Singapore Personal Income Tax System: The Key Points to Consider
In order to develop Singapore into a more vibrant economy and an attractive business and investment location, the city-state’s government strives to create a tax-friendly environment. The fundamental principle in Singapore’s tax policy is to provide competitive tax rates, streamlined tax filing schemes and good tax incentives both for corporations and individuals. As a result, the tax compliance rate in Singapore is higher than in many other financial hubs.
According to the 2016/2017 annual report released by the Inland Revenue Authority of Singapore (IRAS), tax compliance in the Lion City continued to be high, with minimal tax arrears to the tune of 0.68% of net tax assessed. As for individual tax filing, it was reported that 96.7% of taxpayers filed and paid their taxes on time.
In this article we will discuss the key points regarding the Singapore Personal Income Tax system. Read on to learn how to ensure full tax compliance and benefit from the tax rebates available in Singapore.
What is your tax residency status?
Given that the Singapore Personal Income Tax rate depends on whether a person is a tax resident or a non-tax resident, it is firstly necessary to determine one’s tax residency status in the city-state.
IRAS defines an individual as a tax resident, if he is a Singapore citizen or a Singapore permanent resident who normally stays in Singapore, apart from occasional absences, or a foreigner who has been living or working in Singapore for 183 days or more in the year prior to the Year of Assessment.
A person is considered to be a non-tax resident, if he has stayed in Singapore for less than 183 days in a year. The number of days that the non-tax resident stays in the country includes weekends and public holidays.
What are the personal income tax rates?
For a tax resident, the Singapore income tax rates are progressive, starting from 0% up to 22% for chargeable income of more than S$320,000. For instance, a person earning S$30,000 will not pay any taxes on his first S$20,000 of chargeable income. He will, however, need to pay 2% of income tax on his next S$10,000, which will amount to S$200 in gross tax payable. The comprehensive list of chargeable incomes and the accompanying applicable income tax rates and gross tax payable can be found in IRAS website.
As for non-tax residents, their employment income is taxed at a flat rate of 15%, or the progressive resident tax rates, whichever is higher. If a person derives income in his capacity as a director or consultant, or has any other income, such income is taxable at a rate of 22%. This is up from the 20% in the Year of Assessment 2016. The IRAS indicated that this is to maintain parity between the tax rates of non-resident individuals and the top marginal tax rate of resident individuals.
What items are not taxable?
It is worth highlighting that Singapore does not have capital gains tax, inheritance tax or estate duty. Singapore does not impose taxes on capital gains, which is the investment income from earning assets such as real estate or financial products. Inheritance tax, also known as estate duty in Singapore, refers to the tax paid when a person passes away and leaves behind his financial estate.
A person does not have to declare overseas income received in Singapore on or after 1 January 2004. However, there are exceptions, including income that is received in Singapore via partnerships in the city-state. The other exceptions involve the overseas employment being incidental to the Singapore employment, and the overseas employment is carried out on behalf of the Singapore government.
What are the tax rebates for the Year of Assessment 2017?
Tax residents receive an income tax rebate of 20% of income tax payable, up to a maximum of S$500 for the Year of Assessment 2017. The tax rebate will be calculated based on the amount of tax payable after double taxation relief and other credits, as well as the amount of tax payable prior to offsetting the Parenthood Tax Rebate. This rebate will be automatically granted to all tax residents.The singapore government also provides both tax residents and non-residents with a number of other ways to save on taxes, provided they meet certain conditions.
How to file taxes?
A person can file for his returns either online or by postal mail. Should you choose to opt for the paper version, do ensure to use the correct form.
A tax resident should fill the Form B1, while a non-tax resident should complete the Form M, and a self-employed person should submit Form B. The paper tax form filing should be completed by 15 April of every year, and the e-filing should be submitted by 18 April. If your employer is on the Auto-Inclusion Scheme, you would not need to file for your personal income tax. IRAS is strict about late tax filing or not filing a tax return at all, and the person who fails to pay taxes on time will bear penalties for failing. In order to ensure that your taxes are paid on time, without any errors and subsequent penalties, you can seek expert advice from professional firms, like AM Corporate Services, who will guide you through the tax filing procedure.
How to pay taxes?
Once an individual has filed for his taxes, he will receive the Notice of Assessment or tax bill in the period from May to September. This Notice of Assessment will indicate the tax amount to be paid. If you object to the tax amount, you can inform IRAS within 30 days. The tax payment can be made through GIRO, internet banking, AXS stations or SAM kiosks. Failure to make the payment will lead to penalties.
Singapore’s well-designed tax system alleviates the tax pressure, providing individuals with streamlined filing procedures and opportunities for tax rebates. In order to avoid penalties for tax arrears or late payments, taxpayers should be in the loop about all the rules and regulations.