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Singapore Tax Rates and Income Tax System


Investors turn to Singapore for establishing their operations for several reasons. The ease of setting up and operating businesses is a prime motivator. Another central determinant is Singapores tax regime well-known for its attractive corporate and personal tax rates, tax relief measures, absence of capital gains tax, one-tier tax system, and extensive double tax treaties. Persons, including corporations, partnerships, trustees and bodies of persons carrying on any trade, profession or business in Singapore are chargeable to tax on all profits (excluding profits arising from the sale of capital assets) arising in or derived from Singapore and certain foreign-sourced income from such trade, profession or business. The purpose of this guide is to provide a general overview of Singapores tax system and tax rates. We also have a very useful online tax calculator that you can use to to estimate your Singapore taxes and to compare how they stack up against those in your home country.

Current Tax Rates in Singapore


Corporate Tax Rates
Income Tax rate on corporate profits for up to 300,000 SGD Tax rate on corporate profits above 300,000 SGD Tax rate on capital gains accrued by the company Tax rate on post-tax profits (i.e. dividends) distribution to shareholder Tax rate on foreign-sourced income not brought into Singapore Tax rate on foreign-sourced income brought into Singapore Tax Rate 8.5% 17% 0% 0% 0% 0 17% subject to conditions

Personal Tax Rates


Income Tax rate on first 20,000 Tax rate on next 10,000 Tax rate on next 10,000 Tax rate on next 40,000 Tax rate on next 80,000 Tax rate on next 160,000 Tax rate on above 320,000 Tax rate on capital gains Tax rate on income earned overseas Tax rate on dividends received from Singapore company Tax Rate 0% 3.5% 5.5% 8.5% 14% 17% 20% 0% 0% 0%

Singapore Income Tax System Key Facts

Singapore follows a territorial basis of taxation. In other words, companies and individuals are taxed mainly on Singapore sourced income. Foreign sourced income (branch profits, dividends, service income, etc.) will be taxed when it is remitted or deemed remitted into Singapore unless the income was already subjected to taxes in a jurisdiction with headline tax rates of at least 15%. Although the concept of locality of the source of income seems simple, in realty its application often can be complex and contentious. No universal rule can apply to every scenario. Whether profits arise in or are derived from Singapore depends on the nature of the profits and of the transactions which give rise to such profits. Singapore corporate tax rate is capped at 17%. By keeping corporate rates competitive, Singapore continues to attract a good share of foreign investment. Singapore follows a single-tier corporate tax system, where tax paid by a company on its profits is not imputed to the shareholders (i.e. dividends are tax free). Singapore personal tax rates start at 0% and are capped at 20% (above S$320,000) for residents and a flat rate of 15% for non-residents. As an example, if you are tax resident in Singapore and your personal income for the year was S$160,000, your income tax liability will be approximately S$15,5000. To increase the resilience of taxes as a source of government revenue, Goods and Services Tax (GST) was introduced in 1994. The current GST rate is 7%. The balanced mix of tax on consumption and income reduces the vulnerability of revenue intake to adverse changes in economic conditions and strengthens the resilience of Singapores fiscal position. Interest, royalties, rentals from movable properties, management and technical fees, and directors fees paid to non-residents (individuals or companies) are subject to withholding tax in Singapore.

For personal taxes, the tax year is the normal calendar year i.e. January 1 December 31. Deadline for filing personal tax return is April 15. For corporate taxes, a company is free to to decide on its financial year. Deadline for filing corporate tax return is November 30. Taxes are paid on a preceding year basis. Singapore has no capital gains tax. Capital loss expenses are correspondingly not allowed as deductions. Singapore has concluded more than 50 bilateral comprehensive tax treaties to help Singapore companies minimize their tax burden.

Types of Taxes in Singapore


1. Income Tax is chargeable on income of individuals and companies. 2. Property Tax is imposed on owners of properties based on the expected rental values of the properties. 3. Estate Duty has been abolished since February 15, 2008. 4. Motor Vehicle Taxes are taxes, other than import duties, that are imposed on motor vehicles. These taxes are imposed to curb car ownership and road congestion. 5. Customs & Excise Duties Singapore is a free port and has relatively few excise and import duties. Excise duties are imposed principally on tobacco, petroleum products and liquors. Also, very few products are subject to import duties. The duties are mainly on motor vehicles, tobacco, liquor and petroleum products. 6. Goods & Services Tax (GST) is a tax on consumption. The tax is paid when money is spent on goods or services, including imports. This kind of indirect tax is also known as Value Added Tax (VAT) in many other countries. 7. Betting Taxes are duties on private lottery, betting & sweep-stake. 8. Stamp Duty is imposed on commercial and legal documents relating to stock & shares and immovable property. 9. Others The two main taxes are the foreign worker levy and the airport passenger service charge. The foreign worker levy is imposed to regulate the employment of foreign workers in Singapore.

