Tax exemptions can be referred to as the right to exclude some or all of the income earned from taxation. Singapore tax exemption for individuals refers to the entitlements of taxpayers in Singapore to various exemptions which would reduce their taxable income. The Singapore government sets the structure of Singapore’s personal income tax system through the Inland Revenue Authority of Singapore (IRAS).
Singapore is known to have one of the best tax rates in the world. The Singapore government mandates taxes for every citizen or foreigner who earned or derived an income in Singapore. However, the government provides exemptions for individuals, businesses or organizations that satisfy specific criteria to further boost the local economy and make life better. This article will focus on what business owners need to know about Singapore tax exemption for individuals.
Singapore Tax Exemption For Individuals: Features Of The Singapore Taxation System
Before getting into the details for Singapore tax exemption for individuals, it is crucial for new business owners to understand the Singapore taxation system. This is a list of the main features of the taxation system in Singapore:
- Singapore has a progressive resident tax rate that starts at 0% and rises to 24% for earnings above S$1,000,000.
- There are no taxes on inheritance or capital gains in Singapore, and individuals are only taxed on their earnings.
- Taxable residents whose annual income is less than S$22,000 may not need to pay tax but are still required to file a tax return form if requested by the tax authority.
- With a few exceptions, money received by persons while working abroad is not subject to taxation.
- Each person must file their personal income tax returns and pay the required amount annually.
- Personal income tax is calculated based on the previous year’s earnings.
Singapore Tax Exemption For Individuals: Personal Income Tax In Singapore
Now that you have a better understanding of the Singapore taxation system, you must learn about the specific laws and regulations regarding personal income tax before moving on to the Singapore tax exemptions for individuals.
Personal income tax, also called individual income tax, is a tax imposed on a person’s salary, earnings, interest, dividends, and other sources of income throughout the year. Governments use the funding they receive from taxes to pay for public services, as well as fulfill other duties.
Singapore Tax Exemption For Individuals: Who Is Liable To Pay Personal Income Tax?
All income earned in or derived from Singapore from the following sources are chargeable. Generally, overseas income received in Singapore is not taxable, except in some circumstances. The following sources of incoem are chargeable for personal income tax in Singapore:
- Employment: whether through salaries or bonuses
- Trade, business, profession, or vocation. Examples are online vendors and service providers, gig workers, commission brokers, and private hire car/taxi drivers.
- Assets, Investments, or Real Estate
- Other Resources (e.g., royalties, annuities, winnings, or trust income)
Singapore Tax Exemption For Individuals: Who Can Qualify For Tax Exemptions?
Now you know about personal income tax in Singapore and who is liable to pay income tax, according to the Singapore taxation system. We know that there are Singapore tax exemptions for individuals under the taxation system, but who qualifies for these exemptions?
A local tax resident qualifies for Singapore tax exemption for individuals. A person can be exempted from tax if they are a non-resident who has lived in Singapore for a short term of fewer than 60 days. Individuals with non-taxable dividends, for example, dividends paid by a resident Singapore company under the one-tier corporate tax system on or after the 1st of January 2008 are also exempted from tax. Individuals who earn from sources outside Singapore also qualify for Singapore tax exemption for individuals.
Singapore Tax Exemption For Individuals: Types Of Income That Are Exempted From Tax
The following types of personal incomes qualify for the Singapore tax exemption for individuals:
- Capital gains income such as sale of fixed asset, bonds, intangible assets, or stocks are exempted from tax
- Dividends rewarded by Singapore companies are also exempted from tax in certain cases
- Inheritance income have also been exempted from tax in Singapore since 2008
- Donations such as cash, shares, land and building donations are exempted from taxation
- Foreign-Sourced Income; Income Distribution from Real Estate Investment Trusts (REITs), excluding distributions earned by an individual through a business partnership within Singapore
Singapore Tax Exemption For Individuals: How To File Singapore Income Tax Returns
After learning about the details of Singapore tax exemption for individuals, you now have a better understanding of how to calculate your personal income tax. But do you know how to file your annual income tax returns?
As a person who earns income in Singapore, you must file a tax return annually. This is in line with the directive from the Inland Revenue Authority of Singapore. The filing of tax returns should be carried out and completed by submitting a tax return form by the 15th of April each year.
You have the option of filing your taxes online or by mail. The relevant paper tax form will be sent to you by IRAS upon request, and the online form will be available from the 1st of March. After filing a tax return, you will receive a tax bill from the IRAS, which will tell you the tax amount you need to pay. In case of any dispute about the amount, you must inform the tax authority within 30 days of receiving your tax bill.
Individuals must then file their taxes using IRAS-provided forms. The individual’s residence and occupation determine the type of forms to be used, as follows:
- Tax Resident Individuals will be filing a Form B1
- Self-employed Individuals will receive Form B
- Individuals who are not tax residents of Singapore will complete Form M.
Singapore Tax Exemption For Individuals: Personal Income Tax for Non-Residents
As mentioned earlier, tax residents are eligible for the Singapore tax exemption for individuals. But what about non-residents in Singapore – Are non-residents liable to pay income tax in Singapore?
Even if you are not a permanent resident of Singapore, you are still liable to tax and can be considered eligible for some Singapore tax exemption for individuals. As a non-resident, you will be subjected to taxes under the following conditions:
- Non-residents who have resided or worked in Singapore for more than 60 days in a year will be taxed.
- Non-residents who are corporate directors, public workers, or anyone practicing a profession in Singapore are among those liable for taxation. The standard tax rate for director fees, consultancy fees, and all other income is 22%.
- Non-residents are taxed at a flat rate of 15% through the progressive tax system.
Singapore Tax Exemption For Individuals: Filing Your Income Tax with SJH Advisory
Our Singapore accounting and tax professionals at SJH Advisory will provide complete documentation services for your transactions and annual tax filing needs. We have qualified and experienced accountants who can handle the complexities of regulatory requirements to ensure that your tax is compliant.
We help clients handle their tax return filing and other Singapore company incorporation services. We can help you determine which of your incomes are exempted from tax and assist you to calculate your overall tax. Our tax experts will work directly with you to minimize your tax liabilities and maximize your tax savings. Reach out to us to get a quote or book a consultation with us today.
Singapore Tax Exemption For Individuals - Frequently Asked Questions
Failure to pay your tax within 30 days will lead to penalties and additional fines. You must pay the total amount of tax indicated within 30 days of receiving your Notice of Assessment. Even if you dispute the payable amount, you still need to pay your tax until the dispute is resolved. For each month that you delay or fail to do your tax filings, you will be penalized with an additional 5% fees of your late tax returns. IRAS is also liable to take legal action against you for either failing to file a tax return or failing to pay a tax.
All taxable individuals including residents and non-residents who earn income in or derived it from Singapore must file for tax returns every year. Individuals exempted from taxes are also required to still file a tax return. Only those who receive a letter or SMS from IRAS informing them of their selection for No-filing service are not required to file a tax return.