This article provides an overview of income tax, goods and services tax and stamp duties in Singapore. The main inland taxes in Singapore are income tax, GST, property tax and stamp duties. These taxes are administered by the Inland Revenue Authority of Singapore (IRAS) as agent of the Government.
Income tax is chargeable upon all income accruing in or derived from Singapore or received in Singapore from outside Singapore. Both residents and non-residents may be charged to tax on such income. Capital gains are not taxed. The Income Tax Act also deems certain income to have been derived from Singapore or to have been received in Singapore from outside Singapore.
Corporate residence and general tax exemption
A company is resident in Singapore where control and management of its business is exercised in Singapore. The prevailing corporate income tax rate is 17% with effect from Year of Assessment 2010 (i.e. the financial year ending in 2009), for both resident and non-resident persons, including registered business trusts. This rate applies to the remaining chargeable income after certain exemptions are given upon the first SGD300,000 of chargeable income. These exemptions are as follows:
- 75% of up to the first SGD10,000 of chargeable income (excluding Singapore dividends); and
- 50% of up to the next SGD290,000 of chargeable income (excluding Singapore dividends).
A host of tax incentives for various industry sectors are promoted by the Economic Development Board, the Monetary Authority of Singapore and other agencies, with concessionary tax rates for specified income derived from various business activities. Some incentives are legislated under the Economic Expansion (Relief from Income Tax) Act, such as for pioneer industries and pioneer service companies, and the expansion incentive for partnerships rendering professional services.
An example is the incentive for operational headquarters – this is to encourage companies to use Singapore as a base for conducting headquarters management activities to oversee, manage and control their regional and global operations and businesses, through the headquarters company.
In brief, (in addition to specific criteria), the general criteria for a headquarters company are that:
- the company should belong to a group that is well established in its respective business sector or industry and has attained a critical size in terms of equity, assets, employees and business share;
- the company should be the nerve centre for organisation reporting at senior management levels for its principal activities;
- the company should have a substantial level of headquarters activities in Singapore; and
- the personnel employed by the company should be based in Singapore, and include management, professionals, technical personnel and other staff.
Under this incentive, income from, among other activities, qualifying management, technical or supporting services or qualifying treasury, investment or financial activities by a company in Singapore to its offices, associated companies and other persons outside Singapore may be taxed at a 15% tax rate under the Regional Headquarters Award (RHQ), or where the RHQ criteria have been substantially exceeded, the qualifying income may be taxed at 0%, 5% or 10% rates under the International Headquarters Award.
New tax incentive for mergers and acquisitions
Among the tax changes announced in Singapore in the 2010 Budget, and passed by Parliament on 18 October 2010, is a new mergers and acquisitions (M&A) deduction for capital expenditure incurred during the period between 1 April 2010 and 31 March 2015 by a Singapore company (or its acquiring subsidiary) in acquiring the shares of a target company. A Singapore company is a company that is both incorporated and tax resident in Singapore. The amount of deduction is 5% of the value of the acquisition, capped at SGD5,000,000 for all qualifying M&A deals executed in the basis period for each year of assessment.
Taxation of individuals
Resident individuals are taxed at graduated rates with the top marginal tax rate being 20% for chargeable income above SGD320,000. Employment income of non-resident individuals is charged at a flat rate of 15%, and other income at the prevailing corporate tax rate, now 17%. Non-resident individuals are exempt from tax on:
- income arising from sources outside Singapore and received in Singapore; and
- income from employment exercised in Singapore for 60 days or less in the basis period for each year of assessment, provided the individual is not a company director or public entertainer.
Resident individuals are also exempt from tax on income arising from sources outside Singapore and received in Singapore, subject to certain conditions.
Relief from double taxation is available under Singapore's network of comprehensive double taxation agreements (DTAs) with over 60 countries, including Belgium, China, France, Germany, India, The Netherlands, Sweden and the United Kingdom. Singapore also has limited treaties for income from shipping and air transport with several other countries, including the United States. In 2009, Singapore amended the Income Tax Act to facilitate the exchange of information (EOI) under DTAs, and as at 31 March 2010, has re-negotiated DTAs with 18 countries to incorporate the new internationally agreed standard for EOI. Singapore is on the OECD white list.