Singapore Tax Governing Authority


The Income Tax Act of Singapore is the governing statute regarding corporate and individual taxation matters. The Inland Revenue Authority of Singapore (IRAS), was formed in 1960 and was formerly known as the Inland Revenue Department. It integrated all the key revenue collection agencies into one body, enabling the administration and collection processes to become more streamlined and better managed. IRAS has also made its mark as an efficient tax administrator and a service-friendly tax collector. The IRAS is responsible for collecting income tax, property tax, goods & services tax, estate duty (abolished since 15 Feb, 2008), betting taxes and stamp duties. As the main tax administrator for the Ministry of Finance, IRAS plays a role in tax policy formulation by

providing policy inputs, as well as the technical and administrative implications of each policy. IRAS also actively monitors developments in external economic and tax environment to identify areas for policy review and changes. It aims to foster a competitive tax environment that encourages enterprise and growth. The other non-revenue functions performed by IRAS include representing the government in tax treaty negotiations, providing advice on property valuation and drafting of tax legislation.

Singapore Personal Income Tax Guide


Personal income tax rates in Singapore are one of the lowest in the world. In order to determine the Singapore income tax liability of an individual, you need to first determine the tax residency and amount of chargeable income and then apply the progressive tax rate to it. Key points of Singapore income tax for individuals include:

Singapore follows a progressive tax rate starting at 0% and ending at 20% above S$320,000. There is no capital gain or inheritance tax. Individuals are taxed only on the income earned in Singapore. The income earned by individuals while working overseas is not subject to taxation barring few exceptions. Tax rules differ based on the tax residency of the individual. Tax filing due date for individuals is April 15 of each year. Income tax is assessed based on a preceding year basis.

The rest of this guide explains personal income tax in more detail. If you are interested to learn about corporate taxation, refer to Singapore corporate tax guide. To calculate estimated Singapore taxes and to compare how they stack up against those in your home country, refer to our online tax calculator.

Personal income tax rates


Individuals resident in Singapore are taxed on a progressive tax rate as listed below. Filing of personal tax return is mandatory if your annual income is S$22,000 or more. You do not need to pay tax if your annual income is less than S$22,000. However, you may still need to file a tax return if you have been informed by Singapore tax department to submit your tax return. All resident individual tax payers will be given a one-off income tax rebate of 20%, upto a cap of S$2,000, for the tax payable for YA 2011.

Different income tax rules apply in Singapore depending on the tax residency status of the individual.

Personal Tax for Singapore Residents


You are considered a tax resident if you are:

a Singaporean; or a Singapore Permanent Resident and have established your permanent home in Singapore; or a foreigner who has stayed or worked in Singapore for 183 days or more in the tax year

Tax residents pay taxes on their chargeable income as per the tax rate table above. What is chargeable income? The chargeable income (i.e. income subject to taxation) for tax residents is determined as below:

Whereas

Total income means o gains or profits from carrying on any business, trade, profession or vocation either as a sole proprietor or partner in a partnership o gains or profits from any employment o dividends, interests, investment income o rents, royalties, premiums and other profits arising from properties o exclude qualified income earned overseas (more deails provided later in the guide). Expenses means o qualified employment related expenses o qualified rental related expenses are expenses Donations means o donations to qualified charitable organizations Personal Reliefs means o special personal reliefs such as eligible course fees, earned income relief, parent relief, etc.

Chargeable income is this adjusted income after deductions from the total income (as shown in the picture above).

Personal Tax for Singapore Non-Residents


You are considered a non-resident for tax purpose if you are a foreigner who stayed or worked in Singapore for less than 183 days in the tax year. As a non-resident, you will be taxed as below:

Your employment income is exempt from tax if you are here on short-term employment for 60 days or less in a year. This exemption does not apply if you are a director of a company, a public entertainer or exercising a profession in Singapore. Professionals include foreign experts, foreign speakers, queens counsels, consultants, trainers, coaches etc. If you are in Singapore for 61-182 days in a year, you will be taxed on all income earned in Singapore. You may claim expenses and donations to save tax. However, you are not eligible to claim personal reliefs. Your employment income is taxed at 15% or the progressive resident rate (see rate table above), whichever gives rise to a higher tax amount. Director fees, consultant fees and all other incomes are taxed at 20%.

