Taxation is an obligatory financial charge on a taxpayer (individual or business) by a governmental organisation. Taxes are either direct (paid directly to the government, e.g. income tax) or indirect (passed onto another group or person who ultimately pays it, such as Goods and Services Tax (GST)). Some taxes are a flat percentage rate, whereas others are a progressive rate based on the taxable amount.
The tax authority in Singapore is the Inland Revenue Authority of Singapore (IRAS) – whose responsibilities include collecting personal income tax, corporate tax, GST, property tax, betting taxes and stamp duty.
Sample tax bill from IRAS. Source: IRAS
According to the IRAS, income received from the different types of taxes is pooled together to fund Singapore’s development - "supporting Singapore's economic and social programmes to achieve quality growth and an inclusive society". Areas of key interest include healthcare services, education, infrastructure, defence and recreation.
The tax rate you pay depends on whether you are a tax resident or non-resident in Singapore. The following income tax rates apply to tax residents, which includes Singapore citizens, permanent residents, or foreigners who have completed 183+ days of work in Singapore that tax year:
Personal tax rates FY 2024
As you can see, personal income tax rates get progressively higher as you earn more, up to a "marginal rate" of 24%. The marginal rate doesn't refer to what you pay on everything you earn, but to the highest band of income that you earn.
For example, if you earn $190,000 a year, your tax band is a marginal rate of 18% (see table above), but you only pay that rate on the $30,000 you earned above $160k, in other words, $30,000 * 18% = $5,400. This would be added to the $13,950 you pay on the first $160,000 you earned, for a total tax bill (excluding other deductions) of $19,350 or just 10.18% of your annual gross pay.
Those in short-term employment (60 days or less in a year) are exempt from employment income tax unless the individual is a company director, public entertainer (e.g. musician), or exercising their profession in Singapore.
For those in Singapore for 61-182 days a year, employment income is taxable at 15% or the resident rate, whichever amounts to the most tax owed.
For directors and consultants, fees and additional income are taxed at 20%.
Non-tax residents could benefit from the Not Ordinarily Resident Scheme’s (NOR) favourable tax treatment. For more information, you can check out the IRAS guide here.
All Singaporeans’ owing tax must complete a tax return, stating all income earned from the previous calendar year, by April 15th each year. A date for your diaries!
Note: not everybody has to file a tax return! For example, those earning under $22,000 PA.
Singapore's historically attractive tax rates for foreign investors has given it a tax-haven status and contributed to its status as a global financial hub. Corporate tax, which is a tax on an organisation’s profits, sits at a flat rate of 17%. For comparison, the global average is 23%.
Taxes must be filed by November 30th of the assessment year for income gained in the preceding tax year (tax year ends 31st December).
Property tax (residential) is a progressive tax levied on property owners based on their properties’ expected rental value. It is applicable to both private and public housing. The tax is imposed regardless of whether the property is occupied or vacant.
There are lower property tax rates for owner-occupied residential property (0-32%) than for non-owner-occupied residential property (12-36%).
Any rental income earned is subject to income tax, whereas the property itself is subject to property tax.
Property tax (commercial) is a flat rate (10%) of the annual property value.
Property tax (both forms) generates 7.4% of Singapore's total tax revenue.
Stamp duty is levied on commercial and legal documents associated with stocks & shares, immovable properties, mortgages and share transfer documents. A common example of stamp duty being applied is when a property is purchased, sold, or leased. The tax is progressive, getting higher as the property value increases. Rates range from 1-6% for residential property or 1-5% for non-residential property. The tax forms 8.7% of Singapore's total tax revenue.
Goods & Service Tax (GST), also known as Value Added Tax, is an indirect tax on consumption. GST is paid when money is spent on nearly all goods or services in Singapore. The amount in tax owed is usually factored into the advertised price. Exemptions include financial services and the sale or lease of residential property. The current GST rate is 9% and forms 21% of total tax revenue.
Photo by Charles Deluvio on Unsplash
Motor Vehicle Taxes are taxes, other than import duties, that are imposed on motor vehicles. There are multiple taxes, such as registration fees, excise duty, Vehicle Emissions Scheme, and road tax, to limit the number of vehicles on the road.
Betting taxes are duties on betting, private lottery, and sweepstake. Forms roughly 4% of total tax revenue.
Capital gains tax (CGT) is owed on the profits of something (an ‘asset’) that’s been sold at an increased value. The increased value (i.e. the ‘gains’) is taxed, not the total income received.
(accurate as of UK tax rates FY 2021/22)
In Singapore, any gains made from shares and other financial assets are generally non-taxable. Likewise, insurance policy payouts are non-taxable. The non-existence of capital gains tax in Singapore contributes to its tax haven status.
Gains from the sale of a property are not taxable unless the seller has bought and sold the property with a profit-seeking motive (i.e. the majority of their income comes from trading properties).
For further information, contact the IRAS here.
Dividends are the distribution of profits you receive as a company’s shareholder, usually paid out in cash or in kind.
The luxury of not paying tax on capital gains or dividends makes investing an attractive way of earning tax-free income in Singapore, which you could choose to reinvest for potentially supercharged compounding gains. Many of us choose to invest for long-term financial goals, such as retirement, which require a very large sum of money. Therefore, not having to pay typical capital gains tax rates could mean your profits are substantially higher (as long as you’re a successful investor 😉).
Capital acquisitions: inheritances/gifts above a certain limit.
Inheritance: the estate of an individual who has passed away and left to a Singapore tax-payer. The value is based on the value of their assets, minus liabilities.
Wealth: an individual’s net worth, which is their assets minus liabilities. Singapore relies purely on taxing income instead of wealth tax.
Those who favour low-tax societies will argue that Singaporeans have it pretty good when it comes to tax rates. Personal, corporate, and sales taxes are all below the regional and global average, plus there are some great ways of earning non-taxable income, such as dividends from Singapore companies, all hugely boosted by the absence of capital gains taxes.
INTRO TO TAXES. COMPLETED. ✅
Sources:
.svg)
.svg)
.svg){kind=icon}
