Introduction

Singapore does not tax capital gains. The major types of taxes that affect businesses and companies in Singapore are namely income tax, goods and services tax, stamp duty, property tax and customs and excise duties.

Income Tax

Income accrued in, derived from Singapore or received in Singapore from outside Singapore is subject to income tax in Singapore unless it is specifically exempt from tax. The types of income subject to tax include income from trade, business, profession or vocation; employment income; dividend; interest; rent; royalty; and other gains or profits which are of income nature.

Income tax for a Year of Assessment (YA) is assessed based on income accrued, derived or received (from outside Singapore) in the basis period - which is generally the preceding calendar year. For a trade, business, profession or vocation, its preceding financial year is the basis period.

Expenses that are wholly and exclusively incurred in the production of income are tax deductible. Capital allowance may be claimed for expenditures incurred to acquire plant and machinery. Any such expense incurred for a trade, business, profession or vocation, capital allowance or approved donation in excess of the income for a YA may be carried forward for set-off against income of a future YA, subject to conditions.

There are differences in income tax treatments between tax residents of Singapore and non-tax residents. A tax resident individual is one physically present in Singapore for 183 days or more in any calendar year, or whose temporary absence from Singapore is consistent with a residency claim on grounds of qualitative factors such as domicile or family present in Singapore etc. A company is tax resident in Singapore if the control and management of its business is exercised in Singapore.

The major advantage for being a tax resident in Singapore is the ability to enjoy the benefits accorded under the 651 (see foot note) Comprehensive Avoidance of Double Taxation Agreements Singapore has concluded (“treaty benefits”). Typical treaty benefits are the reduced withholding tax rates and the ability to avoid double taxation on cross-border income via claim for foreign tax credit or eligibility for tax exemption.

Profits of trade, business or profession operating through sole proprietorships, partnerships or limited liability partnerships are not subject to tax at the entity level, but are subject to tax in the hands of the sole proprietor or the partners. In other words, if the sole proprietor or a partner is an individual, the profits from the sole proprietorship, partnership or limited liability partnership will be subject to personal income tax whereas if it is a company, the profits will be subject to corporate income tax.

Personal Income Tax

The income tax rate(s) and other treatments applicable to individuals are summarised in the table below.

 

  Tax Resident Non-tax Resident
Tax rate(s) Progressive rates from 0% to 20% 20%
Personal relief Applicable Not applicable
Foreign-sourced income received in Singapore Tax exempt, except those received through partnerships in Singapore Tax exempt
Employment income from Singapore Taxable Tax exempt if employment in Singapore < 60 days
Treaty benefits Yes No

An individual who is a tax resident of Singapore for a YA and who was not a tax resident in Singapore for the 3 consecutive YAs immediately before that YA may apply for the “Not Ordinarily Resident” (NOR) status. Once the application is approved, the individual will be granted the NOR status for 5 consecutive YAs; and in any of these YAs the individual is a tax resident in Singapore, the individual enjoys time apportionment of his Singapore employment income and tax exemption of employer’s contribution to a non-mandatory pension fund or social security scheme.

Corporate Income Tax

Income of a company (whether tax resident or not) that is accrued in, derived from Singapore or received in Singapore from outside Singapore is subject to income tax in Singapore at 17%2 (see foot note). The effective tax rate is lower as the first S$300,000 chargeable income that is subject to tax at 17% is partially exempt from tax as follows:

 

Details Exemption
First 3 YAs of tax resident Singapore incorporated companies with no more than 20 shareholders where
  1. all the shareholders are individuals beneficially and directly holding the shares in their own names; or
  2. at least 1 shareholder is an individual beneficially and directly holding at least 10% of the issued ordinary shares of the company.
100% of first S$100,000 S$100,000
50% of next S$200,000 S$100,000
Total amount exempt from tax S$200,000
Details Exemption
All other cases
75% of first S$10,000 S$7,500
50% of next S$290,000 S$145,000
Total amount exempt from tax S$152,500

Foreign-sourced dividends, foreign branch profits and foreign-sourced service income received in Singapore by a tax resident company are exempt from tax if the income is received from a foreign tax jurisdiction with headline tax rate³ (see foot note) of at least 15% and the income has been subjected to tax in that foreign tax jurisdiction.

For other foreign-sourced income received in Singapore by a company that is subject to tax in Singapore, the company may claim foreign tax credits in respect of tax paid outside Singapore if it is a tax resident in Singapore.

Unabsorbed trade loss, capital allowance and approved donation of a company may be transferred to another company within the same group for set-off against the other company’s income. To qualify for such group relief, both companies must be incorporated in Singapore, belong to the same group and have the same accounting year-end.

Any balance of such unabsorbed loss, capital allowance, or donation (subject to a limit of S$100,000) may be carried back for set-off against the company’s income of the immediate preceding year, or be carried forward (not subject to any limit) for set-off against the company’s income of the subsequent year(s). The ability to carry back or carry forward such unabsorbed loss, capital allowance or donation is subject to the satisfaction of the continuity of substantial ownership test4 (see foot note). For unabsorbed capital allowance, there is also the need to satisfy a business continuity test.

For payment of dividends, Singapore tax resident can now pay one-tier tax exempt dividends to their shareholders. Shareholders are not taxed in Singapore on the dividend received.

Withholding Tax

Individuals or companies subject to tax in Singapore making certain payments (such as interest, royalty, director fee, management fee etc) to non-resident persons are required to withhold and remit the tax withheld to the Comptroller of Income Tax by the 15th day of the month following the date of payment to the non-resident. The rate of withholding tax varies, depending on the nature of income and whether the payment is made to a tax resident of a country with which Singapore has concluded an Avoidance of Double Taxation Agreement.

If you need any advice on Taxation in Singapore, you may contact our team of tax experts in Singapore at AccountServe

1. Number of Comprehensive Avoidance of Double Taxation Agreements as at 31 May 2011

2. The rate of tax of 17% may be reduced under tax incentives, such as the global trader programme, pioneer industry/product incentive, approved international shipping enterprise incentive etc. Tax incentive schemes offer concessionary rates of tax ranging from 0% to 15%.

3. Headline tax rate of a foreign jurisdiction refers to the highest corporate tax rate of the foreign jurisdiction. It need not be the actual rate of tax imposed by the foreign jurisdiction on the income.

4. The Inland Revenue Authority of Singapore may waive the requirement to satisfy this test, on a case-by-case basis, if a substantial change in shareholding is not tax-motivated (for example, where the substantial change in shareholding is a result of nationalisation, privatisation of industries or genuine commercial reasons.)

.