Filing personal income tax returns


Filing your tax return is a yearly obligation for every eligible taxpayer. All completed forms must be submitted to Singapore tax department by the 15th of April. You do not need to pay tax if your annual income is less than S$22,000. However, you may still need to file returns if you have been informed by tax authority to submit your tax form. Even if you do not have any income in previous years, you still need to declare zero income in your tax form and submit by 15 Apr. You need to compulsorily file tax returns if your annual income is S$22,000 or more. You can choose to file your returns online or by mail. IRAS will send you the appropriate paper tax form, as listed below, during February to March. 1. For tax resident individuals Form B1 2. For self-employed Form B 3. For non-resident individuals Form M You will be subject to penalties for filing late or not filing. After you have filed your returns, you will receive your Notice of Assessment or tax bill by September. The tax bill will indicate the amount of tax you have to pay. If you disagree with your tax amount, you need to inform tax department within 30 days from the date of your tax bill and state your reasons for objection.

You need to pay the full amount of tax within 30 days of receiving your Notice of Assessment. This is regardless of whether you have informed tax authority about your objection. If your tax remains outstanding after 30 days, a penalty will be imposed.

Tax treatment of income earned overseas


Generally, overseas income received in Singapore on or after 1 Jan 2004 is not taxable. This includes overseas income paid into a Singapore bank account. You do not need to declare overseas income that is not taxable. There are certain circumstances under which overseas income is taxable:

It is received in Singapore through partnerships in Singapore. Your overseas employment is incidental to your Singapore employment. That is, as part of your work here, you need to travel overseas. You are employed outside Singapore on behalf of Government of Singapore.

You need to declare the qualified taxable overseas income under employment income and other income (whichever applicable) in your tax form.

Tax treatment of employer benefits


All gains and profits derived by you in respect of your employment are taxable, unless they are specifically exempt from income tax or are covered by an existing administrative concession. The gains or profits include all benefits, whether in money or otherwise, paid or granted to you in respect of employment. Examples of taxable benefits received from your employer: 1. Accommodation and housing allowance 2. Car provided by employer 3. Reimbursements of medical and dental treatments for dependants other than yourself, your spouse and children 4. Overtime payments 5. Per diem allowances (daily allowance given to employees on overseas trips, out of Singapore, for business purposes), provided the amount is in excess of acceptable rates 6. Fixed monthly allowance for transport or if mileage on private cars are reimbursed 7. Fixed monthly meal allowance Note however that some of the non-cash benefits (e.g. accommodations) are taxed using special formulas resulting into a lower taxation on these benefits-in-kind. Thus, a properly structured compensation package (i.e. salary plus benefits in kind) for the executives can help reduce their individual tax liability in Singapore. Further details on this are outside the scope of this guide.

Capital gains tax, inheritance tax, estate duty


Capital gains may refer to investment income that arises in relation to real assets, such as property, financial assets, such as shares or bonds, and intangible assets such as goodwill. Singapore does not impose any capital gains tax. Inheritance tax is a tax that you have to pay when you die which comes out of the financial estate that you leave behind. In Singapore, it is commonly referred to as Estate Duty. Estate Duty in Singapore has been abolished effective 2008.

Personal Tax When Employed By NonResident Company


This article provides clarification on a individuals tax liability in Singapore if (s)he is employed by a non-resident Singapore company. For general information on personal taxation, refer to Singapore personal income tax guide. Non-resident Singapore companies include:

Representative Offices (ROs) that are registered with International Enterprise Singapore. Companies that are incorporated outside Singapore such as Singapore branch office setups

Tax liability for employees of a non-resident Singapore company

According to Singapore income tax law, employees will be liable to Singapore tax on all income earned during the employment period in Singapore, irrespective of the fact that the income is not paid in Singapore and that the employer is a non-resident Singapore company. Taxable income includes salary, bonus, allowances, per diem allowance, housing allowance, transport allowance, meal allowance, and other benefits-in-kind. Note that taxable income also includes any allowances received from the local sponsoring company. The general taxation rules for non-residents and residents as outlined above will apply. In other words, o The employment income of non-residents who work in Singapore for 60 days or less in a calendar year is exempt from tax. o The income of non-residents who work in Singapore for 61-182 days in a calendar will be taxed at 15% or at the progressive resident rates, whichever gives rise to a higher tax amount.

