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Taxation
Corporate tax
Singapore’s tax laws tax income of a corporation that is actually or deemed to be derived from a source within Singapore or is actually or deemed to be received in Singapore from outside Singapore. There is no precise definition of “source” in the Income Tax Act (Cap 134) and consequently, each income-generating commercial activity has to be carefully examined to determine its source. Income is deemed to be received in Singapore from outside Singapore if the income:
  • is remitted or transmitted to, or brought into, Singapore
  • is applied in or towards the satisfaction of any debt incurred in respect of a trade or business carried on in Singapore
  • is applied towards the purchase of any movable property which is brought into Singapore.
  • In Singapore, income is assessed to tax on a preceding year basis. Essentially, this means that income earned by a company in a financial year will be taxed in the following tax year, referred to as the year of assessment. For example, income for the financial year ended in 2008 will be assessed in the year of assessment 2009. The Singapore fiscal year is the calendar year. Singapore incorporated companies and Singapore branches of foreign companies are both taxed at the same corporate tax rate, which is currently 17 percent.
Sale of shares
Singapore laws do not impose tax on capital gains, but do impose tax on income gains.
Accordingly, gains arising from a sale of shares are only subject to tax where the gains are of an income nature and are derived from Singapore or are received in Singapore.

The gains are usually deemed to be of an income nature where the seller engages in or is deemed to be engaging in a business of dealing in or trading of shares and securities. The gains are usually considered to be of a capital nature where the seller is a long-term investor. Whether the sale of shares amounts to income gains or capital gains is dependent on the facts of each case. In determining whether the gains constitute taxable income gains, the factors that the tax authority takes into consideration include:
  • the length of the holding period of the shares in question
  • the frequency of share sale transactions carried out by the seller
  • the reasons for which the shares were acquired
  • the circumstances under which the disposal of the shares was made
  • the nature of business or trade carried on by the seller.
Dividends
Dividends distributed by a company resident in Singapore are deemed to be sourced from Singapore. A company is considered as a resident in Singapore if the control and management of its business is exercised in Singapore.

With effect from 1 January 2008, all Singapore companies moved to a one-tier corporate tax system. Pursuant to the one-tier system, the tax paid by a company on its normal chargeable income would constitute a final tax. Also, dividends paid out of “after-tax profit” will be exempt from tax in the hands of shareholders (exempt one-tier dividends). All dividends paid on or after 1 January 2008 are exempt from one-tier dividends.

Under the one-tier system, companies need not maintain a record of corporate tax paid for the purposes of paying dividends. Further, when the company pays an exempt one-tier dividend, it is not required to deduct tax from the dividend paid.

The one-tier system does not alter the tax treatment of foreign dividends remitted to Singapore. Such foreign dividends remain taxable in the hands of the shareholders unless exempted from tax. Expenses incurred by the shareholders to earn the foreign dividends are attributed to and allowed as set-off against such dividends only. The applicable foreign tax credit continues to be granted.

Currently, for Singapore tax-resident corporations, foreign dividends remitted to or received in Singapore will be tax exempt provided the following conditions are met:
  • in the year the foreign dividend is received in Singapore, the headline tax rate of the foreign jurisdiction from which the dividend is received is at least 15 per cent
  • the foreign dividend has been subjected to tax in the foreign jurisdiction from which they were received. This condition may be regarded as fulfilled if no taxes are paid in the foreign jurisdiction due to a tax holiday, or where specific remission is granted for a “look through” treatment – where an operating subsidiary at the end of a holding chain satisfies this requirement.

