Inland Revenue Authority of Singapore (IRAS): Tax Authority in Singapore
Established in 1960, the Inland Revenue Authority of Singapore (IRAS) consolidates various revenue collection agencies, facilitating efficient tax administration and collection. Renowned for its effectiveness and user-friendly approach, IRAS serves as a comprehensive hub for tax-related matters including income tax, property tax, goods and services tax, estate duty, withholding tax, betting tax, and stamp duty. Beyond collection, IRAS actively engages in tax policy formulation, responding to changes in economic and tax landscapes to foster a competitive environment that promotes economic growth.
Categorizing Taxes in Singapore
Singapore imposes various taxes and fees to manage its revenue and regulate economic activities. Income tax applies to individuals and companies, while withholding tax targets non-residents earning income in Singapore. Property tax is levied based on expected rental income from properties, and motor vehicle taxes aim to curb excessive car ownership and road congestion through duties, road taxes, and COE. Customs and excise duties primarily affect motor vehicles, tobacco, alcohol, and petroleum products. Additionally, Goods and Services Tax (GST) is a consumption-based tax applicable to most goods and services, excluding financial services and residential properties. Others include betting taxes, stamp duty on legal documents, a foreign worker levy for employment regulation, and airport passenger service and security fees per embarking passenger.
Variations of Corporate Tax Exemptions
Singapore offers various tax incentives and exemptions to eligible companies, provided they are tax residents in the country. Tax residency hinges on the control and management of the company being in Singapore, typically determined by where board meetings occur and key directors are located. This status is reviewed annually, potentially fluctuating between years.
New startups in Singapore benefit from a corporate tax exemption scheme for their initial three Years of Assessment (YAs). Under this scheme, 75% of the first S$100,000 of chargeable income and 50% of the next S$100,000 are exempted from corporate taxes. If a company does not qualify for this startup scheme or has exhausted its benefits, it can leverage the Partial Tax Exemption (PTE) Scheme. This scheme grants exemptions of 75% of the initial S$10,000 of chargeable income and 50% of the next S$190,000. Companies must calculate their income and taxes accurately when filing tax returns.
Overview
The Singapore economy is based on free enterprise, with no restrictions on foreign ownership of a business. The repatriation of profits and the import of capital are also freely allowed.
Since the year 2009 (or YA2010), Singapore has had a corporate tax rate of 17%, which is low compared to other leading economies in the world.
A company is taxed at a flat rate on its chargeable income and capital gains are not taxable.
The tax system consists of 3 main types of tax, namely, Corporate Income Tax, Personal Income Tax, and Goods and Services Tax.
Corporate Income Tax
The Singapore tax system is territorial. Income tax is levied on the net income of companies from sources within Singapore and on foreign source income if remitted into Singapore. Non-resident Singapore companies and businesses are taxed on the same basis.
Singapore employs a one-tier corporate tax system which means that the corporate tax levied on the chargeable income of a company is final and will not apply to dividends paid to shareholders. Additionally, Singapore has tax treaties for the avoidance of double taxation with more than 80 countries.
Under the Singapore law, companies/persons that need to make certain types of payment to a non-resident company or individual are required to withhold a percentage of that payment and pay the amount withheld (called ‘Withholding Tax’) to the Inland Revenue Authority of Singapore (IRAS). If the non-resident is based in a country that has a DTA (Double Taxation Agreement) with Singapore, tax relief or exemption can be claimed.
- Withholding tax rate on payments to non-resident company > range
10% to 15% - Withholding tax rate on payments to non-resident company > range
10% to 24%
It would be useful to note that there is no levy of withholding tax on dividends, or capital gains tax imposed in Singapore. Tax losses can be carried forward and offset against future tax profits. The Filing of Estimated Chargeable Income will need to be within three months from the company’s financial year-end, while the Filing of Income Tax Return must not be later than 30 November of each year.
Corporate Income Tax Rates
- 17% Flat Rate
Flat General Corporate Tax Rate - 3 Consecutive Years
Tax Exemption Scheme for new start-up companies - Partial Tax exemption for existing companies
- Corporate Income Tax (CIT) Rebate (According to Yearly Budget Announcement from Singapore Government)
| Income | Tax Rate |
|---|---|
| Tax rate on corporate profits for up to 200,000 SGD (Tax Exemption Scheme for new start-up companies) with effect from YA2020 | Up to 6.4% |
| Tax rate on corporate profits for up to 200,000 SGD (Partial Tax Exemption Scheme for existing companies) with effect from YA2020 | Up to 8.3% |
| Tax rate on corporate profits above 200,000 SGD | 17% |
| Tax rate on capital gains accrued by the company | 0% |
| Tax rate on dividend distribution to shareholders | 0% |
| Tax rate on foreign-sourced income not brought into Singapore | 0% |
| Tax rate on foreign-sourced income brought into Singapore | 0 – 17% subject to conditions |
Personal Income Tax
All income derived from Singapore is liable to tax. Generally, overseas income received in Singapore by an individual is not taxable and need not be declared in his/her Income Tax Return. This includes overseas income paid into a Singapore bank account.
