There are various perks of doing business in developed and business-friendly countries. Singapore, one of the world’s hotspots for start-ups, has much to offer to entrepreneurs.
Specifically, it is an ideal location for those who want to get started in the global market since it is a top location for investments in the Asia Pacific region. However, these benefits come with taxes, so it is essential to know about the various types of taxes in Singapore.
Why to Take Taxes Seriously in Singapore?
Running and growing a business requires adequate planning and budgeting. While you may have planned everything to the extent of perfection, you will still face difficulties in keeping up with your cash flow if you have not incorporated the effects of taxes.
Though Singapore has a clear and easy-to-understand tax system, you still need to keep an eye on various types of taxes such as Goods & Services tax and property tax to include an all-inclusive list of expenses in your budget.
Moreover, there are various tax reliefs available for entrepreneurs in Singapore which means you won’t have to pay the full amount to the Inland Revenue Authority of Singapore (IRAS). Instead, you will have to pay a part to settle your tax liability.
Therefore, you should take taxes seriously in Singapore to make your budget parallel with your cash inflows and outflows. Moreover, the right tax planning also saves you from tax penalties.
Here is our list of the top 7 must-know taxes entrepreneurs in Singapore must catch an eye on in 2022:
1. Corporate Tax
Every incorporated business in Singapore is required to pay corporate tax on its chargeable income which is flat 17% as of 2022. Singapore has a territorial-based corporate tax system which means you only need to pay corporate tax on income that is either generated in or received in Singapore.
Unlike most other countries, you don’t need to pay tax on foreign income. This avoids income being taxed twice, otherwise known as double taxation.
In addition, there is a corporation tax relief available for the earnings made in the first 3 years. Start-ups in Singapore are allowed to pay only 75% of the tax liability on earnings up to $100,000, and only 50% of the tax liability on $200,000 above $100,000. For example, if your company has earned $400,000 in the first year of its incorporation, here’s how you can calculate your tax relief and tax liability:
Corporate Tax = $68,000 (400,000*17%)
Relief available on the first $100,000 = $4,250 (100,000*17%*25%)
Relief available on the next $200,000 above $100,000 = $17,000 (200,000*17%*50%)
Total relief available= $21,250
Corporate Tax Liability = $46,750 (68,000-21,250)
Singapore also has special tax exemptions and reliefs available for various business sectors such as logistics, fund management, banking, etc. If your company falls in the list, this can significantly reduce your tax liability. It is advisable to consult with an expert or an accounting firm to check whether you are eligible for corporate tax exemptions.
2. Goods and Service Tax
Just like the Value Added Tax (VAT) in many other countries, Singapore has Goods and Services Tax (GST). Charged on goods and services whether made/manufactured in Singapore or imported from a foreign country, the GST in Singapore is currently set at a flat 7%.
In terms of GST, the IRAS has categorized businesses into two types — those who can voluntarily register and those for whom it is compulsory to register for GST. If your turnover for the past 12 months exceeds S$1 million or if you expect it to exceed S$1 million, then it is compulsory to register and collect GST on behalf of the IRAS.
However, many businesses choose to voluntarily register despite having a turnover of less than a million. That is because there are various benefits attached.
Here is a major one:
When you sell goods or services to a foreign customer, you don’t need to collect GST because there is no tax on income that you make by selling goods or services to a foreign customer, but you are able to claim GST that you have incurred on business purchases and expenses, as input tax in your GST return. This enables you to keep prices competitive in the global market since you don’t need to add GST to your prices.
3. Tax on Limited Liability Partnerships
Though a Limited Liability Partnership (LLP) is registered incorporation with limited liability, it is treated in a different manner when it comes to taxes. Where the partner is an individual, his share of income from the LLP will be taxed based on his personal income tax rate. When a partner is a company, its share of income from the LLP will be taxed at the tax rate for companies.
