Singapore Tax Rates and Tax System

Singapore is known internationally for its practical and fair taxation system that lets individual entrepreneurs and large companies enjoy reasonable tax rates to grow. They can also utilize all kinds of tax relief options after a tax assessment.

Today we’ll talk about some of the essential facts you need to know as a tax resident in Singapore and help you understand what to expect. First, all tax residents must report to the Inland Revenue Authority of Singapore or IRAS.

This official organization of the Singapore government collects and levies taxes while enforcing all tax regulations across the country. The organization’s goal is to create a simple and fair system that reduces the burdens on companies and facilitates economic growth.

IRAS also represents the country in all international tax aid and negotiations.

Tax Rate Singapore – Key Factors

First, let’s talk about the essential elements of the tax rate Singapore imposes on its territory. These are just general information any tax resident should know, but Singapore companies should also know what to expect.

1. Singapore has a territorial tax method

The territorial tax method means Singapore companies are taxed based on location instead of corporate residence. If a company from Singapore earns foreign-sourced income, it won’t have to pay additional income taxes to the Singapore government.

If a company is taxed overseas where it has business operations, it won’t go through double taxation. That’s how companies can keep their income tax to a normal level and have the finances to grow.

2. No taxation on inheritance, capital gains, or dividends

The Singapore income system is simple and has similar rules governing personal and company income tax rates. There are no taxes on any inheritance, capital gains, or dividends.

3. Tax rates are really low

Singapore’s main corporate tax rate is 17%, but many tax breaks and incentives lower this. For most companies in Singapore, the effective tax rate is around 10% and even lower. On the other hand, personal tax rates can go from 0% for some residents to 22%.

Singapore Tax Rates Tax Residents Should Expect

1. Corporate Taxes

• Corporate profit tax: headline rate of 17% with many incentives and exemptions for reducing taxes.
• Capital gains tax rate: 0%
• Shareholder dividend tax rate: 0%
• Thetax rate on overseas income received (foreign-sourced income): 0%

2. Personal Taxes

The personal income tax rate is variable and changes depending on your income. People with higher incomes pay higher tax rates. Here’s some chargeable income and how it’s taxed.

• 0% income tax rate for the first $20k.
• 2% income tax rate for the next $10k – $30k.
• 3.5% income tax rate for the next $10k – 40k.
• 7% income tax rate for the next $40k – $80k.
• 11.5% income tax rate for the next $40k – $120k.
• 15% income tax rate for the next $40k – $160k.
• 18% income tax rate for the next $40k – $200k.
• 19% income tax rate for the next $40k – $240k.
• 19.5% income tax rate for the next $40k – $280k.
• 20% income tax rate for the next $40k – $320k.
• 22% income tax rate for sums above $320k.

For non-resident individuals, there are different conditions:

• Non-resident individuals are exempt from employment income tax if they work for 60 years or less during the year. However, this exception doesn’t apply to non-resident directors since a director’s fees are much higher.
• If an individual is working for over 60 days and up to 182 days, they are taxed at a 15% rate on all employment income earned in the country.

Tax Types in Singapore

Here are the most common company and personal taxes you can expect in Singapore.

1. Stamp Duty Tax: Stamp Duty tax is the amount individuals and companies have to pay when transferring company shares or real estate.
2. Property Tax: All real estate owners in the country must pay property taxes annually. The property’s annual value calculates these progressive resident tax rates.

   The annual value is calculated by determining the property’s gross income in the case of renting. Property tax rates are generally low, primarily when a property is owned and occupied by the same individual or organization.

3. Customs Tax: At its core, Singapore has a duty-free port, and there are no taxes on imports or experts. However, exceptions exist, including liquor, vehicles, tobacco products, gas, and oil.
4. Withholding Tax: Singapore imposes a withholding tax for taxing all non-resident individuals. Payments made to non-resident individuals, including business management fees, consultation fees, royalties, rental income, and interest payments, are all calculated in withholding tax.

   On top of that, employed non-residents also have to pay withholding tax. The rates are adjustable depending on the services offered.

5. Services and Goods Tax: All tax residents must pay services and goods tax on general consumption, including imported goods.
6. Individual Income Tax: All non-residents and resident individuals in Singapore have to pay taxes.
7. Corporate Income Tax: Both non-resident and resident companies that operate in Singapore must pay taxes for Singapore-sourced income. Non-resident companies can get WHT on specific income types. The income tax rates for consultants and directors are at 22%.
8. Wealth Tax: Singapore doesn’t have a wealth tax, but the government has recently introduced several adjustments to adjust the tax burden on wealthy individuals focusing on vehicles and existing properties.