However, overseas income is taxable in Singapore if:
- It is received through partnerships in Singapore
- Individuals’ overseas employment is incidental to Singapore employment, meaning, as part of the work in Singapore, the individual is required to travel overseas
- Individuals are employed outside Singapore on behalf of the Government of Singapore
- Individuals have a trade/business in Singapore and you are carrying on a trade/ business overseas which is incidental to your Singapore trade
Should the individuals’ gains from their overseas employment be taxed in a foreign country, they may apply for double taxation relief, to avoid being taxed twice on the same income.
Individuals are treated either as a “resident” or “non-resident” for Singapore tax purposes. Generally, a person is a resident if he or she is physically present or exercises employment in Singapore for at least 183 days in a calendar year or a continuous period of at least 183 days straddling two years, or continuously for three consecutive years or more.
Regional representatives based in Singapore and employed by the representative office of an overseas company may be taxed concessionally on income pro-rated based on days spent in Singapore, provided certain requirements are met. However, benefits-in-kind provided in Singapore are fully taxable.
Income derived from a short-term employment of 60 days or less is exempted from tax. However, the 60-day rule does not apply to the director of a company, a public entertainer or professionals in Singapore. Professionals include foreign experts, foreign speakers, queen’s counsels, consultants, trainers and coaches, among others.
When a foreigner’s contract for work is about to end or they decide to work for another company or plan to leave Singapore for more than 3 months, the employer must inform the Inland Revenue Authority of Singapore (“IRAS”). To ensure the foreigner pays all taxes before departure from Singapore, the employer is required to withhold payment of all monies (including salary, bonus, overtime pay, leave pay, allowances, gratuities, lump-sum payments, etc.) due to the foreigner from the day they gave notification of their intention to leave the job or depart from Singapore.
Personal Income Tax Rates
The income of tax residents, after deducting expenses, donations and tax reliefs, are subject to income tax at progressive rates ranging from 0% to 24%. The chargeable income of the first S$20,000 is exempted from tax.
A non-resident may claim expenses and donations to save on tax. However, non-residents are not eligible to claim tax reliefs. The employment income of non-residents is taxed at the flat rate of 15% or the progressive resident tax rate, whichever gives rise to a higher tax amount.
Director’s fees, consultant’s fees and all other income are generally taxed at 22%.
| Income | Tax Rate |
|---|---|
| Tax rate on first 20,000 | 0% |
| Tax rate on next 10,000 | 2% |
| Tax rate on next 10,000 | 3.5% |
| Tax rate on next 40,000 | 7% |
| Tax rate on next 40,000 | 11.5% |
| Tax rate on next 40,000 | 15% |
| Tax rate on next 40,000 | 18% |
| Tax rate on next 40,000 | 19% |
| Tax rate on next 40,000 | 19.5% |
| Tax rate on next 40,000 | 20% |
| Tax rate on above 320,000 | 22% |
| Tax rate on above 500,000 | 23% |
| Tax rate on above 1,000,000 | 24% |
| Tax rate on capital gains | 0% |
| Tax rate on income earned overseas | 0% |
| Tax rate on dividends received from Singapore company | 0% |
Personal Tax Relief
Allowable expenses, donations, reliefs and rebates are some common deductions that individuals claim to reduce their taxes.
Individuals may be able to claim tax deductions on employment expenses ‘wholly and exclusively’ incurred in earning their income. This means they used their own money to pay for expenses necessary to their employment such as travel expense, entertainment expense, subscriptions, etc.
The expense may be allowed when the following conditions are satisfied:
- The expense was incurred while carrying out your official duties;
- The expense was not reimbursed by your employer; and
- The expense was not capital or private in nature.
Tax reliefs and rebates are allowable if:
- The individual is a Singapore tax resident; and
- They meet the qualifying conditions.
Some tax reliefs and rebates are targeted at certain groups of taxpayers to promote specific social and economic objectives.
Goods and Services Tax (GST)
Features of GST
GST is a broad-based consumption tax levied on the import of goods, as well as supplies of goods and services in Singapore (In other countries, GST is known as the Value-Added Tax or VAT).
GST exemptions apply to the provision of most financial services, the sale and lease of residential properties, and the importation and local supply of investment precious metals.
Exported goods and international services are zero-rated.
GST Rates & Registration
GST is currently charged and accounted at a rate of 9% on the value of supplies. All Singapore companies with an annual turnover exceeding S$1 million are required by law to register for GST.
Companies with an annual turnover of less than S$1 million may choose to register for GST voluntarily.
Companies need to apply for GST registration within 30 days of the date from which their registration liability arises.
Registering for GST
As a GST-registered merchant, companies effectively act as tax-collecting agents in the collection of GST which they have charged on local supplies of goods and services.
Businesses are required to continually assess the need to be registered for GST.