The personal income tax rate for a resident is 0% – 24% depending on the income level of the individual. Moreover, there is a personal relief of S$20,000 available to Singapore residents meaning that you can have a tax-free income of up to S$20,000 in a tax year.
Non-residents are charged at a flat rate of 22% (24% from the year of assessment 2024).
4. Sole Proprietorship & Partnership Tax
Sole Proprietorships and partnerships are not inherently separate legal bodies, and that is why the owners are charged personal income tax. Running a sole proprietorship or partnership is risky since the owners’ personal assets can be seized upon liquidation to cover up the business’ debts. However, there are many tax reliefs and deductions available to the owners.
For example, the owner is allowed to deduct wages paid to employees, claim allowable expenses such as rental expenses, and the owner or each partner has a separate zero-rated personal allowance available.
You can also claim capital allowances on long-term assets such as property, plant, and equipment from the IRAS which is basically compensation for the wear and tear of the assets. Moreover, sole proprietorships and partnerships can carry forward business losses from previous years and can deduct them in future years. Also, the owners are allowed to deduct charitable donations from their income.
5. Property Tax
Properties that you own in Singapore are subjected to 10% property tax. Whether it is a warehouse, a housing and development board flat, a factory, or even a property for rental business, you will have to pay the annual 10% property tax.
There are refunds and reliefs available in certain situations. For example, when a rental property stays vacant for at least a month due to the inability to find tenants or when it is going through repair and maintenance, or when an individual or a married couple lives in their own residential property, they can enjoy lower property tax rates known as owner-occupier tax rates.
6. Withholding Tax
Non-resident professionals are subject to withholding tax which is a tax charged on the income earned from rendering services in Singapore. A non-resident professional is someone who has spent less than 183 days a year in Singapore throughout the course of providing services.
Except for payments to non-resident company directors and public entertainers, the general withholding tax rate is 15%. WHT for company directors is 15% and that for public entertainers is 10%.
Public entertainer’s WHT rates:
The withholding tax rate is 10% if the income for the services performed in Singapore is due and payable during the period from 22 Feb 2010 to 31 March 2022 (both dates inclusive). From 1 April 2022, a withholding tax rate of 15% will apply.
Non-resident director’s WHT rates:
Withholding tax rates for non-resident director, professional, public entertainer, and international market agent are as follows:
|
Nature of Income |
Tax Rate |
|
Payments to a non-resident director |
22% (24% from 01 Jan 2023 onwards) |
|
Payments to a non-resident professional/firm (unincorporated business) |
15% on gross income or prevailing non-resident individual rate on net income |
|
Payments to a non-resident public entertainer |
15% (or 10% for income due and payable from Feb 22 2010 to Mar 2022) on gross income |
7. Stamp Duty
Stamp duty is simply the tax that you pay on buying, selling, or renting a residential property in Singapore. Below is a table that explains the additional buyer’s stamp duty (ABSD) for Singapore citizens, permanent residents, and foreigners.
|
Profile of buyer |
ABSD rates from 12 Jan 2013 to 5 July 2018 |
ABSD rates from 6 July 2018 to 15 Dec 2021 |
ABSD rates on or after 16 Dec 2021 |
|
Singapore citizens (SC) Buying first residential property |
Not applicable |
Not applicable |
Not applicable |
|
SC buying second residential property |
7% |
12% |
17% |
|
SC buying third and subsequent residential property |
10% |
15% |
25% |
|
Singapore permanent residents (SPR) buying first residential property |
5% |
5% |
5% |
|
SPR buying second residential property |
10% |
15% |
25% |
|
SPR buying third and subsequent residential property |
10% |
15% |
30% |
|
Foreigners buying any residential property |
15% |
20% |
30% |
Let’s all agree, nobody enjoys tax calculation and filling especially when you already have a lot on your plate. Even if you love number crunching, there is a risk to miss including tax reliefs and deductions in your tax bill if you do not have a strong taxation background — let alone avoiding penalties by staying compliant.
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