Individuals who work in Singapore for 183 days or more in a calendar year will be considered as tax residents and their income will be taxed at the progressive resident rates. Employees who are not Singapore citizens and are employed by a non-resident employer must submit to the Inland Revenue Authority of Singapore (IRAS), a letter of guarantee from a local bank or an established limited company in Singapore to cover their tax liability for a given Year of Assessment (YA). In the absence of a letter of guarantee the IRAS will issue an advance assessment based on their estimate of the individuals income for the given tax year. The non-resident employer must comply with all Singapore tax clearance requirements by submitting a duly completed tax clearance form for all non-resident employees to the IRAS, at least one month prior to the employees cessation of employment or departure from Singapore. Note that all non-resident employees must pay all their taxes befor leaving Singapore.

Reducing tax liability for employees of a non-resident Singapore company


Foreign employees of a non-resident Singapore company can reduce their tax liability if they qualify for:

The Area Representative Scheme; or Exemption under Avoidance of Double Taxation Agreement (DTAs).

Area Representative Scheme The Area Representative Scheme allows time apportionment of employment income, subject to qualifying conditions, for foreign employees who travel and work in Singapore during the course of their employment with a non-resident Singapore company. In other words, only that portion of the employment income that is attributable to the number of days spent in Singapore will be subject to Singapore tax. Note however that all benefits-in-kind provided in Singapore are fully taxable. To qualify for this scheme the employee must satisfy the following criteria:

The individual must be employed by a non-resident employer; The employee must be based in Singapore for geographical convenience; The employee is required to travel outside Singapore in the course of his/her duties; and The employees remuneration is paid by the foreign employer and not charged directly or indirectly to the accounts of any company in Singapore.

Exemption under Avoidance of Double Taxation Agreement (DTAs) If the foreign employee is a resident of a country with which Singapore has a Double Taxation Agreement that provides for exemption from Singapore income tax in respect of Dependent Personal Services rendered in Singapore, (s)he can apply for a tax exemption. For this

purpose, a completed Certificate of Residence that is duly certified by the tax authority of the foreign employees home country will have to be submitted to the IRAS.

Singapore Corporate Tax Guide


Singapore is often cited as the leading example of countries that continues to reduce corporate income tax rates and introduce various tax incentives to attract and keep global investments. Singapore has a single-tier territorial based flat-rate corporate income tax system. Effective tax rates as one of the lowest in the world and the general business friendliness of Singapore are the two important factors contributing to the economic growth and foreign investment into the city-state. This guide provides a detailed overview of income tax rates, tax system, and tax incentives for Singapore companies. To calculate your estimated Singapore taxes and to compare how they stack up against those in your home country, refer to our online tax calculator.

Single-tier income tax system


Since January 1, 2003, Singapore has adopted a single-tier corporate income tax system, which means there is no double-taxation for stakeholders. Tax paid by a company on its chargeable income is the final tax and all dividends paid by a company to its shareholders are exempt from further taxation. There is no tax on capital gains in Singapore. Examples of capitals gains include gains on sale of fixed assets, gains on foreign exchange on capital transactions, etc.

Corporate income tax rates and general tax exemptions


Highest Tax Rate
Singapores headline corporate tax rate is a flat 17%. In order to make Singapore as an attractive investment destination, income tax rates in Singapore have been going down consistently as seen below. 1997-00 2001 2002 2003-04 2005-06 2007-09 2010-11 26% 25.5% 24.5% 22% 20% 18% 17%

Headline income tax rate in Singapore as in many other jurisdictions does not necessarily provide an accurate indication of effective corporate tax rate. The effective rate is normally lower than the headline tax rate due to applicable tax exemptions and tax incentives, depreciation rules, etc.

General Tax Incentives


Listed below are general tax exemptions/incentives currently available to Singapore resident companies. Once these tax exemptions are applied to the taxable income, the effective income tax rate for small-to-midsize Singapore companies is reduced significantly.

0% tax on S$100K taxable income The corporate income tax rate is 0% on the first S$100,000 taxable income for each of the first three tax filing years for a newly incorporated company that meets the following conditions: o be incorporated in Singapore o be tax resident in Singapore o has no more than 20 shareholders of which at least one is an individual shareholder holding at least 10% of shares. 8.5% tax on taxable income of upto S$300K All Singapore resident companies are eligible for partial tax exemption which effectively translates to about 8.5% tax rate on taxable income of upto S$300,000 per annum. The taxable income above S$300,000 will be charged at the normal headline corporate tax rate of 17%.

