Batch-21

Frequently Asked Questions About Singapore’s Personal Tax System

Ottavia receives a number of questions about how individual employment income is taxed more than others. We’ve collected some of the more commonly asked here for reference.

WHEN AM I CONSIDERED TO BE A RESIDENT FOR TAX PURPOSES IN SINGAPORE?

An individual is considered a Singapore resident for tax purposes if they’ve both earned income within Singapore and stayed within the country for more than 183 days within the same tax year.

WILL I BE TAXED AS A RESIDENT OF SINGAPORE IF I’VE SPENT FEWER THAN 183 DAYS HERE?

It will depend on your circumstances. If you make frequent business trips as a sales consultant for a local firm and have spent fewer than 183 days in the country, you will still be considered a resident for tax purposes. Alternatively, if you are posted by a Singaporean employer to an overseas project for a period of several months resulting in your spending less than 183 days here, you may have your income taxed as a non-resident.

AM I A NON-RESIDENT FOR TAX PURPOSES IF I TRAVEL FOR WORK OUTSIDE SINGAPORE FOR NEARLY HALF OF THE YEAR?

In most cases the Inland Revenue Authority of Singapore (IRAS) will consider you to be a resident of Singapore, as while you travel extensively you are employed in Singapore. You may be able to limit your tax liability through the Area Representative Scheme.

IS THE INCOME OF COMPANY DIRECTORS TAXED DIFFERENTLY IN SINGAPORE?

Company directors who are resident within Singapore are taxed under the same system as any other local taxpayer. Their income – including salary, fees, allowances and accommodation paid – is taxable under the same progressive tax rates as any other Singaporean taxpayer. However, non-resident directors are taxed differently. For all income derived in Singapore – whether it’s director fees, consultant fees or any other form of income received – non-resident directors are taxed at 22 per cent.

This rule does not affect shareholders in Singapore companies. Irrespective of where the shareholder resides, all distributions of dividends to shareholders is tax-free in Singapore.

HOW DOES IRAS TAX DIRECTOR’S REMUNERATION OF A NON-RESIDENT DIRECTOR OF A SINGAPORE COMPANY?

Despite living overseas, non-resident directors will still generally be taxed on their income. Regardless of their geographical location, IRAS considers the income to be taxable as it was derived in Singapore. Taxable income includes salary, bonuses, director’s fees, accommodation provided, allowances and more, and refers to payments made in cash and non-cash.

Your employer will be required to withhold tax on all payments made at 22 per cent (as of YA 2005 onwards) and file form IR37 and pay the withholding tax by the 15th of the second month following the date the payment was made to you. Once done, you will not be required to file a separate tax return for director’s remuneration, and if issued with a tax return you will need to declare all income derived in Singapore and enter the tax withheld as ‘tax deducted at source’.

IS MY DIVIDEND INCOME FROM A SINGAPORE COMPANY TAXABLE?

There are several types of dividends exempt from taxation:

  • Foreign dividends received in Singapore (if certain conditions are met), excluding income from a foreign source received via a partnership in Singapore
  • Dividends from a Singapore company to its shareholders
  • Distributions of income by real estate investment trusts (REITs) and unit trusts that have been authorised under Section 286 of the Securities and Futures Act. Does not include distributions out of franked dividends.
IS INCOME PAID TO AN OVERSEAS INDIVIDUAL ACTING AS A CONSULTANT FOR A SINGAPORE COMPANY TAXABLE?

As the income is sourced from outside Singapore, the salary is not taxable by the Singapore tax authority. Regardless of the fact that the salary may be paid into a bank account located in Singapore or the consultant’s contract of employment may be concluded in the country. Withholding tax is not applicable to consulting or services done outside Singapore, as it is only applicable to income derived from income for work conducted in Singapore. In the majority of cases, employees contracted to be stationed outside the company to render their services are not eligible for taxation.

AS A SINGAPORE RESIDENT CONSULTING FOR A COMPANY IN ANOTHER COUNTRY, IS MY INCOME TAXABLE?

Yes. As your income is derived in Singapore, it is taxable. Your income will be taxed at resident rates for the period you rendered consulting services. This is done irrespective of the fact that your employer does not reside in Singapore and your income may not be paid in the country.

HOW HIGH IS THE PERSONAL INCOME TAX RATE IN SINGAPORE?

Residents for tax purposes are subject to progressive tax system with a rate starting at 0 per cent and capping at 22 per cent above earnings of S$320,000. Non-residents are either taxed at 15 per cent or under the same progressive system as residents, whichever will result in a higher tax amount.

WHEN ARE PERSONAL INCOME TAX FILINGS DUE IN SINGAPORE?

The filing deadline is April 15. Be advised that Singapore follows a calendar year basis for the filing of personal taxes.

WHO IS REQUIRED TO SUBMIT A PERSONAL TAX RETURN IN SINGAPORE?

If your Singapore income was greater than S$20,000 and you were resident in Singapore for more than 60 days of the calendar year, you will be liable to file a tax return. The latter rule does not apply to public entertainers, directors of companies and those exercising a profession.

IF I AM ON AN EMPLOYMENT PASS, AM I OR MY EMPLOYER REQUIRED TO MAKE CENTRAL PROVIDENT FUND CONTRIBUTIONS?

Foreigners are not allowed to make contributions to the Central Provident Fund. Employer and employee contributions for foreign employees accruing income through work authorised by a Professional Visit Pass, Employment Pass or Work Permit will be rejected.

WILL ACCOMMODATIONS PAID FOR BY MY EMPLOYER OR COMPANY RESULT IN TAX CONSEQUENCES?

Yes. Accommodation provided is considered to fall under the umbrella of benefits-in-kind. This refers to benefits received by an employee from an employer provided in a non-cash form.

IS WORLDWIDE INCOME RECEIVED BY A SINGAPORE RESIDENT TAXABLE?

The tax status of worldwide income received by a resident of Singapore will depend on the nature of the source of income. Fundamentally, income is liable for taxation by the Singapore tax authority if the source of the income is within Singapore. Whether it was derived from or accrued in Singapore and resulted from employment exercised within the country determines its tax status, even if the employer is an overseas or non-resident company like a branch office of a business incorporated in another country. Income sourced from overseas is tax exempt where the income resulted from employment that was exercised outside of the country, with a few exceptions.

Overseas income is taxable if it was received in Singapore through a partnership in Singapore, or if your overseas employment is incidental to Singapore employment. This is frequently referred to as being ‘based’ in Singapore, meaning while you travel overseas extensively for work your job is considered to be in Singapore. Your overseas income is also taxable if you are employed outside of the country on behalf of the Government of Singapore.

ARE GAINS ON STOCK INVESTMENTS TAXABLE?

Gains from investments are taxable under two circumstances. If, as an employee of a company, you a) own or purchase shares in your own company or its parent company using an employee share purchase plan such as a share award; or b) receive share options in your company as a result of the office held by you (e.g. as an external auditor or a director), your gains resulting from these benefits are liable for taxation.

Profits from the selling and buying of financial instruments including shares on your own account are viewed by the tax authority as a personal investment and are not subject to tax as they will be considered to be capital gains. However, the IRAS reserves the right to scrutinise factors such as the volume and frequency of transactions, the way the purchase was financed and the interval between the purchase and sale of a financial instrument to determine whether an individual is doing the trading.

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