When preparing to invest in Singapore, are you ready? Do you understand the investment environment and policies there? Are you familiar with the industries and local customs? Is your business cost in Singapore competitive?
Do you know how to handle the problems you may encounter during your investment in Singapore? The following content provides answers to your concerns.
Singapore operates on a territorial basis for taxation. Any income (whether for companies or individuals) accruing in or derived from Singapore, or received in or deemed to be received in Singapore from outside Singapore, is considered taxable income and is subject to tax in Singapore. This means that even if income is generated or derived outside of Singapore, it is subject to taxation provided it is received in Singapore; conversely, if income is sourced outside Singapore and is not received or deemed to be received in Singapore, it is not taxable in Singapore.
Singapore is a city-state with a unified tax system nationwide. Any company or individual (including foreign companies and individuals) that derives taxable income in Singapore according to the aforementioned territorial principle is required to pay tax in Singapore.
The main taxes currently in force in Singapore include: corporate income tax, individual income tax, goods and services tax (GST), property tax, stamp duty, and motor vehicle taxes. In addition, there is a foreign worker levy imposed on Singaporean companies that hire foreign labor. Singapore previously had an inheritance tax, but the government abolished it after February 15, 2008.
Corporate Income Tax: Singapore implements a uniform corporate income tax policy for both domestic and foreign companies. According to Singapore tax law, the taxable subjects for corporate income tax include enterprises incorporated in Singapore under Singaporean law, foreign companies registered in Singapore (such as branches of foreign companies), and foreign companies not incorporated in Singapore but deriving taxable income from Singapore under the territorial principle (excluding partnerships and sole proprietorships).
Singapore categorizes taxpayers into resident companies and non-resident companies based on whether the company’s control and management functions are exercised in Singapore.
A resident company is defined as a company whose control and management functions are exercised in Singapore. In other words, as long as the control and management functions are in Singapore, the company is considered a Singapore resident company regardless of whether it is incorporated in Singapore under its laws.
Conversely, if a company's control and management functions are not in Singapore, it is considered a non-resident company for tax purposes, even if it is incorporated in Singapore under its laws.
Effective from the 2008 Year of Assessment (i.e., when paying income tax for the 2007 financial year), the corporate income tax rate was 18%; from the 2010 Year of Assessment, it was adjusted to 17%. Furthermore, all companies can enjoy partial tax exemptions on the first SGD 300,000 of taxable income: for general companies, 75% of the first SGD 10,000 of income is tax-exempt, and 50% of the next SGD 290,000 is tax-exempt; for qualifying start-ups, the first SGD 100,000 of income is fully tax-exempt, and 50% of the next SGD 200,000 is tax-exempt.
Individual Income Tax: Taxpayers are divided into resident individuals and non-resident individuals. Resident individuals include: Singaporeans, Singapore permanent residents, and foreign individuals who have resided or worked in Singapore for 183 days or more during a tax year (excluding company directors). Non-resident individuals refer to foreign individuals who have resided or worked in Singapore for less than 183 days in a tax year.
Generally, both resident and non-resident individuals must pay tax on all income derived from Singapore. Since January 1, 2004, overseas income obtained by taxpayers in Singapore is no longer taxable, with the exception of overseas income obtained through partnerships. Because a partnership is not a legal entity, the partnership itself does not pay corporate income tax, but each partner is liable for tax. If the partner is an individual, they must pay individual income tax at the applicable personal tax rate; if the partner is a company, it must pay corporate income tax at the applicable corporate tax rate.
The taxable income of a resident individual is the total income minus expenses, donations, and tax reliefs. Progressive tax rates ranging from 0% to 20% apply.
The taxable income of a non-resident individual is the total income minus expenses and donations; non-resident individuals are not eligible for tax reliefs. Employment income for non-resident individuals is subject to a tax rate of 15% or their resident individual income tax rates, whichever is higher. Director's fees, consulting fees, and other income are subject to a 20% tax rate.
Goods and Services Tax (GST): This is a tax on imported goods and all goods and services provided in Singapore, equivalent to the value-added tax in some countries, with the tax burden borne by the final consumer. Taxpayers engaged in the provision of goods and services with an annual turnover exceeding SGD 1 million must register for GST. For registered taxpayers, the GST payable is the difference between the output tax and the input tax paid on purchases of goods or services.
Since July 1, 2007, the GST rate has been 7%. The sale and lease of residential properties and most financial services are exempt from GST. Exported goods and services are zero-rated.
Property Tax: This is a tax imposed on all immovable properties such as houses, buildings, and land. All property owners are required to pay property tax on the properties they own. Property tax is paid annually in January, and the tax base is the annual value of the property. The annual value is estimated based on the annual rental income of the property, excluding rental income from furniture, fixtures, and service charges. The same base applies whether the property is rented, owner-occupied, or vacant. The Inland Revenue Authority of Singapore (IRAS) reviews the annual value of properties annually to determine if adjustments are needed. If the annual value changes, IRAS will notify the taxpayer. The current property tax rate is 10%. A concessionary rate of 4% applies to individuals residing in their own homes.
Stamp Duty: This is a tax imposed on written documents relating to immovable properties and stocks/shares. Documents related to immovable properties include the sale and purchase, exchange, mortgage, trust, and lease of properties. Documents related to stocks/shares include the allotment, transfer, gift, trust, and mortgage of shares.
Documents signed within Singapore must have stamp duty paid within 14 days of the date of signing; documents signed outside Singapore must have stamp duty paid within 30 days of receiving the documents in Singapore. Different rates apply to different types of documents. The party responsible for paying stamp duty is determined by the terms in the document; if not explicitly stated, the taxpayer is determined according to the principle of stamp duty liability.