Effective Corporate Tax Rate


The above general tax incentives mean very attractive tax rates for small-to-midsize companies. For example, a typical Singapore resident company with S$2,000,000 annual taxable income will be taxed as below: First Three Years of Income Tax Filings Taxable Income (S$) Tax Rate 0 100,000 100,001 300,000 0% 8.5%

300,001 2,000,000 17% After First Three Years of Income Tax Filings Taxable Income (S$) Tax Rate 0 300,000 8.5% 300,001 2,000,000 17%

One-off Corporate Income Tax (CIT) Rebate or SME Cash Grant for YA 2011
According to the Singapore Budget 2011, every Singapore company will be eligible for either a corporate income tax rebate or a cash grant for YA 2011, depending on whichever amount is higher. Singapore companies can claim a one-time 20% corporate income tax rebate on corporate income tax payable for YA 2011, subject to a cap of S$10,000 or a one-time SME Cash grant of 5% of the companys revenue for YA 2011, subject to a cap of S$5,000. However, the cash grant can be availed only if the company has made CPF contributions for at least one employee in 2010.

Income tax filing due date


Income tax filing due date for Singapore companies starting year 2009 is November 30. The company has to file a complete set of returns including Form C, audited/unaudited accounts, and tax computation. The Form C is a declaration form for a company to declare its income whereas tax computation is a statement showing the adjustments to the net profit/loss as per the accounts of a company to arrive at the amount of income that is chargeable to tax. For more details, see annual filing requirements for Singapore companies guide.

Income tax basis period


In Singapore, corporate income is assessed on a preceding year basis. This means that the basis period for any Year of Assessment (YA) generally refers to the financial year ending (FYE) in the year preceding the YA. For example, in year 2008 you will be filing corporate tax return for your companys financial year that ended anytime between January 1, 2007 to December 31, 2007. Your companys accounts are prepared up to the FYE each year.

Income tax audit exemption


In order to ease the burden on smaller businesses, a) exempt private companies (i.e no corporate shareholders and individual shareholders < 20) with annual revenue of less than S$5 million; and b) dormant companies (i.e. no accounting transactions during the year) are exempted from auditing their accounts and can file unaudited accounts. Where the financial year is less than 12 months, the said limit of S$5 million must be pro-rated. An Exempt Private Company (EPC) is defined under Section 4(1) of the Companies Act as a company which has no more than 20 shareholders and its shares are held by individuals only. Its important to note that all companies (regardless of exempt or not) are required to submit a Form C, tax computation and the audited/unaudited accounts annually.

Withholding tax
Singapore has implemented a withholding tax law (on certain types of income) to ensure the collection of tax payable to non-residents on income generated in Singapore. The tax withholding does not apply to Singapore resident companies or individuals. Under the law, when a payment of a specified nature is made to a non-resident company or individual, a percentage of the payment has to be withheld and paid to Income Tax Authorities. The amount withheld is called the withholding tax. For more details on withholding taxes, see Singapore withholding tax guide.

Industry specific and special purpose tax incentives


In additional to the general tax exemptions/incentives listed above, there are certain industry specific and special purpose income tax incentives and concessionary tax rates offered under the Singapore Income Tax Act. For overview of these additional tax incentives, refer to industry-specific tax incentives in Singapore.

Tax residence of company


A company is considered as resident in Singapore if the control and management of the business is exercised in Singapore. Although the term control and management is not defined explicitly by authorities, a generally accepted consensus is that it refers to the policy level decision making at the level of Board of Directors and not the day-to-day decision making and operations. In general, a company is considered non-resident in Singapore if the directors manage and control the business and hold board meetings from outside Singapore. This is true even if, for example, the lower level operations are taking place in Singapore. A companys residence may change from one year of assessment to the next depending on the circumstances. A Singapore branch of a foreign company is generally not treated as a Singapore tax resident since the control and management is vested with an overseas parent company. The basis of taxation for a resident company and non-resident company is generally the same with the exception of certain benefits that are available to resident companies. These include:

A Singapore resident company is eligible for income tax exemption scheme available for new start-up companies. A Singapore resident company can enjoy income tax exemption on foreign-sourced dividends, foreign branch profits, and foreign-sourced service income under section 13(8) of the Income Tax Act. A Singapore resident company is entitled to benefits conferred under the Avoidance of Double Taxation Agreements (DTA) that Singapore has concluded with treaty countries.