   The government has introduced a progressive tax rate for residential properties occupied by non-owners, with an increase of 12% – 36%. Owner-occupied properties with an annual value of over $30k increase to 6% – 32%.

   Additional registration fees are introduced on vehicles over $80k when a vehicle is registered in the country, and the amount is determined based on the OMV percentage.

9. Carbon Footprint Tax: Singapore’s first carbon footprint tax was set in 2019. A ton of greenhouse gas emissions was taxed at a fixed $5. However, there’s a plan for an increase in the future.

   The government will tax $25 per tonne in 2025; in 2027, the number will rise to $45. After 2027 the government plans to increase the carbon footprint tax to $80.

   Starting in 2024, Singapore will allow companies to use international carbon credits to offset taxable emissions with a maximum of 5%.

   These new tax incentives are a part of the plan to reach net zero emissions by 2050. The government will use most of the carbon tax revenue to reduce the effects on businesses and households and support investment in energy-efficient and low-carbon solutions that will ultimately reduce emissions.

Tax Incentives for Companies in Singapore

Tax resident companies operating in Singapore can get the following exemptions:

1. Startup Exemption Schemes

The startup company, tax exemption scheme, introduced in 2005, gives partial tax exemption on a certain income percentage.

With these schemes, brand-new companies meeting the requirements can get tax exemptions for the first three years of assessment (YA), depending on the YA criteria.

Year of assessment from 2020 and onwards

Startups that qualify for this period get a 75% tax exemption for their first taxable income of $100k. They also get an additional 50% exemption for the next $100k.

Year of assessment from 2010 to 2019

Qualifying startups for this period get a 100% exemption on their first income of $100k and an additional 50% on the subsequent taxable income up to $200k.

2. How can companies qualify for an exemption?

The schemes above are only available to companies if they meet the necessary requirements:

• They are tax residents in Singapore.
• They are incorporated in Singapore.
• They don’t have more than 20 shareholders.

However, some companies can’t use the tax exemption schemes if they:

• Work primarily in investment-holding.
• Work primarily in property development designed for investment, sale, or both.

3. PTE Schemes for Companies (Partial Tax Exemption)

Every company in Singapore qualifies for PTE unless they already use startup exemptions. With PTE, companies can get the following exceptions.

Year of assessment from 2020 and onwards

The first normal chargeable income of $10k gets a 75% tax exemption.

The following normal chargeable income of $190k gets a 50% tax exemption.

Year of assessment from 2010 to 2019

The first normal chargeable income of $10k gets a 75% tax exemption.

The following normal chargeable income of $290k gets a 50% tax exemption.

4. Foreign-sourced income tax exemptions

Some of the foreign-sourced income is eligible for tax exemptions, including:

• Service income.
• Branch profits.
• Dividends.

To meet the requirements for these tax exemptions, companies need to meet three conditions:

1. The government of Singapore needs to determine that the exemption would help the person resident in Singapore.
2. The income was taxed in a foreign country.
3. The headline tax rate is a minimum of 15% when the income is received in Singapore.

How does the income tax system in Singapore help companies?

Companies looking to start their operations in Singapore can set up quickly and take advantage of tax legislation with low corporate tax rates and valuable tax schemes that reduce total taxes for startups and young business income.

Singapore’s single-tier tax system taxes company profits but doesn’t tax income derived from shareholder dividends. The country doesn’t tax income derived from foreign sources and capital income either.

For example, if you start a successful business, grow it over time, and decide to sell it for a reasonable price, you won’t have to pay any taxes when selling your shares.

How does the personal income tax rates system in Singapore help individuals?

The Singapore income tax and employment income continue to attract some of the most talented professionals worldwide. Non-residential and resident individuals can quickly reduce chargeable income by using many tax deductions.

In general, your employment income outside the country isn’t taxable. It isn’t a chargeable income if you have a Singapore bank account and receive payment from outside the country.

At the same time, individual taxes aren’t imposed on inheritance, capital gains, or dividends. Furthermore, all non-resident individuals working in the country can get tax relief through DTAs.

Bottom Line

As you can see, Singapore has one of the best tax systems in the world for individuals and companies alike. That is why so many people start businesses in the country or look for employment in Singapore.

That is all the crucial information you need to know. Still, it would be best if you understood there are different circumstances for every business and individual, so make sure to IRAS about your tax obligations and exemptions to ensure you’re doing everything by the book.