Withholding tax
Withholding tax is a tax-collection mechanism enacted primarily to ensure and facilitate the collection of taxes due on specified categories of income sourced or deemed to be sourced in Singapore where such payments are made by a person in Singapore to a non-resident.
Generally, withholding tax applies to the following categories of income or payment:
  • interest, commission, fees in connection with any loan or indebtedness
  • royalties and other payments for the use of, or right to use, movable property
  • know-how payments for the use of scientific, technical, industrial or commercial knowledge/ information
  • technical assistance or service fees
  • management fees
  • rent or other payments for use of movable property
  • directors’ remuneration
  • professional service fees
  • proceeds from sale of real property by a real property trader.
The rate of withholding tax applicable to a payment made to a non-resident is either the prevailing corporate tax rate (17 percent for 2009 year of assessment), or the reduced rate of 15 percent or 10 percent, depending on the nature of the payment. These rates may be reduced under Singapore’s tax treaties with other countries in respect of payments made to residents of such treaty countries. There are also exemptions from withholding tax for specified payments under certain conditions.

Goods and services tax
Goods and services tax (GST) is a tax imposed on the supply of goods or services made in Singapore. GST is payable on any taxable supply made by a taxable person in the course or furtherance of any business carried on by him or her and on the importation of goods into Singapore.

A “taxable supply” is a supply of goods or services made in Singapore other than an exempt supply. A “supply” refers to any form of supply made for a consideration. An “exempt supply” generally relates to financial services, leases and sales of residential properties.

GST is only required to be charged on the supply of goods and services made in Singapore. There are different rules for determining the place of supply of goods and the place of supply of services.

Generally, goods are treated as being supplied at the place from where they are “removed”. If a supply of goods involves “their removal” to Singapore (that is, they are imported), these goods are treated as supplied outside Singapore. If the supply of goods does not involve their removal from or to Singapore, the supply is made in Singapore if the goods are “in” Singapore at the time of the supply. If the goods are not in Singapore at the time of the supply, the supply is not made in Singapore.

In the case of services, a supply of services is deemed made in Singapore if the supplier “belongs” in Singapore. A supplier of services will be treated as belonging in Singapore if they:
  • have a business establishment or some other fixed establishment in Singapore and no such establishment elsewhere
  • have no such establishment in any country but their usual place of residence is in Singapore
  • have such establishments in Singapore and elsewhere and their establishment in Singapore is the one that is most directly concerned with the supply.
A “taxable person” is a person who is, or is required to be, registered under the Goods and Services Tax Act (Cap 117A). At present, a person is required to be registered as a taxable person if their annual turnover of taxable supplies exceeds or is expected to exceed S$1 million.

Only a GST-registered person can charge and collect GST on all taxable supplies they make (output tax). The person is also entitled to recover any GST (input tax) that they had paid in the purchase of goods and services, provided that the goods and services purchased are directly attributable to the making of the taxable supplies in respect of which the registered person has charged and collected GST (that is, output tax). The amount of GST payable by the GST-registered supplier to the IrAS is the difference between the output tax and the input tax. Where the input tax exceeds the output tax, the IrAS will refund the difference to the registered person.

If a person’s taxable supply is below the S$1 million threshold, they are not required to be registered as a taxable person. However, if the person transacts frequently with suppliers and customers who are GST-registered, they may consider voluntary registration in order to claim credits or refunds for input tax paid on such goods or services. The Comptroller of GST is not obliged to accept a request for voluntary registration and will only consider such registration if:
  • the applicant makes taxable supplies in the course of their business
  • the taxable supplies contribute substantially to the livelihood of the applicant
  • the denial of registration would cause the applicant to incur substantial input tax which he is unable to recover by virtue of his non-registration.
Once registered under the voluntary registration category, the person must remain registered for at least two years.

GST is charged at a prevailing standard rate of 7 per cent. However, there are certain specified goods and services which are termed zero-rated supplies and are subject to GST at 0 per cent. Generally, exported goods and international services rank as zero-rated supplies.

Examples of zero-rated international services include:
  • services connected with international transportation
  • hiring of transport for use outside Singapore
  • services connected with offshore property
  • services connected with offshore goods
  • services (including prescribed financial services) connected with goods for export
  • cultural, artistic and sporting services performed outside Singapore
  • services supplied to persons and businesses abroad
  • services related to ships and aircraft, other than recreation or pleasure craft
  • prescribed international telecommunication services.
Although such goods and services are zero-rated, the suppliers of zero-rated goods are entitled to obtain credits or refunds in the form of input tax for GST paid on purchases of goods and services used in the making of these zero-rated supplies. This is unlike the case of an exempt supply, where no credit is available for the input tax charged to an exempt supplier.

