make specific types of payments to a non-resident firm or individual are required by Singapore law to pay withholding tax to the Inland Revenue Authority of Singapore (“IRAS”). Tax relief or exemption can be claimed if the non-resident is based in a country that has a DTA (Double Taxation Agreement) with Singapore.
10% to 15% of payments to non-resident companies are subject to withholding taxes. Meanwhile, 10% to 22% of payments to non-resident individuals are subject to withholding taxes.
It would be beneficial to note that Singapore does not apply a withholding tax on profits or a capital gains tax. Tax losses may be carried over and applied to upcoming tax profits.
The estimated chargeable income filing must be made no later than three months after the company’s fiscal year end, and the income tax return filing must be made by November 30 of each year.
Rate of Corporate Income Tax
- The standard corporate tax rate in Singapore is 17% and there is a tax exemption program for newly established businesses (for three consecutive years).
- Exemption from some taxes for already-established businesses.
- Refund of Corporate Income Tax or CIT (according to Yearly Budget Announcement from the Singapore government)
What is Goods and Services Tax (GST)?
In Singapore, products and services imported into the country are subject to a general sales tax known as GST. GST is often referred to as Value-Added Tax (VAT) in other countries.
Most financial services, residential real estate sales and leases, and importing and investing of precious metals local supply are excluded from GST. Taxes are not collected on any items or services that are exported.
Currently, GST is assessed and recorded at a 7% rate, calculated by adding the GST component to the supply price. A Singapore company must register for GST if its yearly revenue is more than S$1 million.
Companies having an annual revenue of less than S$1 million are not required to register for GST, but may do so if they want. Within 30 days of the date, the legal obligation to register arises and businesses must submit their GST registration application.
To collect the GST they’ve charged on local deliveries of goods and services, businesses who are registered for the Goods and Services Tax (GST) are essentially acting as tax collectors on behalf of the government. Companies must regularly evaluate their needs when deciding whether to register for GST.
Generally speaking, one must register for GST if and only if the following conditions are met:
- At the conclusion of any calendar year beginning on or after January 1, 2019, the company’s taxable turnover exceeds S$1 million. Taxable turnover would be calculated on a calendar year method for periods beginning on or after January 1, 2019, in order to determine registration liability.
- More than S$1 million in sales are generated by partnerships with the same set of partners or a single person’s sole proprietorships.
- The business can fairly anticipate that its taxable turnover in the upcoming 12 months will exceed S$1 million, for instance, sales contract signing or other business arrangement that generates significant revenue.
- If their projection lacks certainty, for instance if it was based on market analysis or company strategies, they are not required to register for GST.
Now you understand the Singapore Tax System. But if you still need help with how to pay tax in Singapore, let SJH Advisory help you with your taxation needs. Get your FREE consultation today!
How To Pay Tax In Singapore - FAQ
Foreigners having a valid work permit for at least one year are considered tax residents. However, depending on the tax residence laws, your tax resident status will be assessed at the moment of tax clearing when you leave your job. If you stay in Singapore for less than 183 days, you are considered a non-resident.
Except for the following, all new startups qualified for the tax exemption program:
- Companies whose primary focus is investment holding;
- Organizations that develop real estate for investment, sale, or both.
In addition, the new startup company must:
- Be headquartered in Singapore;
- Be a Singapore tax resident for that YA;
- Have its whole share capital held directly by maximum of 20 shareholders during the basis period for that YA, where:
- Every stockholder is an individual; or
- At least one shareholder is an individual who holds at least 10% of the company’s issued ordinary shares.
Before your GST registration takes effect, you are not permitted to charge or collect GST from customers. For businesses, IRAS will notify them of their application’s success by sending a letter to their registered address. The GST number and effective date of registration will be included in the correspondence. Starting on this day, you must begin charging and collecting GST from customers for your taxable goods and services.
The Goods and Services Tax is an integral feature of Singapore’s progressive tax and welfare system. Lower-income people and seniors pay less overall in taxes and transfers because of GST offsets.
Singapore is sometimes referred to as a tax haven because of its beneficial rules for persons residing and conducting business here. The government provides various tax incentives, has a low corporate rate of taxation, and does not tax capital gains.
Because Singapore utilizes a territorial tax system, the only income that is subject to taxation is that which is earned in Singapore. Unless the revenue is received in Singapore or is deemed to have been returned to Singapore, a Singapore-resident firm is exempt from paying taxes on source of income derived from outside of Singapore, sometimes known as income generated offshore.
Businesses in Singapore are required to register for Goods and Services Tax (GST) if the turnover of their business operations in the previous twelve months was greater than one million Singapore dollars (S$), or if the turnover for the following twelve months is expected to be greater than one million Singapore dollars (S$).