Singapore has been as the recognized international trading hub as well as the finance and commerce capital of Asia. One element that makes Singapore so attractive to foreign talent and investment is its prudent fiscal policies. This attractive tax system has been crucial to Singapore’s long term plan to become the number one destination for talent and investment from all over the globe.
The primary government agency in charge of collecting all taxes and levies in the country is the Inland Revenue Authority of Singapore (IRAS). The body is also in charge of representing the country in negotiating international tax treaties as well as helping the Government in preparing tax legislation. IRAS also aids in performing property evaluations for any property related transaction in the country.
What makes Singapore so attractive to companies and entrepreneurs based in the country are the benefits they enjoy that are usually unavailable in other nations. Some of these benefits include a single tier taxation system. No capital gains taxes, zero taxes on overseas income, no taxes on assets acquired as gifts or as inheritance. In addition, no dividend income taxes. Furthermore, Singapore has adopted an extremely simplified and streamlined tax filing procedure. Also, a widespread network of consensual treaties on Double Taxation Avoidance guarantees that individuals and companies that have assets outside Singapore or receive income from abroad don’t have to pay taxes to the two countries.
There’s no denying the richness of Singapore. The taxes collected yearly along with other revenue generating streams likes fees and charges, exports and other receipts are used to develop Singapore into a more vibrant and productive economy. A place is guarantee to attract more foreign companies and entrepreneurs. Singapore spends about 46.3% of its generate revenue on external relations and security. 45.7% on social development and what’s left of administration.
Features of The Singaporean Tax System
1. Freedom from Double Tax
A widespread system of Avoidance of Double Taxation treaties ensures that individuals and companies that enjoy from assets and income abroad only have to pay taxes to one country.
2. Zero Tax
Capital gains, income received from overseas sources and dividends have zero tax. Also, assets acquired as gifts or as inheritance also aren’t taxed.
3. Single Tiered Tax
The single tier tax system means that profits are only tax at the corporate level making it the single tax on such incomes. It also means that dividend payment to shareholders is free from tax.
4. Lower Tax Rates
Singapore is known for its low tax rates. The highest rate of corporate taxes is 17% and 22% for personal taxes. Alongside numerous tax incentives that help to reduce the applicable tax rates.
There are several different types of taxes in Singapore, most of which we won’t be getting into in this article.
- Income Tax
- Property Tax
- Estate Duty – abolished February 15, 2008
- Motor Vehicle Tax
- Customs and Excise Duties
- Betting Tax – These are duties on betting and sweepstake, private lottery.
- Goods and services Tax
- Stamp Duty
- Others – Foreign worker levy and airport passenger service charge.
Key Elements of the Singaporean Income Tax System
- The government of Singapore depends on the provincial basis of taxation. What this means is that lone entrepreneurs and companies are mainly tax on Singapore’s source income. It means that income earn in Singapore. If the income is foreign source, say branch profits, service income, dividends, then they’ll be taxed when it is deemed remitted or finally remitted into Singapore.
Exemptions are also made if the income has already been subjected to taxes in a territory with feature tax rates of a minimum of 15%. Although the theory of the area of the source of the income appears simple, the reality and its application can often be argumentative and complex. This is because no blanket rule can apply to each and every scenario. Determining if the profits arise or were generate from Singapore hinges on the type of profit and the nature of the transaction that lead to such profits.
- The corporate tax rate in Singapore is regulate at 17%. Singapore continues to draw in an excellent number of foreign investment by keeping its corporate tax rates competitive. Additionally, Singapore’s single tiered corporate tax regime which ensures that taxes paid on a company’s profit does not affect its shareholders (no tax on dividends) makes Singapore particularly attractive to investors.
- The personal tax rates in Singapore start off at 0% and are regulated at 22% (anything more than S$320,000). This is for residents. And a fixed percentage of 15 to 22% for non-citizens.
- In 1994, the government of Singapore introduced Goods and Services Tax (GST) to increase the flexibility of taxes as means of generating government revenue. Since 2007 till date, the GST rate has been 7%. It is essential for consumption and income tax to be kept balanced to reduce the susceptibility of revenue intake to unfavorable changes in economic conditions. It also helps to strengthen the resilience of the country’s fiscal position.
- Royalties, management and technical fees, interest, director’s fees and rentals from movable properties paid to non-residents (companies or individuals) have to pay withholding tax in Singapore.
- The tax year for personal taxes begins and ends exactly like the regular calendar year, i.e. January 1st to December 31st. All personal taxes returns have to be file on or before April 15th. Corporate taxes, on the other hand, are total dependent on the company to determine its financial year. All corporate tax returns have to be file on or before November 30th. Payment of taxes occurs on a preceding year basis.
- There are no capital gains tax in Singapore. Similarly, adding capital loss expenses as deductions is not allowed.
The Singaporean tax system uses an excellent balance of incentives to promote commercial activity and free trade. They also check to ensure that adequate revenue is generate to allow the country meet all its economic and social objectives. The Singapore government has been able to create a mutually beneficial relationship between its residents and the state.
Because of the country’s clear and reasonable tax policies, Singapore enjoys one of the highest rates in the world when it comes to tax compliance from residents and domiciled companies.
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