Singapore has become a tax haven for most international investors thanks to its business-friendly tax system. The country has attractive personal and corporate tax rates, an absence of capital gains taxes, tax relief measures, extensive double tax treaties, and a one-tier tax system. Singapore also makes it easy to set up and operate businesses.
Additionally, Singapore uses a progressive income tax model on personal income with a marginal rate of 22%. The highest tax bracket as of 2019 is income above S$320,000 – making Singapore the gateway for most companies looking to expand in the Asian market and is currently a global hub for international commerce and investment.
Three Main Sources of Singapore’s Revenue
Singapore’s tax system is efficient, simple, and attractive. Revenue collection consists of tax revenue, fees and charges and other receipts. Despite the low tax rate, Singapore’s tax revenue consists of 73.6% of the government operating revenue during 2021/22 financial year.
Additionally, Singapore generates a surplus in budget and can develop excellent infrastructure throughout the country. Most countries across the globe are trying their tax-generating system.
Key Features of the Singapore Tax System
Singapore’s tax system is based in transparency, fairness, adequacy and simplicity. Here are the key features of its tax system.
1. Zero Tax
Singapore has a zero-tax policy on dividends, capital gains, or any income from overseas sources. Additionally, there are no tax charges on assets acquired as gifts or through inheritance.
2. Single-tier Income Tax
Singapore’s tax system only taxes profits at a corporate level. All dividend payments to shareholders are not taxed.
3. No Double Tax
The country has an extensive network of Double Taxation Avoidance treaties. It means the individuals or companies that depend on assets and income from abroad are only taxed once.
4. Low Tax Rates
Singapore has very low corporate tax rates ranging from 17% to 22%. Additionally, they have many tax incentives to reduce the tax rates.
8 Types of Taxes in Singapore
There are different types of taxes charges in Singapore. There are both direct taxes and indirect taxes, such as sales taxes charged on direct consumption. Here is a look at the different types of taxes, including federal income taxes and estate taxes, you can expect once you are a resident of Singapore.
1. Personal/ Individual Income Taxes
Singapore utilizes a progressive model for personal income tax or payroll taxes. This means the tax rate increases as income increases. It is important to note that Singapore does not tax overseas income, capital gains, or dividends from Singapore companies.
Here is a summary of the personal income rates in Singapore:
|
Income |
Tax Rate |
|
The tax rate on the first S$20,000 |
0% |
|
The tax rate on the next S$10,000 |
2% |
|
The tax rate on the next S$10,000 |
3.5% |
|
The tax rate on the next S$40,000 |
7% |
|
The tax rate on the next S$40,000 |
11.5% |
|
The tax rate on the next S$40,000 |
15% |
| The tax rate on the next S$40,000 |
18% |
| The tax rate on the next S$40,000 |
19% |
| The tax rate on the next S$40,000 |
19.5% |
| The tax rate on the next S$40,000 |
20% |
| The tax rate on above S$320,000 |
22% |
| The tax rate on capital gains |
0% |
| The tax rate on dividends received from Singapore company |
0% |
2. Goods and Services Tax (GST)
GST is charged on goods and services imported or made in Singapore. All goods are subject to 7% GST. However, GST does not apply to financial services or any lease or residential property sales income. Partnerships, sole proprietorships, government bodies, non-profit organizations, and clubs are required to register for GST.
GST is similar to the Value Added Tax (VAT) charged in other countries. Singapore has not adjusted its GST from 7% since 2014 since it has worked well for businesses and customers. GST registration falls under two categories: voluntary and compulsory. In exceptional cases, your business may be exempted from GST if it meets certain conditions.
One of the main reasons entrepreneurs are drawn to Singapore’s GST is that it can help lower personal income rates. Business owners and individuals in Singapore can enjoy tax incentives from Singapore’s government by applying for a Certificate of Residency.
3. Property Taxes
Property taxes applies to all properties in Singapore, including warehouses, HDB flats, offices, factories, and vacant lots. It is paid annually before 31st January and has a 10% taxation rate. However, it can be reduced if your property meets a specific requirement of the owner-occupier rates.
Property owners can enjoy certain tax refunds and rebates to make the taxes more manageable. For instance, your property tax can be reduced if your property was vacant for more than a month due to repairs or failure to find tenants.
4. Corporate Taxes
Corporate income tax in Singapore is territorially based. This means that the government only taxes income received in Singapore. Companies file their income tax based on the earnings they get in Singapore.
A company’s income from other countries is not taxed. All companies are charged a 17 percent flat rate on their taxable income. It is easier to understand how corporate tax works in Singapore with the help of an accounting firm.
Singapore also has very enticing incentive schemes to reduce the income tax rates for different companies. For instance, startup companies enjoy corporate tax exemptions for their first three years of operations.
