5. Taxation
a. Introduction
Tax policy is an integral part of Singapore’s fiscal policy. Tax
revenue is a substantial source of funding for government
operations. The fundamental tenet of Singapore’s tax policy is to
keep tax rates low for corporations and individuals and to keep the
tax base broad.
The Inland Revenue Authority Singapore (IRAS) is responsible for
the collection of these taxes.
b. Tax system
i. General concepts of tax liability
Singapore has a territorial and remittance income tax system.
Only income accrued in or derived from Singapore, or income derived
overseas but received in Singapore, is subject to tax.
An individual is resident in Singapore for tax purposes if that
person has, in the preceding year, resided in Singapore for 183
days or more (presence of a lesser period may still be regarded as
residence on a qualitative basis if the individual’s intention is
to establish residence in Singapore).
A company (including a corporate trustee) is resident in
Singapore for tax purposes if the control and management of its
business is exercised in Singapore. The place of incorporation of
the company is not relevant.
ii. Rates and tax incentives
A resident individual taxpayer is taxed on chargeable income at
a graduated rate (0 per cent to 20 per cent).
The prevailing corporate tax rate is 17 per cent. Under the tax
exemption scheme for new start-up companies, a newly incorporated
Singapore company may enjoy tax exemptions of up to SGD200,000 for
the first SGD300,000 of chargeable income for each of its first
three consecutive years of assessment. To qualify for this tax
exemption scheme, the company must:
- be incorporated in Singapore
- be a tax resident in Singapore for that year of assessment
- have no more than 20 shareholders throughout the basis period
relating to that year of assessment, and
- have at least one individual shareholder holding at least 10
per cent of the total number issued ordinary shares or all
shareholders who are individuals.
Exempt amount for new start-up companies:
- First SGD100,000 @ 100 per cent SGD100,000
- Next SGD200,000 @ 50 per cent SGD100,000
- Total exempt amount for first SGD300,000 chargeable income is
SGD200,000
Singapore companies that do not meet the above qualifying
criteria will be given the partial tax exemption. Under the partial
tax exemption scheme, 75 per cent of the first SGD10,000 of
chargeable income (excluding Singapore dividend income) and 50 per
cent of the next SGD290,000 of chargeable income (excluding
Singapore dividend income) is exempt from corporate tax.
Tax incentives have long been an important instrument for
Singapore’s economic development strategy. Singapore offers a wide
range of tax incentives. Tax incentive schemes for corporations are
offered to the financial, technology and trade sectors. For
example, financial tax incentives provide a concessionary tax rate
of 10 per cent on income earned by an approved trustee company from
providing specified trustee and custodian services to non-residents
in respect of designated investments. There is also a tax incentive
scheme for asset management aimed at encouraging the development of
the fund management industry.
iii. Tax evasion and avoidance
The Income Tax Act gives the comptroller of income tax
the right to, among other things, vary any arrangement and
recompute profits so as to counteract any tax advantage obtained or
obtainable under the arrangement. Specifically, any arrangement
that alters the incidence of tax payable, relieves any person from
any liability to pay tax or make a return, and any arrangement that
reduces or avoids any liability imposed or that would be imposed,
will come within the ambit of this provision. This provision does
not apply to arrangements that are carried out for bona fide
commercial purposes and that had not, as one of their main
purposes, the avoidance or reduction of Singapore income tax.
This Act further provides that any person who wilfully
with intent to evade or assist any other person to evade tax shall
be liable to penalties, fines and/or imprisonment.
Taxable periods and filing requirements
The tax year runs from 1 January to 31 December. Tax is imposed
on a preceding year basis, that is, profits for the financial year
ended 2009 are taxed in the year of assessment, 2010. Where a
person carrying on a trade, business, profession or vocation
prepares annual accounts to a date other than 31 December, and the
Comptroller of Income Tax is satisfied that the accounts are made
up to that date regularly, that person is allowed to adopt the
financial year as the basis period.
c. International
i. Residents with foreign-source income
The general rule is that foreign-source income is taxable in
Singapore if it is remitted or deemed remitted into Singapore. With
effect from 1 June 2003, certain foreign income in the form of
dividends, branch profits and service income remitted into
Singapore may be exempt from tax. For companies and partnerships,
the exemption of foreign-sourced income is granted upon satisfying
certain conditions, the two main ones being that the foreign
sourced income is received from a jurisdiction where the headline
tax is at least 15 per cent and the foreign income has been
subjected to tax in the foreign jurisdiction. To enable businesses
to make best use of all their sources of funds to meet their
financing needs in Singapore during the economic downturn, however,
the above two conditions are temporarily lifted for a one-year
period from 22 January 2009 to 21 January 2010. In this case, the
foreign-sourced income should be earned or accrued outside
Singapore on or before 21 January 2009.
ii. Expatriates
The amount of tax an expatriate pays depends on whether the
expatriate is a tax resident or non-resident in Singapore, or
whether the individual has been accorded Not Ordinarily Resident
(NOR) status, and the amount of income earned.