Singapore tax treaties


A tax treaty between two countries is generally an agreement that specifies how the income earned will be taxed by the authorities of each country when a company is involved in doing business in both countries. The main benefit and objective of a income tax treaty is to help businesses avoid double taxation of their income. Singapore has concluded tax treaties with more 50 countries and the list continues to grow. The treaties reflect Singapores continual efforts to help businesses in relieving double taxation and to encourage and facilitate the trade and investment opportunities across-borders. Starting 2008, Singapore has gone a step further in providing unilateral tax credits to Singapore companies. According to the new policy, all Singapore companies that earned income from countries that dont have double tax agreement with Singapore, will be allowed a tax credit on their foreign-sourced income from those countries. For more details, see Singapore tax treaties and double tax agreements guide.

Net income vs taxable income


A companys income means gains or profits from any trade or business income from investment such as dividends, interest and rental royalties, premiums and any other profits from property other gains of an income nature. As per Income Tax Act of Singapore, corporate tax is imposed on the income that is A) accruing in or derived from Singapore; B) received in Singapore from outside Singapore. Part A is the income that has a source in Singapore. Part B is the income with a source outside Singapore and received in Singapore. For Part B however, there are certain qualified exemptions commonly known as Exemptions On Foreign Sourced Income. For more details, see taxation of foreign-sourced income guide. A companys net profit/loss alone does not provide an accurate picture of the taxable income. For instance, some of the expenses incurred by your company may not be deductible for tax purposes or some of the income received may not be taxable or it may be taxed separately as a non-trade source income. For more details, see calculating taxable income for Singapore companies. Certain company income may be exempted from tax under the provisions of the Singapore Income Tax Act. Examples include general tax exemptions available to all companies, exempt income for certain industries such as shipping income derived by a shipping company, foreign-sourced dividends, branch profits & service income received by a resident company that satisfies the qualifying conditions, exemptions on qualified foreign sourced income, etc.

Tax treatment of losses


In general, a company can deduct losses against the income for taxation purposes in Singapore. The loss can be carried forward indefinitely (subject to certain conditions), however, it must be deducted in the first available year where there is a statutory income. The deduction of the loss follows the proceeding year basis. Its important to note that the losses can be utilized only as long as there is no substantial change in the shareholding.

Singapore Double Tax Treaties Guide


The development of international trade and multinational corporations has increased the issue of double taxation. As a company or individual looking beyond your own country for business opportunities and investments you would naturally be concerned with the problem of double taxation. Consequently you would seek to structure your operations at a minimum tax cost. This is where Singapores DTAs or tax treaties come into play. Tax treaties enable you to access relief from double taxation, either by way of tax credit, tax exemption or a reduced tax rate. These reduced rates and exemptions vary among countries and specific items of income. Treaty provisions generally are reciprocal (apply to both treaty countries). If there is no treaty between your country and Singapore, you may be able to take advantage of unilateral tax credit. Singapore currently has more than 50 comprehensive DTAs to take advantage of and provides specific guidelines for double taxation relief on various types of income. This article focuses on Singapores double tax agreements. To get an overall understanding of corporate taxes in Singapore, see Singapore corporate tax guide.

What is Double Taxation?


Double taxation arises when two or more countries impose taxes on the same taxpayer in respect of the same taxable income or capital. In other words, the same income is being taxed twice the country of source where the income arises and the country of residence where the income is received. To relieve taxpayers from the burden of double taxation, countries provide various types of reliefs either under their domestic tax laws or under the tax treaties they have entered into with other countries.

What is a Double Tax Agreement?


A Double Tax Agreement (DTA) is a bilateral agreement between two countries to avoid double taxation, resulting from the application of their respective domestic tax laws.

Benefits of Double Tax Agreements


1. The main objective of a DTA is to provide certainty regarding when and how tax is to be imposed in the country where the income-producing activity is conducted or payment is made. As a result is defines the jurisdictional authority on cross-border transactions. 2. It clearly defines the taxing right of each country. 3. It seeks to prevent international tax evasion by sanctioning the exchange of information between the tax authorities of the contracting countries. 4. It allows you to claim for relief for taxes paid overseas.

Who benefits from Double Tax Agreements?


