Singapore has long been recognized as a global economic hub, offering a conducive environment for businesses to thrive. As part of its pro-business policies, the city-state boasts a straightforward and transparent tax system. However, to maintain this reputation, businesses and individuals must adhere to tax compliance regulations. In this article, we’ll delve into the intricacies of tax compliance in Singapore, the various types of tax compliance, available tax compliance services, what tax compliance entails, and how to obtain a tax compliance certificate in the Lion City.
Definition of tax compliance in Singapore
Tax compliance can be a complex and time-consuming task, particularly for businesses. Fortunately, there are several tax compliance services available in Singapore to assist individuals and corporations in navigating the intricacies of the tax system.
Unlike tax compliance, tax evasion represents a polar opposite. Tax evasion involves the deliberate choice of individuals or businesses to either evade or pay less than the taxes they are obligated to pay, which is illegal. Making the distinction between tax evasion and avoidance is crucial. Tax avoidance, on the other hand, is the legitimate practice of reducing tax liability to optimize post-tax income. Failing to accurately report your income constitutes illegal behavior (tax evasion), whereas legitimately claiming deductions for child-care expenses falls within the bounds of the law (tax avoidance).
What is tax compliance?
Tax compliance is the process of meeting all statutory obligations imposed by the tax authorities in Singapore. It involves accurately reporting income, deductions, and other financial data, as well as ensuring the timely submission of tax returns and payments. Non-compliance can result in penalties, interest charges, and even legal action, making it essential for both businesses and individuals to maintain strict tax compliance.
8 Different types of tax compliance in Singapore
In Singapore, there are various types of tax compliance that individuals and businesses need to adhere to. There are 8 Types of tax compliance in Singapore, including:
1. Corporate Tax
- In Singapore, corporate income tax is territorial in nature. It implies that only income earned within or sourced from Singapore is taxable. Businesses must file income tax returns for the income they earn within Singapore. Unlike some other countries, income derived from foreign sources is not subject to taxation. The flat tax rate for companies is 17%, but entrepreneurs can seek assistance from professional accounting firms to navigate corporate income tax in Singapore. For foreign business owners, finding the right accounting firm in Singapore is a valuable step.
- Singapore further enhances its allure by offering incentive schemes to reduce the tax rate for companies well below the standard 17%. Startup companies, for instance, can benefit from corporate tax exemptions for their initial three years, wherein they pay only 75% of the first $100,000 of chargeable income and 50% tax on the subsequent $200,000 in taxable income.
- The city-state also provides special tax regimes for specific industries such as banking, shipping, leasing, and fund management, effectively reducing the effective tax rate below 17%.
2. Goods and Services Tax (GST)
- Singapore imposes a 7% Goods and Services Tax (GST) on goods and services either made or imported into the country. Notably, GST does not apply to financial services or income generated from sales or leasing of residential properties. Sole proprietorships, partnerships, government bodies, clubs, and non-profit organizations are eligible for GST registration.
- Singapore’s GST system closely resembles the Value Added Tax (VAT) imposed in many other nations. The government has refrained from adjusting the GST rate since 2014, citing its effectiveness in maintaining business and customer satisfaction. GST registration falls into two categories: compulsory and voluntary. Businesses may be exempt from GST registration if they meet specific criteria. Opting for voluntary registration may be beneficial for businesses without a permanent establishment required for GST sign-up.
- According to the World Economic Forum, Singapore’s attraction for entrepreneurs is amplified by its personal income tax rate. The revenue data from corporate tax payments allows the government to lower personal tax rates, and the utilization of GST aids in making lower individual tax rates sustainable. In essence, GST can be a catalyst for cost savings for businesses.
- To benefit from additional tax incentives provided by the Singaporean government, individuals and business owners need to apply for a Certificate of Residency in Singapore.
3. Income Tax for LLP (Limited Liability Partnership)
- In the context of Singapore, a Limited Liability Partnership (LLP) is a business structure requiring a minimum of two partners who must be at least 18 years old and either residing in Singapore or represented by a corporate body. LLPs do not face entity-level taxation; instead, their profits are considered the personal income of partners. Consequently, personal income tax rates apply, rendering partners liable to taxation rather than the partnership itself.
4. Income Tax for Sole Proprietors and Partnerships
- Sole proprietors and partnerships operating businesses in Singapore have their business income regarded as a component of their personal income. As a result, personal income tax rates are applied to income received for Singaporean products, income from overseas sales in Singapore, and other taxable income sources such as salary, business earnings, and interest from various deposits.