An expatriate who is employed for a period of 60 days or less in
a calendar year will be exempted from paying income tax unless
employed as a director, public entertainer or is exercising a
profession in Singapore. An expatriate whose employment period is
more than 60 days but less than 183 days is taxed on their
employment income at 15 per cent or the applicable resident rates,
whichever is higher.
An expatriate whose employment period in Singapore exceeds 183
days is regarded as resident in Singapore. For such expatriates,
income earned in Singapore, less personal relief allowed, is taxed
at graduated rates from 0 per cent to 20 per cent.
Individuals with NOR status can enjoy certain tax benefits for a
period of five years.
iii. Non-residents
A non-resident individual is liable to Singapore tax only in
respect of income sourced in Singapore. A non-resident company that
carries on a trade or business in Singapore through a branch or
agency is subject to tax in respect of income sourced in Singapore.
It may also be subject to tax on income sourced outside Singapore
to the extent that such offshore income is directly attributable to
the company’s Singapore operations.
Generally, withholding taxes of 15 per cent and 10 per cent
respectively are imposed on interest and royalties paid to
non-residents. For certain payments such as technical assistance
and management fees, the withholding tax rate rate is at the
prevailing corporate rate (17 per cent with effect from year of
assessment 2010).
These withholding tax rates imposed on interest and royalties
may be reduced under the terms of a double taxation agreement (DTA)
concluded by Singapore with its treaty partners.
Singapore does not levy a separate withholding tax on
dividends.
iv. Tax treaties
A DTA between Singapore and another country serves to prevent
double taxation of income earned in one country by a resident of
the other country. It also makes clear the taxing rights between
Singapore and its treaty partner on different types of income
arising from cross-border economic activities between the two
countries. The agreements also provide for reduction or exemption
of tax on certain types of income.
Some 60 comprehensive DTAs covering all types of income and
seven limited DTAs covering only income from shipping and/or air
transport are in force.
Generally, a resident company is entitled to the benefits
conferred under the DTAs Singapore has concluded with treaty
countries.
d. Taxation of trusts
Types of trusts and tax liability
In recent years Singapore has introduced various tax incentives
to encourage trusts to be administered within the jurisdiction.
These incentives are considered further below. The general tax
liabilities on trusts that do not qualify for these exemptions are
as follows:
(a) Trust income derived by the trustee from carrying on a trade
or business in Singapore will be subject to a final tax at the
trustee level (corporate tax rate of 17 per cent). Distributions
made out of such income are in the nature of capital and will not
be subject to any further tax in the hands of the
beneficiaries.
(b) The tax treatment of trust income (other than trade or
business income) depends on the residency of the beneficiary and
whether the beneficiary is entitled to the trust income.
(i ) Trust income (non-trade and non-business) to which the
beneficiaries are not entitled and is treated in the same way as
trade or business income above and subject to a final tax at the
trustee level.
(ii) Trust income (non-trade and non-business) to which
non-resident beneficiaries are entitled, is also treated in the
same way as trade or business income above and subject to a final
tax at the trustee level.
(iii) For trust income (non-trade and non-business) received by
resident beneficiaries (residents of Singapore) who are entitled to
the trust income, the resident beneficiaries will be accorded the
concessions, exemptions and foreign tax credits as if the
beneficiaries had received the trust income directly.
The effect of the above is as follows:
- Resident beneficiaries entitled to the trust income will be
accorded tax transparency treatment and tax will not be applied at
trustee level. The beneficiaries are subject to tax on the
distributions received, which will be deemed to have retained the
nature of the underlying trust income for the purpose of claiming
concessions, exemptions and foreign tax credits. This does not
apply to income of the trustee from a trade or business carried on
in Singapore or to resident beneficiaries who are not entitled to
the trust income: in such cases tax will be applied at the trustee
level.
- Non-resident beneficiaries will not be accorded tax
transparency treatment and final tax will be applied at the trustee
level. Trustees will be treated as a body of persons for purposes
of tax and claims for relief, concessions and exemptions.
Distributions received by non-resident beneficiaries will be
treated as capital and will not subject to further tax in the hands
of the beneficiaries.
Foreigners who set up a Qualifying Foreign Trust (QFT) and
Singapore residents who set up a Qualifying Domestic Trust (QDT)
may, however, enjoy attractive tax exemptions, as outlined
below.
Generally, a settlement that gives powers of revocation so that
any income or capital included in the settlement can revert to the
settlor or to the spouse of the settlor (other than by reason of
the demise of the beneficiary) may be disregarded for tax purposes.
In such circumstances, the income arising from the settlement is
deemed to be income of the settlor. If the settlor, a relative of
the settlor or a person under the direct or indirect control of the
settlor or the settlor’s relative makes use of income of the
settlement to which there is no such entitlement, such income is
deemed to be that of the settlor.
For any trust that is registered under the Business Trusts
Act 2004, the above tax treatment of trusts will not apply.