They must pay only 75% of their first $100,000 chargeable income and 50% of the next $200,000 of the chargeable income. Additionally, Singapore has special tax regimes for different sectors and industries to reduce the tax rate and special tax exemptions.
5. Stamp Duty
Stamp Duty is an additional cost you will incur if you buy property in Singapore. This refers to the tax placed on purchases or leasing property documents. Stamp Duty is payable to the IRAS. It is important to note that all residential transactions, whether selling, buying, or renting are subject to stamp duty, but there are also some exemptions, as is the case with property tax.
Stamp Duty can also be high and might be something you want to factor in when considering your budget.
6. International Tax
International tax includes non-residents’ royalties when they do not qualify for the final prevailing corporate tax. The current international tax is 17%. It is important to note that non-resident individuals are also subject to withholding tax on the lower of 22% on the net earnings or 10% of the gross royalties accrued.
7. Withholding Tax
If your business has agents or employees from overseas who are non-residents, or your business partners are non-residents, your business is liable for withholding tax. This tax is paid to the Inland Revenue Authority of Singapore (IRAS) and covers the fees and commissions for overseas, non-resident, offshore partners, and employees. It is important to note that the withholding tax rates will vary depending on the payment type.
8. Other Taxes in Singapore
The other types of taxes in Singapore include income tax for LLP, income tax for partnerships and sole propreotors, and buyer’s stamp duty (BSD). Here is a deeper look at each of them:
-
Income Tax for LLP (Limited Liability Partnership)
A Singapore LLP is a business structure made of two or more partners. The partners must be at least 18 years old and residing in Singapore, or they can be a corporate body of another LLP or company.
LLPs are considered partnerships but not taxed at an entity level. Their profit is considered as each partner’s income. This means that the personal income rate is applied, and the partners are liable for tax, not the partnership.
-
Income Tax for Partnerships and Sole Proprietors
When you run your business as a partnership or a sole proprietorship, your income from the business is a portion of your personal income. This means that the business will be taxed using personal income rates. Income rates apply when a customer pays for a product in Singapore or when you receive money in Singapore from sales outside the country. Any business that has an income in Singapore is subject to income tax.
Partners and sole proprietors avail their personal tax rates and tax exceptions to help reduce their taxes, allowing them to keep their businesses running in Singapore. They also enjoy tax rebates, tax deductions, and tax relief to help them manage their income. They can also claim Allowable Business Expenses for their businesses’ expenses to help generate income. Additionally, they can claim Capital Allowances for the purchases they make when getting machinery and other equipment for the business.
-
Buyer’s Stamp Duty (BSD)
BSD also applies when you are purchasing property in Singapore. It is required to process documents for all property purchases. Buyer’s Stamp Duty is based on the property’s market value or the price stated in the stamped documents.
The rates were revised on 20th February 2018 and are currently as follows:
- BSD Rate is 1% for residential properties and 1% for non-residential properties for the first $180,000 of purchase price or market value.
- BSD Rate is 2% for residential properties and 2% for non-residential properties for the first $180,000 purchase price or market value.
- BSD Rate is 3% for residential properties and 3% for non-residential properties for the next $640,000 purchase price or market value.
- BSD Rate is 4% for residential properties and 3% for non-residential properties for the remaining amount of purchase price or market value.
Other Important Things To Know
1. How To File For Taxes In Singapore?
Here are the steps to follow when filing for income tax in Singapore:
- Prepare the required resources. These include your IRAS Unique Account, Form IR8A ( if your employer participates in the Auto-inclusion Scheme, and details of your dependents for relief, among others.
- Log in to myTax Portal
Add your details and verify your details
- Update your existing tax reliefs
- Declare other sources of income if you have any
- Once you file, you will receive an acknowledgment receipt
2. When Do I File for Taxes in Singapore?
Singapore residents must file their taxes by the 15th of April every year. If you file your taxes electronically, the deadline is 18th April.
See Also: How To Pay Income Tax Singapore and Starting a Business in Singapore
Final Word
Singapore is an excellent example of how tax incentives can help promote commercial activity while ensuring that the government collects enough revenue for social and economic objectives.
Singapore’s tax system creates a business environment that is mutually beneficial for the residents and the state.
Key Takeaways
- Singapore utilizes a territorial basis for taxation. This means that the government only taxes income that is only secured in Singapore.
- Singapore residents have a graduating tax rate ranging from 0% to 22%, GST tax of 7 to 8%, and property tax ranging from 10 to 20% depending on the annual value of the property.
- Singapore does not charge capital gains tax.
- Singapore uses GST to balance consumption and income, reducing revenue vulnerability.
- Singapore charges a withholding tax on royalties, interest, and rent on all movable properties.
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