From the single-tier tax system to low tax rates and exemptions on capital gains and foreign-sourced income, Singapore offers an attractive environment for both local and foreign investors. This guide explores corporate tax rates, individual income tax scales, and the various taxes contributing to the country’s revenue.
Overview of the Singapore Tax System
The Singapore tax system serves as a vital mechanism for fostering a robust economy and social welfare. It is characterized by its simplicity, competitive rates, and business-friendly environment, aligning with the nation’s goal to become a global business hub and nurture a vibrant community for its citizens. Here are the key features of the Singapore tax system.
- Single-Tier Tax System: Corporate profits are subject to taxation without further imposing taxes on dividend payments made to shareholders.
- Zero Tax on Capital Gains, Dividends, and Overseas Income: Singapore does not tax dividends, capital gains, or income earned from overseas sources. Inheritance or gifts are also non-taxable.
- Low Tax Rates and Incentives: With a maximum corporate tax rate of 17% and a progressive personal tax scale ranging from 0% to 22%, coupled with various tax incentives, the tax burden is significantly reduced.
- No Double Taxation: Double Taxation Avoidance Treaties ensure that income and assets earned abroad are taxed only once.
- Territorial Tax System: Businesses are taxed according to the source of their profits rather than their corporate residency. Income generated abroad, once already taxed in the foreign jurisdiction, is exempt from further taxation in Singapore.
Current Tax Rates in Singapore
Corporate tax rates
In the Singapore tax system, both local and foreign companies operating and generating income within the country are subject to a flat corporate income tax rate of 17%. This tax rate applies to all profits earned through trading, the provision of services, or any foreign-sourced taxable income brought into Singapore.
This tax regime has positioned Singapore as a thriving business hub, attracting both local and foreign investors seeking an environment conducive to economic growth and business prosperity.
Individual income tax rates
In the Singapore tax system, income tax rates hinge on an individual’s tax residency status. To qualify as a tax resident, specific conditions must be met:
- Singapore citizens or permanent residents living in Singapore continuously, except for temporary absences,
- Foreigners who have met residency criteria, such as being present for at least 183 days in the previous year or continuous residence over three consecutive years,
- Individuals failing to meet these criteria are considered non-residents for tax purposes.
For tax residents, Singapore imposes a progressive income tax rate, with the highest current rate set at 22%. From 2024, the headline rate will increase to 24%, affecting various income brackets:
- Income between S$500,000 and S$1 million will be taxed at 23%.
- Income exceeding S$1 million will be taxed at 24%.
Types of Taxes in the Singapore Tax System
In the Singapore tax system, there are various types of taxes contributing to the government’s revenue and governing different aspects of economic activities. These taxes span across a diverse spectrum, affecting both individuals and businesses.
- Betting Taxes: Taxes on private lotteries, betting, and sweepstakes
- Casino Tax: Imposed on the gross gaming revenue of casinos
- Customs and Excise Duties: Singapore operates as a free port with generally low excise and import duties; however, certain items, including tobacco, petroleum, and liquors, are subjected to specific excise duties. Import duties mainly apply to particular products such as motor vehicles, tobacco, liquor, and petroleum items.
- Estate Duty: Levied on the net assets of a deceased person exceeding a specified threshold.
- Foreign Worker Levy: Regulates the employment of foreign workers in Singapore.
- Goods and Services Tax (GST): a consumption tax paid on goods or services, including imports, whenever money is spent.
- Income Tax: Applicable to both individuals and companies, income tax is levied on their respective incomes.
- Motor Vehicle Taxes: Taxes, separate from import duties, are aimed at controlling car ownership and road congestion.
- Property Tax: Levied upon property owners by the anticipated rental worth of their properties.
- Stamp Duty: Utilized in commercial and legal documentation about stock, shares, and transactions involving real estate properties.
- Withholding Tax: Collected from non-resident companies and individuals earning income from Singapore.
- Others: These include a range of taxes and charges, such as the annual tonnage tax, the foreign worker levy, and the water conservation tax.
Each tax serves a specific purpose, either as a revenue generator or as a means to regulate particular economic or social behaviors, contributing to the overall functioning and management of Singapore’s economic landscape.
Tax Resident Benefits in Singapore
Companies designated as tax residents in Singapore enjoy various benefits under specific conditions. Tax residency is determined by where the control and management of the business take place, typically where director or board meetings occur. Tax-resident companies in Singapore are entitled to:
- Tax Benefits under Avoidance of DTAs: Double Taxation Agreements (DTAs) prevent double taxation on income earned in different countries.
- Tax Exemption on Foreign-Sourced Income: This provides tax exemptions for foreign-sourced income and dividends, as well as foreign branch profits.
- Tax Exemption for New Start-Up Companies: This exemption encourages the growth of new businesses by providing tax benefits to startups.
Inland Revenue Authority of Singapore (IRAS)
IRAS is the central authority governing tax collection in Singapore. Established in 1960, IRAS is known for its efficiency and user-friendly services. It functions as a one-stop service for various tax-related matters, including goods and services tax (GST), withholding tax, income tax, estate duty, betting tax, and stamp duty. IRAS actively shapes tax policies, responding to changes in the economic and tax landscape and aiming to create a competitive tax environment that fosters economic growth in Singapore.
How We Can Help: Our Taxation Service
At SJH Advisory, we offer expert services for your taxation needs in Singapore. Our accredited consultants specialize in tax compliance, planning, and advisory services. We assist in optimizing your tax position, identifying incentives, and providing strategic advice on various tax matters. Our goal is to provide tailored solutions that fit your business requirements.
Contact us for a free consultation, and let SJH Advisory help you navigate Singapore’s tax system effectively to meet your business goals.
Singapore Tax System - Frequently Asked Questions
Tax residency for a company in Singapore is primarily determined by the location where control and management of the business are exercised. This often relates to where the Board of Directors’ meetings are held.
Tax residents in Singapore enjoy numerous advantages, including tax benefits under Double Taxation Agreements (DTAs), support for new startup companies, and exemptions on foreign-sourced income.
Yes, Singapore offers several tax incentives to promote economic growth, including tax exemptions and incentives for specific industries and activities.