Instead it will be treated like a company under the one-tier system
with effect from the first year it commences operation as a
registered business trust.
ii. Transfers to a trust
Stamp duty may be payable on documents relating to the transfer
of immovable property, stocks and shares to a trust. Stamp duty is
discussed below.
Taxation of QDT and Eligible Holding Company
The general rule is that all Singapore source trust income is
taxable in Singapore. Specified Singapore source investment income
derived on or after 17 February 2006, and foreign source income
received on or after 17 February 2006 by qualifying domestic trusts
(QDTs) and their eligible holding companies, qualify for tax
exemption. Distributions made by QDTs to their beneficiaries out of
such income will also be tax exempt in the hands of the
beneficiaries.
iv. Taxation of QFT and Eligible Holding
Company
Specified income derived from designated investments by
qualifying foreign trusts and eligible holding companies
administered by an approved trustee company (ATC) in Singapore
qualify for tax exemption. The ATCs administering qualifying
foreign trusts (QFTs) are themselves taxed at a concessionary tax
rate of 10 per cent.
A ‘foreign trust’ is defined to include a trust by deed where
every settlor and beneficiary of the trust, in the case of
individuals, is neither a citizen of Singapore nor resident in
Singapore. In the case of a company, the company must not be
incorporated or resident in Singapore, and if it has not more than
50 shareholders, the whole of its issued shares must not be
beneficially owned, directly or indirectly, by persons who are
citizens or residents of Singapore. If it has more than 50
shareholders, at least 95 per cent of its issued shares are to be
beneficially owned, directly or indirectly, by persons who are
neither citizens nor residents of Singapore.
Enhancements announced in the 2006 national Budget covered three
aspects. The first expanded the scope of qualification criteria to
include a wider range of qualifying settlors and beneficiaries,
thus allowing foreign individuals using non-traditional vehicles of
investment to qualify for tax exemption. The second extended the
tax exemption scheme for QFTs to situations where qualifying
foreign trusts are administered by companies that are exempt from
the requirement to hold a trust business licence. The third
extended the ATC tax incentive scheme to companies that are exempt
from the requirement to hold a trust business licence and that are
administering QFTs in Singapore. Specified income derived on or
after 17 February 2006 by such companies is taxed at the
concessionary tax rate of 10 per cent.
v. Taxation of income earned in the trust
A trustee has to file an annual tax return relating to trust
income accruing in, derived from or received in Singapore. If a
trustee is claiming tax exemption on income derived by a foreign
trust pursuant to the regulations, no return need be filed in
respect of such income, but the trustee must file a declaration
with the IRAS in the form as prescribed by the regulations. The
trustee has to keep clear and accurate accounts of the trust
property. A trustee is to furnish a beneficiary with full and
accurate information as to the amount and state of the trust
property if a beneficiary so requests.
vi. Tax Incentive Scheme for Family-owned
Investment Holding Companies
The tax incentive scheme for family-owned investment holding
companies (FIHC) was announced by the Minister in Budget 2008.
Generally, a qualifying FIHC shall be exempt from tax on specified
Singapore-sourced income received in Singapore on or after 1 April
2008 and foreign-sourced income received In Singapore on or after 1
April 2008, to the extent that such income would have been exempt
from tax if derived or received directly by an individual.
e. Taxation of estates
i. Estate duty
With effect from 15 February 2008, estate duty has been
abolished.
Previously, estate duty was payable on the principal value of
all property that passes on the death of any person.
Where the deceased person was domiciled in Singapore at the time
of death, estate duty was payable on movable property (wherever
situated) and immovable property situated in Singapore, which
passed on the death of the deceased.
Where the deceased person was not domiciled in Singapore at the
time of death and died on or after 1 January 2002, estate duty was
payable only on immovable property situated in Singapore that
passed on the death of the deceased.
The original rates of estate duty payable in the case of persons
dying on or after 28 February 1996 were as follows:
Principal value of the estate |
Rate of duty |
For every dollar of the first SGD12million |
5% |
For every dollar exceeding SGD12million |
10% |
This was after an exemption of SGD9 million for Singapore
residential properties and SGD600,000 for other assets.
ii. Taxation on death
There is no inheritance tax in Singapore.
f. Other taxes
Goods and Services Tax (GST) of 7 per cent is levied on all
imports and supplies of goods and services in Singapore. All
supplies of goods and services, other than financial services and
residential property transactions, are subject to GST if made by
GST-registered businesses. Goods that are exported, international
services, and administration services provided by a Singapore trust
company to a foreign trust of which it is not a trustee, are
zero-rated.
Property tax is imposed on immovable properties at 10 per cent
of the annual value of the property for industrial, commercial and
let-out residential properties, and at 4 per cent for
owner-occupied residential properties.
Stamp duty is payable only on documents relating to immovable
property and stocks and shares. Duties are payable on the transfer
of immovable property made by way of purchase or gift at 1 per cent
to 3 per cent on the purchase price or the value of the property
conveyed, whichever is higher, and on transfer or gift of shares at
0.2 per cent on purchase price or net asset value, whichever is
higher.
There is no capital gains tax in Singapore.