Similar to the corporate tax regime in Singapore, the individual tax regime is very attractive. The personal income tax in Singapore is currently highest with a rate of 22%, which cuts in at S$320,000 of taxable income.
The average tax rate up to S$320,000 is 13.9%, with a tax-free threshold of S$20,000. Singapore has a progressive tax system, where lower incomes are subject to a very low tax rate. An individual needs to be earning more than S$80,000 before their marginal tax rate creeps above 10%.
Individuals are subject to tax in Singapore only on certain types of income:
Income from employment
Income from employment is taxable in Singapore. Taxable employment income includes salary, bonuses, commissions, allowances (such as housing or car allowance) and any salary payment made in lieu of notice. Items that are not taxable include bona fide redundancy payments, payments for restrictive covenants and benefits like medical insurance (as long as it is available to all members of staff of the company), training to upgrade the skills of workers and staff functions.
Shares and share options
When an employee is granted shares in the company as part of a remuneration package, the value of those shares are taxable. When there are no vesting restrictions, the shares are taxable in the year in which they are granted. If there are vesting restrictions placed on the shares, the individual will be taxable on the value of the shares when they vest, even if the employee is no longer working in Singapore.
An employee who is granted share options by an employer will also be taxed on any gains or profits arising from the exercise of the share options. The gains will be taxable at the time the options are exercised.
For foreign employees in Singapore, there is a deemed exercise rule when that employee leaves Singapore. Under the rule, the employee is deemed to receive gains from the unexercised/restricted Share Options and unvested/restricted Shares which he/she owns at the time he/she stops working in Singapore with the employer who granted the options or shares. This means if a foreign employee changes jobs and remains in Singapore, the shares and options are taxable at that time.
Directors fees earned from a company resident in Singapore are taxable. Directors fees received by a Singapore tax resident for being a director of a foreign company are not taxable in Singapore.
Rental income from property located in Singapore is taxable to an individual. If the property is sold at a profit, that gain is not taxable as capital gains in Singapore. However, if a person regularly trades properties, the IRAS may determine that a business is being carried on and tax the profits as normal income.
Interest income received from banks and approved financial institutions is not subject to tax. However, any other interest, for example, from a loan to a company, a deposit with a non-approved financial institution or interest received from a pawnshop will be taxable.
Gains from the sale of a property, shares and financial instruments in Singapore are generally not taxable. However, gains from trading these assets may be taxable if the frequency of trades suggests that the assets are held for trading, not to earn a capital gain.
Deductions and rebates
Employees can generally claim tax deductions on employment expenses wholly and exclusively incurred in earning their income. This covers expenses necessary to employment such as travel expenses to see clients, entertainment expenses, subscriptions, etc. Receipts for the expenses must support any such deductions.
Expenses incurred in operating a rental property are deductible against the rental income received. Such expenses include interest incurred on any loan used to finance the acquisition of the rental property.
Cash donations made to an approved Institution of a Public Character (IPC) or the Singapore Government that will benefit the local community are deductible, but not all registered charities are approved IPCs. Donations that are made to a charity without the approval of IPC are not tax-deductible. The tax deduction is usually 2.5 to 3 times the amount of the donation made.
Other reliefs are also available to individual taxpayers in the form of rebates. Examples are reliefs for grandparent carers, foreign maid relief, spouse and child relief. In each case of carer relief, the care must be given to a child who is a Singapore citizen. There are detailed specifications as to who qualifies for each of these types of relief.
Special tax schemes
Area representative scheme
As an incentive for companies to base regional executives in Singapore, even though they do not have a company set up in Singapore, the Area Representative Scheme was set up.
To qualify as an Area Representative, the employee must satisfy these four criteria below:
- Be employed by a non-resident employer;
- Be based in Singapore for geographical convenience;
- Be required to travel outside of Singapore in the course of the employee’s duties; and
- Remuneration is paid by the foreign employer and not charged directly or indirectly to the accounts of a permanent establishment in Singapore.
The employee will only be taxed on salary earned during the days he/she was present in Singapore. If the employee spends more than 183 days in a year in Singapore, he/she will be taxed as a resident. If not, the employee will be taxed as a non-resident. The employee will be taxed at 15% or resident rates on the apportioned income, whichever is higher.
The Supplementary Retirement Scheme (SRS) is a voluntary plan to encourage individuals to save for retirement in addition to their CPF savings. The scheme is available to all taxpayers in Singapore, even if they are a foreigner. Contributions to SRS can be claimed as a tax deduction. Investment returns are tax-free before withdrawal, and only 50% of the withdrawals from SRS are taxable at retirement. The limit to annual contributions is $15,300 for citizens and permanent residents and $35,700 for foreigners. The contributions must be made to an approved SRS account with DBS, OCBC or UOB.
Lodgement of income tax return
An individual must file an income tax return if he/she receives a letter, form or an SMS from IRAS informing them to do so. It does not matter how much income the individual earned in the previous year.
Alternatively, an individual may receive a letter or SMS from the IRAS advising that a tax return does not need to be lodged. This is usually because the individual’s employer is participating in the auto inclusion scheme whereby the employer notifies the IRAS of the employment income of that individual. Even if a notification is received by a taxpayer, the individual may choose to lodge a return if he/she has additional income to declare or deductions to claim against taxable income.
An assessment will be issued sometime in May each year, advising the taxpayer of the amount owing. This amount may be paid in one lump sum or instalments by Giro. There is no requirement on employers to deduct tax payments from salary payments, so individuals need to ensure they have sufficient resources to satisfy their tax bill.
Tax clearance certificate
If a foreigner leaves the employ of a Singapore company, the Singapore company must obtain a tax clearance certificate from the IRAS in relation to that employee. The employer must also withhold any payments to the employee from the date that they are made aware that the employee will cease employment. The IRAS will advise the employer and employee of the final tax bill of the employee, which remains the liability of the employee. To the extent the money withheld by the employer (and remitted to the IRAS) is insufficient to meet the outstanding tax liability, the employee must pay.
Individual tax rates
|Chargeable income||Income tax rate (%)||Gross tax payable ($)|
|In excess of $320,000||22|
Income tax rates in Singapore depends on your residency status; if you are a permanent resident or a foreigner who has stayed in Singapore for more than 183 days, you would have to pay tax. However, if you stayed in Singapore for less than 183 days, you would be exempted from tax. Many consider Singapore as a tax-haven country as the tax rates are very low compared to other countries which results in an increased interest in setting up a business in Singapore. Additionally, the rate of personal income tax in Singapore is one of the lowest in the world.
If you need any support or advice about taxation for you or your employees in Singapore, don’t hesitate to get in touch with Acclime.
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