Only Singapore tax residents and tax residents of the treaty country can enjoy the benefits of a DTA. If your company is resident in Singapore (i.e. the control and management of its business are exercised in Singapore) and you earn foreign income from a treaty country, you are entitled to claim for relief under the relevant tax treaty by submitting a Certificate of Residence to the foreign country. This is proof of your company being a Singapore tax resident. If on the other hand, you are a tax resident of a treaty country you will have to submit to the Inland Revenue Authority of Singapore, a completed Certificate of Residence from Non-Residents (Claim for relief from Singapore Income Tax Under Avoidance of Double Taxation Agreement) that is duly certified by the tax authority of the treaty country.

Contents of Double Tax Agreements concluded by Singapore


Although each DTA concluded by Singapore has specific terms and may differ from one country to another, there are certain key general principles of a typical DTA, as outlined below: 1. Scope of the DTA is limited to tax residents of Singapore and the treaty country. DTAs are not applicable to non-residents of either country. 2. Taxes covered by the DTA is limited to taxes on income and excludes customs and excise duties. 3. Defining the concept of Permanent Establishment (PE), as a fixed place of business through which the business of an enterprise is wholly or partly carried on, and normally includes a place of management, a branch, an office, a factory, a workshop and a place of extraction of natural resources, etc. This definition is important as business profits attributable to that PE is taxable in that country. 4. Income from immovable property, such as rental income from real estate, is usually taxed both in the country of source (where the property is situated) and country of residence of the recipient. According to Singapore DTAs, the country of residence will have to allow a credit for the tax paid in the country of source. 5. Tax Credit. Singapore (as the Country of Residence) will give a tax credit in respect of the foreign income based on the lower of Singapore tax payable or foreign tax paid. In addition, foreign-sourced income is also tax exempt in Singapore subject to two conditions that the year the income is received in Singapore, the headline tax rate (i.e.

highest corporate tax rate) of the foreign jurisdiction from which the income is received is at least 15% and that the foreign income has been subjected to tax in the foreign country. 6. Airline or shipping profits derived by an enterprise of one country from the other country are entitled to either full or partial exemption. Where full exemption is provided for, this means that the air transport or shipping income will be taxed in the enterprises Country of Residence only. 7. Dividend income may be taxed in the recipients country of residence and that the country of source (i.e. the country in which the company paying the dividend is resident) has the right to tax the dividend income. Normally the country of source would grant full or partial tax exemption or impose a reduced dividend withholding tax rate. Since Singapore follows a one-tier corporate system it does not levy dividends withholding tax. Whether they are taxable in the treaty country would depend on the domestic tax laws of that country and what the treaty specifies. 8. Interest will be exempted or taxed at a reduced rate in the country in which the interest income arises (source country). In the Belgian and Netherlands tax treaties, residents of these countries deriving interest from Singapore are taxable at the rate of 15% and 10% respectively. In the Japanese treaty, if the interest arises from a loan that is made to an approved industrial undertaking, such interest is exempt from Singapore tax, otherwise a tax of 15% is chargeable. The treaty with Malaysia does not provide for any reduction of tax on interest. 9. Royalty income tax treatment varies from complete to partial exemption. 10. Professional services income is normally taxed in the country of residence of the individual performing the services. When the individual has a fixed base in Singapore (office or clinic) his income from the professional services will be taxed in the same manner as his business profits. Professional services cover physicians, lawyers, engineers, architects, dentists, accountants, etc. Some tax treaties (e.g. with Australia, Netherlands, Pakistan) provide tax exemption if the individual is present in Singapore for not more than 183 days in a tax year and where the services are performed for a resident of the other contracting country. 11. Income from employment will be taxed in Singapore if the employment is exercised in Singapore unless: a. the employee is not present in Singapore for more than 183 days in a tax year b. His employer is a resident of the contracting country c. His remuneration is not borne by a permanent establishment in Singapore of an enterprise of a contracting country. Singapores tax treaty with Malaysia, UK, Denmark, Norway, Federal Republic of Germany and Sweden requires an additional condition to be fulfilled the employees income must be subject to tax in the other contracting country. 12. The source of directors fees is in the country in which the company paying the fee is resident. The full domestic tax rate would apply as there is no exemption or reduced tax rate. 13. Government payments Any salary, wage, pension, or similar rewards for personal services paid by the government of a contracting country to persons performing services in Singapore on behalf of that government are exempt from tax in Singapore and will only be taxed in the contracting country. 14. Remuneration paid to visiting professors or teachers, by a contracting country, for teaching at a Singapore based educational institute is exempt from tax in Singapore.