The IRAS has completed and documented five unilateral and five bilateral Advance Pricing Arrangements (APAs) in the financial year ending 31 March 2010. There are also thirteen ongoing bilateral/multilateral APAs, five unilateral APAs and eight Mutual Agreement Procedure cases at different stages of review.
Goods and Services Tax (GST)
GST, a form of value added tax (VAT), is charged on the importation of goods into Singapore and on the taxable supply of goods and services made in Singapore by a taxable person in the course or furtherance of business. A taxable person is one who makes or intends to make at least SGD1,000,000 in value of taxable supplies per period of 12 months. Taxable supplies are either zero-rated or standard-rated.
Low rate and limited exemptions
The prevailing GST standard rate is 7% on the value of the import or supply. Exemptions are limited to the supply of residential property and the supply of financial services, including operation of bank accounts, foreign exchange transactions, provision of loans, some credit card operations, securities transactions, and provision of futures contracts including futures options. However, the exemption does not cover services for arranging, broking, underwriting or advising on the financial services in question.
The supply of goods which are exported and the supply of international services are zero-rated. The 'reverse charge' is not implemented in Singapore. As in a number of other countries, the burden of GST on importers is reduced by the Major Exporter Scheme on goods imported for re-export. Other schemes under the GST regime include the Approved Contract Manufacturer and Trader Scheme, Approved Third Party Logistics Company Scheme, Approved Marine Fuel Trader Scheme and the Approved Import GST Suspension Scheme. This last scheme is for players in the aerospace industry.
Stamp duties are imposed mostly on instruments transferring immovable property, or stock or shares of companies, (and including any interest in the property, stock or shares), where the instrument is executed in Singapore, or having been executed outside Singapore, is brought into Singapore. For immovable property, the duty is calculated at graduated rates, but in simple terms is generally 3% of the higher of the consideration paid or the market value of the property, less SGD5,400. The rate of duty for shares is SGD0.20 for every SGD100 of any part of their value, computed on the consideration for, or market value of, the shares, whichever is higher. Certain regimes exist for remission of stamp duty and others for relief from stamp duty.
New remission for instruments for sale of Singapore immovable property to listed REITs
This year, a new remission has been introduced under the Stamp Duties (Real Estate Investment Trust) (Remission) Rules 2010. Stamp duty is remitted on any instrument executed during the period from 18 February 2010 to 31 March 2015 essentially relating to the transfer on sale of any Singapore immovable property to REITs listed on the Singapore Exchange.
New relief for M&A
In tandem with the income tax incentive for qualifying M&A deals, a new relief from stamp duty is available for principal instruments in M&A that are executed between 1 April 2010 and 31 March 2015 by a Singapore company (or its acquiring subsidiary) in acquiring the shares of a target company. The maximum amount of relief allowed is SGD200,000 for any of the acquiring company's financial years. This relief has been legislated together with a series of specific claw-back measures, including obligations on the acquiring company and the target company to notify the IRAS of any subsequent circumstances that disallow the relief claimed, and penalties for late or non-payment of the reclaimed stamp duty.
The income tax rates for companies and individuals have been reduced gradually over several decades to their current low rates. Meanwhile, the list of activities qualifying for tax exemption on income derived from them has grown. Both factors have contributed to an expansion in the nature and volume of business transactions and investments in Singapore. For stamp duties, the heads of instruments subject to duty have decreased over the years, with new remissions and reliefs being introduced from time to time to attract and facilitate specific business activities. For GST, various schemes have also been introduced including certain supplies being zero-rated. However, the standard rate has been increasing; from 3% when GST was first introduced on 1 April 1994, to 4% on 1 January 2003, to 5% on 1 January 2004, and to the current rate of 7% since 1 July 2007.
Sundareswara Sharma is a recently appointed partner at ATMD Bird & Bird LLP in Singapore and a member of the Bird & Bird International Tax Team. Prior to joining ATMD Bird & Bird, Sharma served as a district judge and adjudicator in civil litigation, and as a legislative draftsman for tax and other financial legislation. Sharma has more than 20 years' tax experience, with the Inland Revenue authorities and in private legal practice in relation to income taxes, goods and services tax and stamp duties, and expertise across various other areas of tax including international taxation, permanent establishments, withholding taxes and application of tax treaties for corporates and individuals.