The rules prescribing when a supply would be zero-rated are very limited and a misreading or misinterpretation of these rules is not a defense to any claim or charge for breach of the law. It is strongly advised that professional advice be sought in this regard.

A registered taxable person is required to furnish a tax return to the Comptroller not later than one month after the end of each three-month accounting period. An application may be made to the Comptroller for a shorter accounting period of one month, or a longer period of six months provided certain conditions are met. In each case, the tax return for the period must be furnished within one month after the end of the period to which it relates.

A person furnishing his or her GST return must pay the Comptroller the GST due (that is, the difference between the output tax and input tax for the relevant period) for the accounting period to which the return relates. The payment must be made no later than the last day on which he or she is required to forward the GST return to the Comptroller – unless payment is made by way of Giro (automatic bank withdrawal) in which case the payment will be deducted from his or her bank account on the 15th day of the month after the due date for submission of the GST form.

Tax on individuals
Income tax
The imposition of Singapore tax on the income of an individual depends on the source of the income and the tax-resident status of the individual. Generally, an individual who is a Singapore resident is subject to Singapore income tax on their income derived from a source in Singapore. Foreign-sourced income that is received in Singapore is not subject to Singapore income tax, so long as it is not received via a partnership in Singapore. A non-resident individual, on the other hand, need only pay Singapore income tax on their Singapore-sourced income and is exempt from Singapore income tax on income arising abroad even when such income is received in Singapore.

As a general rule, a person is considered resident in Singapore if they are physically present in Singapore or exercise employment in Singapore (other than as a director of a company) for 183 days or more during the year preceding the year of assessment.

Singapore income tax on individuals is imposed on a marginal basis. For the year of assessment 2007 onwards, the maximum marginal tax rate is 20 per cent.

Central Provident Fund (CPF) contributions Unlike most countries, there are no compulsory contributions to any pension scheme or social security insurance scheme in Singapore. Singapore instead has the CPF Scheme, which is a form of long-term savings scheme. Compulsory contributions to the CPF account of an employee are required for an employee who is a Singapore citizen or permanent resident.

For such an employee, the employer must deduct and pay to the CPF Board a specified percentage of the employee’s salary (employee’s contribution) for deposit into the employee’s CPF account. The employer must also itself contribute to the employee’s CPF account, which contribution is also a specified percentage of the employee’s salary. Currently, the employee’s rate of contribution is 20 percent and the employer’s rate of contribution is 14.5 percent (15 percent from 1 September 2010) for Singapore citizens and permanent residents (from their third year of obtaining permanent residency status).

Other forms of tax
Stamp duty
Under the Stamp Duties Act (Cap 312), stamp duty is levied on instruments and agreements which relate to stocks and shares and immovable property situated in Singapore. Stamp duty is payable at ad valorem rates or at fixed rates, depending on the document concerned. Where the document is executed in Singapore, stamp duty is payable within 14 days after the document has been executed. Where the document is executed outside Singapore and received in Singapore, stamp duty is payable within 30 days after the document has been received in Singapore.

In the case of corporate reorganization involving transfer of shares or the business of a company or transfer of beneficial interests in assets between associated companies, exemption of stamp duty may apply if certain conditions are met.

Property tax
Property tax is levied on immovable properties in Singapore based on the annual value of the property at the progressive rates of 0 per cent, 4 per cent and 6 per cent for owner-occupied residential properties and 10 per cent (with effect from 1 July 2001) for other properties. Certain buildings may, however, qualify for exemptions or concessions. The annual value is the estimated annual market rent that the property can reasonably be expected to fetch if it were let from year to year.

Customs duty
Customs duty is levied on tobacco, liquor, motor vehicles and petroleum-related products.