Singapore tax system
With more than 76 double taxation treaties, Singapore can be an excellent jurisdiction for certain businesses that would benefit from reduced global withholding tax. One of the most prominent advantages when operating a business in Singapore is the well-established taxation system. Over the past few years the tax system has evolved in many ways. Many repetitive steps to submit the tax documentation were reduced, thus minimizing the time to submit and review the quarterly tax reports to by the Inland Revenue Authority of Singapore. Moreover, according to PwC, Singapore is ranked seventh worldwide in ease of paying taxes and tenth for the shortest time required to complete the tax compliance process.
Currently in Singapore the following major taxes are implemented:
- Personal income tax;
- Corporate income tax;
- Property tax;
- Goods and services tax;
- Withholding tax;
- Stamp Duty.
Tax system explained
Personal income tax
The tax amount will depend on the residency status of an individual in Singapore and is calculated as per the table below:
|No.||Period of stay||Residency status||Tax Rate||Tax Relief entitlement|
|1.||At least 183 days||Tax resident||Progressive rate||Yes|
|2.||At least 183 and over 2 years||Tax resident||Progressive rate||Yes|
|3.||3 years continuous||Tax resident||Progressive rate||Yes|
|4.||61 to 182 days||Non-resident||15%||No|
|5.||60 days or less||Non-resident||Exempt||No|
Corporate income tax
Currently the corporate tax in Singapore is 17% for resident companies the GST rate currently at 7% and set to be raised to 9%. A non-resident company is legally tax exempt if certain conditions are met and this includes:
- All the income and profit are made overseas;
- The company holds an overseas bank account;
- Control and management of the company is not located in Singapore.
Therefore, it provides an excellent way to book global income, with the luxury of no local corporate tax payable. Similarly, if the company’s management and control is exercised outside of Singapore and the company operations (operational premises, staff, etc.) are elsewhere, it is considered as an overseas entity and therefore tax exempt.
Newly registered resident companies, if qualified, benefit from several tax rebates. In the first 3 financial years entrepreneurs enjoy a 100% tax exemption on the first S$100,000 (US$75,792) made and 50% tax exemption on the next S$200,000 (US$151,584) made before 2019. And later from year 2020 tax exemption will be calculated for the first S$10,000 as 75% and the next S$190,000 at a 50% rate.
Figure 1: GST rates comparison graph
Active resident companies are required to register for goods and services tax (GST) if the annual sales exceed S$1 million (US$757,460). The company then needs to report its returns to the Singapore tax authority, IRAS.
GST is applied on nearly all supplies and products in Singapore. The following transactions are exempt from goods and services taxes in Singapore:
- If the goods fall under the low value goods division, such as fashion pieces that are imported with a value less than US$303;
- Provision of services i) by an online supplier to Singaporean customers ii) made outside of Singapore iii) which include services such as software sales, downloadable books and music.
(Currently there is no specific law that requires GST to be applied on digital products. However, as more countries are adopting the strategy to tax digital products, its seems highly improbable that Singapore will not formulate a similar plan.)
There is an annual tax report to be filed for each assessment year. The company needs to submit the chargeable income estimate within 3 months from the financial year end. The estimated tax can be paid in 10 installments throughout the coming 12 months.
Thus, if the company wants to enjoy a maximum of ten-month interest free instalments they need to file the estimated chargeable income (ECI) forms by the 26th of the month.
Some other taxes might be introduced soon by the Singapore government. One such example is the proposed carbon tax, which is thought to be implemented by 2019 and will be applied on large carbon emitters to reduce the greenhouse effect.
Singapore accounting standards
The Accounting Standards Council was established to be the responsible of creating and managing the standards for corporate entities when preparing any official financial reports. This move was set to ensure the consistency in accounting standards, standardization of financial statements between different entities and enhancing the credibility and transparency of financial reporting.
Those standards are known as Singapore Financial Reporting Standards (SFRS) and are based on the international reporting standards issued by Accounting Standards Council (ASC).
Companies can submit their tax reports as per the SFRS standards to the tax authority IRAS and considered eligible if it falls under certain conditions such as the ones below:
- Total annual revenue is not more than S$10million;
- Gross assets are not more than S$10 million;
- Total number of employees is no more than 50 people;
However, if they do not apply for the SFRS, the International Financial Reporting standards (IFRS) is allowed in Singapore and companies that are eligible can apply for IFRS standards under the listing rules.
The system insures that companies are informed of the past transactions, obligations and resources to be allocated for the future.
Finally, the tax value is affected by many internal and external factors and the Singaporean tax rates are closely related to the internal government reforms and external overall international and financial climate. Many decisions are being made by the government to improve technology, education, infrastructure and health programs. Awareness of those reforms and changes are required when looking into engaging with the tax environment in Singapore. Therefore, it is advised to seek a professional and expert advice with knowledge of any changes and reforms.