In most cases, registering for GST is compulsory when:
Under the Retrospective View
- The company’s taxable turnover at the end of the calendar quarter (i.e. 3 months ending Mar, Jun, Sep or Dec) prior to 1 Jan 2019 and the past three quarters is more than S$1 million.
- The company’s taxable turnover at the end of any calendar year on or after 1 Jan 2019 is more than S$1 million. For periods on or after 1 Jan 2019, taxable turnover will be computed on a calendar year basis for the purpose of determining registration liability.
- An individual’s combined sales for all their sole-proprietorships OR partnerships with the same composition of partners is more than S$1 million.
Under the Prospective View
- The company can reasonably expect the taxable turnover of their business in the next 12 months to be more than S$1 million, for example, the signing of a sales contract or business agreement bringing in high revenue.
- They are not required to register for GST if there is no certainty in their forecast, for example, if the forecast was based on market assessment or business plans.
Reverse charge and Overseas Vendor Registration
The reverse charge (RC) regime covers the taxation on Business-to-Business (B2B)supplies of imported services and low-value goods¹, where B2B refers to the recipients of such supplies to be GST-registered persons such as companies, partnerships and sole-proprietors.
Under this regime, the recipient has to account for the GST on the services and low-value goods¹ imported, as if they were the supplier. This GST may be claimed as input tax, subject to the normal input tax recovery rules.
On the other hand, the overseas vendor registration (OVR) regime deals with the taxation on Business-to-Consumer (B2C) supplies of imported remote services² (digital and non-digital³), where B2C refers to the recipients of such supplies to be non-GST registered persons such as individuals and businesses that are not registered for GST.
A local company is subject to RC if it is:
- A GST-registered partially exempt business that is not entitled to full input tax credit (e.g. makes exempt supplies like the provision of financial services); or
- A GST-registered charity or voluntary welfare organization that received non-business receipts (e.g. donations); or
- A non-GST registered business with total value of imported services and low-value goods¹ exceeding S$1 million for a 12-month period, and not being entitled to full input tax credit even if GST-registered.
A company is subject to OVR if it is:
- A local GST-registered operator of an electronic marketplace through which overseas suppliers provide remote services¹ (digital and non-digital³); or
- A local non-GST registered operator of an electronic marketplace through which overseas suppliers provide remote services² (digital and non-digital³), who is liable for GST registration after the value of such services are taken into account; or
- An overseas vendor who makes B2C supplies of remote services² (digital and non-digital³) to customers in Singapore exceeding S$100,000, with an annual global turnover exceeding S$1 million.
¹ Applies from 1 Jan 2023 onwards, and refers to goods which at the point of sale are not exempt from GST, are located outside Singapore to be delivered to Singapore via air or post, and have a value not exceeding the GST import relief threshold of S$400.
² Refers to any service where, at the time the service is performed, there is no necessary connection between the physical location of the recipient and the place of physical performance.
³ Applies from 1 Jan 2023 onwards.
There are serious consequences for late registration:
- The company’s date of registration will be backdated to the date that they were liable to be registered.
- The company will have to account for and pay GST on their past sales starting from the effective date of registration, even if they did not collect any GST from their customers.
- The company may face a fine of up to S$10,000 and a penalty equal to 10% of the GST due. Prosecution action may apply.
The company can also choose to be voluntarily registered for GST even though the business turnover does not fall under any of the above circumstances. However, the registration is subjected to assessment by the Inland Revenue Authority of Singapore (“IRAS”). A deposit may be required from the applicant if the Comptroller deems them fit. The applicant is also expected to attend a course to learn the basics of GST so that the company can be compliant with GST regulations.
Frequently Asked Questions
Taxation System1. What are the qualifying conditions of the tax exemption scheme for new startup companies?
All new startup companies are eligible for the tax exemption scheme, except:
Companies whose principal activities are that of investment holding;
Companies that undertake property development for sale, investment, or both
The new startup company must also:
1. Be incorporated in Singapore;
2. Be a tax resident of Singapore for that YA;
3. Have its total share capital beneficially held directly by no more than 20 shareholders throughout the basis period for that YA where:
➤ All the shareholders are individuals; or
➤ At least 1 shareholder is an individual holding at least 10% of the issued ordinary shares of the company
2. I am a foreigner and holding a work pass which is valid for 2 years. Am I considered a tax resident?
Foreigners issued with a work pass that is valid for at least 1 year are treated as tax residents. However, the tax residency status will be reviewed at the point of tax clearance when you cease your employment based on the tax residency rules. If your stay in Singapore is less than 183 days, you will be regarded as a non-resident.
3. My company has submitted the GST Application and is pending for approval. Can I start charging GST?
You must not charge or collect GST before the effective date of your GST registration. If your application for GST is successful, IRAS will send a letter to the registered address to inform your company of the successful application. The letter will contain the GST registration number and effective date of GST registration. This is the date from which you must start charging and collecting GST on your taxable supplies.