- Sole proprietors and business partners have the opportunity to leverage personal tax rates, tax exemptions, deductions, rebates, and tax relief to efficiently manage their income. These business structures can claim Allowable Business Expenses to offset costs related to generating income, including office supplies, wages, and rental income. They can also benefit from Capital Allowances, which cater to expenses incurred when purchasing machinery and equipment, and carry forward Unutilized Losses and Capital Allowances to the following financial year. Additionally, they can take advantage of tax relief and rebates when making donations to charitable organizations.
5. Withholding Tax
- If a business employs staff or overseas agents who are non-residents of Singapore, or if business partners are also non-residents of Singapore, they are subject to withholding tax. This withholding tax is remitted to the Inland Revenue Authority of Singapore (IRAS) and encompasses commissions and fees for non-resident partners and employees, including those overseas. The kind of payment determines the withholding tax rate.
6. Property Tax
- Property tax is applicable to all properties in Singapore, ranging from HDB flats and warehouses to factories, offices, and vacant lots. Property owners are required to pay this tax annually before January 31st at a 10% tax rate. Certain requirements, such as the owner-occupier rate, can lead to a reduction in this rate.
- Similar to personal income tax, property owners are entitled to specific rebates and tax refunds to help manage their tax liability. For example, if a property remains vacant for over a month due to repairs or the inability to find tenants, a property tax reduction can be pursued.
7. Stamp Duty
- In Singapore, purchasing property entails additional costs, including Stamp Duty. This tax applies to documents related to property leasing or purchases and is payable to the IRAS. All residential property transactions, whether buying, selling, or renting, are subject to stamp duty, with a few exceptions.
- Given the potential significant costs associated with Stamp Duty, it’s essential to factor this into financial considerations when engaging in property transactions. Stamp Duty rates depend on factors such as the purchase price and market value of the property.
8. Buyer’s Stamp Duty (BSD)
- When buying property in Singapore, individuals must pay Buyer’s Stamp Duty (BSD) for documents related to the purchase. BSD is calculated based on the purchase price or market value, with the higher of the two amounts being the basis for the calculation. The specific rates for BSD depend on the purchase price or market value in different tiers.
- In summary, Singapore offers a favorable tax environment for both businesses and individuals, making it an appealing destination for entrepreneurs and investors. Understanding the various tax types and compliance requirements is essential for those looking to establish and grow their financial interests in this dynamic city-state.
5 Major tax compliance services in Singapore
Complying with Singapore’s tax regulations can be a complex and time-consuming task, particularly for businesses. Fortunately, there are several tax compliance services available in Singapore to assist individuals and corporations in navigating the intricacies of the tax system. These services of tax compliance services in Singapore typically include:
- Tax Consultation: Professional tax consultants offer expert advice on tax planning and compliance, helping clients optimize their tax positions while ensuring full compliance with regulations.
- Tax Preparation: Tax compliance experts help businesses and individuals prepare and file their tax returns accurately, minimizing the risk of errors or oversights.
- Tax Audit Support: In the event of a tax audit, tax compliance services can provide guidance, documentation, and representation, ensuring a smooth and compliant process.
- GST Services: Specialists can assist with GST registration, reporting, and compliance, ensuring that businesses meet their obligations and avoid penalties.
- Property Tax Management: Property owners can benefit from expert advice and assistance in managing property tax obligations, including assessment and payment.
How do I get my tax compliance certificate in Singapore
Obtaining a tax compliance certificate in Singapore is not a separate process but rather a reflection of your consistent compliance with tax regulations. To ensure you are eligible for a tax compliance certificate:
- Apply for a Tax Clearance Certificate through IRAS to begin the process.
- To minimize waiting times, it is advisable for applicants to schedule an appointment with IRAS at least two business days in advance. Walk-ins without appointments might experience waits exceeding two hours. Utilize the IRAS e-Appointment system for this purpose.
- Before terminating the employment of a non-citizen employee in Singapore, it is crucial to submit Form IR21. Ideally, employers should complete this process at least one month before the employee’s departure.
- Typically, employers have a 10-day grace period to fulfill their tax filing obligations.
- If it is not possible to provide one month’s notice, it is important to explain the reasons for this in Form IR21.
- Employers failing to adhere to these stipulations, unless granted a shorter notice approval by the Comptroller, could be subject to penalties of up to $1,000.
- Generally, IRAS may accept late notifications with valid reasons, such as immediate resignation.
- To monitor the progress of your tax clearance application, you can conveniently do so via the myTax Portal.
Conclusion
In conclusion, tax compliance in Singapore is a vital aspect of doing business and earning income in this dynamic city-state. Understanding the various types of tax compliance, seeking professional tax compliance services, and maintaining rigorous financial records are essential steps in ensuring compliance with Singapore’s tax regulations. By doing so, you can not only meet your obligations but also benefit from the many opportunities that this thriving economy has to offer.
