Everything You Need To Know About Singapore’s Tax System

One of the many reasons why foreign investors start a business in Singapore is because of the progressive economy. Apart from that, there also seems to be an ease with regards to both setting a business up and keeping it operating. But the main reason is because of Singapore’s taxing system.

The taxing system of the country is known to have very accommodating rates for both corporate and personal taxes. To be more specific, Singapore has attractive tax measures, a single-tier tax system, and extensive double tax treaties.

While the taxing system in Singapore can be very inviting for business startups, it is still best to acquaint and familiarise yourself first before going through all the necessary processes so that you can assess whether or not a business within the jurisdiction of the country is viable.

A brief recap on Singapore’s tax system

During World Wars 1 and 2, income tax was slowly introduced to the public as part of an effort to raise fundings for the war efforts of the country. But it was met with immense opposition and debates on its necessity, so it didn’t gain much traction until the end of the Second World War.

World War 2 wrought much damage to essential infrastructures, which ultimately called for new sources of revenue – this triggered the reintroduction of income tax. Since then, the taxation system in Singapore went through various changes and newer measures were made to revamp the economy. But the most significant change happened in the late 1980s wherein both corporate and individual taxes were lowered to as low as 33%.

The 2000s is also the time when group relief and the one-tier tax system for corporations were introduced. Fast forward to today, tax rates are lowered even further to just 20% for individuals and even lower at 17% for companies. In fact, the income tax rates is known to be one of the lowest worldwide.

The different types of taxes

Just like any other country, Singapore has multiple tax types for different community sectors. For starters, there is the “income tax” which is chargeable on the income that an individual or a company makes. This is arguably the type that is most relevant to business owners. Meanwhile, other tax types include:

• Motor vehicle tax: Imposed on motor vehicles to lower the number of car owners and curb the traffic, “stamp duty” which is for both legal and commercial documents related to shares, stocks and immovable properties.
• Property tax: Owners of properties are imposed with, and is dependent on its expected rental value.
• Imported goods tax: This applies to tobacco, liquor and other petroleum products called the “customs and excise duties”.
• Betting tax: Imposed on private lottery, sweepstakes, and betting, referred to as the “betting tax”.

The current tax rate in Singapore 

There are two main taxes in Singapore – corporate and personal/individual – each with its corresponding rate. However, the main focus will be on the former tax type as it is the one that is most relevant to business owners. With that said, there is an effective rate of 8.5% for profits of no more than 300,000 SGD for corporate tax; should the profit exceed these numbers, the 17% will take effect.

As mentioned, the corporate taxing system in Singapore doesn’t apply to the capital gains that are accrued by the company. But this also extends to the shareholders’ dividend distribution, and foreign-sourced income provided that it is not brought into the country. Should it be brought into Singapore, there will be a tax rate between 0% to 17%, depending on various conditions.

Conclusion

The key to making sure that a business or a company stays legally compliant is to make sure that all taxes are settled. Even though Singapore’s taxing system isn’t as intimidating when compared to other countries, it should still be among a business owner’s best interests to gain more knowledge about it.

However, understanding the basics may not suffice when managing accounting, taxing, and the such, which is why it may be necessary to outsource these tasks to an audit firm. At OneStop Professional Services, we can help with tax investigation, tax dispute resolution, IRAS negotiation, and company incorporation services.