15. Self-employed persons are liable to Singapore income tax on the full amount of their income which is earned in Singapore, net of any tax-deductible expenses which they might have incurred in order to earn that income. 16. The right to tax gains arising from the sale of immovable property and gains from sale of shares varies from DTAs signed with different countries.

Methods of relieving double taxation in Singapore


The methods of relieving double taxation are given either under a countrys domestic tax laws or under the tax treaty. The available methods in Singapore are as follows:

Tax Credit Relief


A tax credit will be given for the foreign tax suffered by a tax payer against his domestic tax imposed on the same income. The amount of tax credit relief is normally restricted to the lower of the paid/payable in the foreign and home country. This is known as the ordinary credit method vis-a-vis the full credit method, where the tax paid in the country of source is allowed as a credit in full. Tax credit relief is commonly referred to as Double Tax Relief in Singapore. The claim for DTR should be made while filing annual income tax returns (Form C) and should be shown in the companys tax computation. Documentary proof (e.g. withholding tax receipts, letter from the foreign tax authority, or dividend vouchers) to show that the remitted income has been subjected to tax in the treaty country is required, before DTR claims can be considered.

Tax exemption
Double taxation can be avoided when foreign income is exempt from domestic tax. The exemption may be given on the entire or part of the foreign income. Tax exemption for foreign-sourced dividends, branch profits, and service income Sec 13(8) A Singapore tax resident company can enjoy tax exemption on its foreign-sourced dividends, foreign branch profits, and foreign-sourced service income that is remitted into Singapore if the following conditions are met:

The highest corporate tax rate (headline tax rate) of the foreign country from which the income was received is at least 15% and The foreign income had been subjected to tax in the foreign country from which they were received. The rate at which the foreign income was taxed can be different from the headline tax rate.

Furthermore, tax exemption will be granted to all foreign sourced income earned/accrued outside Singapore on or before 21 Jan 2009 to resident non-individuals and resident partners of partnerships in Singapore, and received in Singapore during the period from 22 Jan 2009 to 21 Jan 2010.

To enjoy the tax exemption on the specified foreign income, you need not submit documents (such as dividend vouchers, notices of assessment issued by the relevant foreign jurisdiction etc) with your income tax returns to substantiate that their specified foreign income qualifies for the exemption. Instead you only need to declare in the appropriate section of your income tax returns that your specified foreign income qualifies for the tax exemption and furnish the following particulars: 1. Nature and amount of income (i.e. foreign-sourced dividend, foreign branch profits or foreign-sourced service income) 2. Country from which the income is received 3. Headline tax rate of the country from which the income is received and 4. Amount of foreign tax paid/payable in the country from which the income is received. Tax exemptions for individuals Sec 13(7A) For tax resident individuals in Singapore, all foreign income received in Singapore will be exempt from tax if the Comptroller is satisfied that the tax exemption is beneficial to the individuals.

Reduced tax rate


Under this form of relief, income is taxed at a lower rate and is applicable to the following classes of income: interest, dividends, royalties and profits from international shipping and air transport.

Relief by deduction
In this case, domestic tax is applied on the foreign income after deducting foreign tax suffered. Singapore does not allow a deduction of foreign income tax. However a deduction is given indirectly as under the remittance basis, Singapore would tax the amount of foreign income received (i.e. net of foreign tax) in Singapore.

Tax sparing credit


Under a DTA, tax credit is usually available in the country of residence only if the income has been taxed in the country of source. Tax sparing credit is a special form of credit whereby the country of residence agrees to give a credit of the tax which would have been paid in the country of source but was not, i.e., spared, under special laws in that country to promote economic development. The tax sparing credit provision is usually found in DTAs between a developing country which offers tax incentives to attract foreign investment and a developed country which is capital exporting. The credit is given by the capital-exporting country under its laws to promote investments

Tax relief example under different methods

Unilateral tax credit


If you are a Singapore resident receiving the following foreign income from countries which Singapore has yet to conclude an Avoidance of Double Taxation Agreement (DTA), you can now get a unilateral tax credit for the foreign taxes paid on such income under Section 50A of the Singapore Income Tax Act. 1. Income derived from any professional, consultancy and other services rendered in any territory outside Singapore. 2. Dividends or 3. Profits derived by an overseas branch of a Singapore resident company. Unilateral tax credit under Sec 50A would also apply to foreign sourced royalty from non-treaty countries, provided the royalty is not

1. borne directly or indirectly by a person resident in Singapore or a permanent establishment in Singapore or 2. deductible against any Singapore sourced income

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