In most jurisdictions, the sale of a capital asset is subject to capital gains tax law, while the sale of trading assets are subject to revenue laws. This distinction is a very important one as the way that revenue and capital items are taxed is very different in Singapore.

Capital Gains Tax in Singapore

There is no capital gains tax regime in Singapore.

This means that if you sell assets that are capital in nature there is no tax consequence from this sale, regardless of whether you make a profit or a loss on the sale.

Therefore, typically the sale of passive investments, such as real estate and share portfolios, are sold without any tax implications in Singapore. 

However, it is important to understand when assets may actually be considered trading assets as these assets would be covered by revenue laws instead. Where such assets are covered by revenue laws, their disposal will attract income tax consequences.

Assets Used as a Trading Asset

In Singapore there are rules that indicate an asset is a trading asset rather than a capital asset. These rules help ensure that a business doesn’t take advantage of the lack of capital gains tax by purchasing an asset with the express intent to turn this asset over for a profit instead of holding it as a long term, capital appreciating asset.

There are five specific factors, colloquially known as “badges of trade”,  that are considered in determining whether an asset might be a trade item. These are the holding period, frequency of sale, purpose of transaction, extent of enhancement work, and reason for the sale.

Holding Period

A short term holding period indicates that the asset was more likely purchased for profit-seeking activities. In general, capital assets must be held and used for their purpose for a minimum of two years in order to be considered capital in nature. Assets sold within two years of purchase are typically treated as revenue assets, unless there was a specific reason for the sale that caused the asset to be sold within two years.

Frequency

If you frequently purchase and sell the assets in question, this indicates you are trading these assets, rather than purchasing them for use in a going concern. This can include significant assets such as property, shares, and other investments. Where your business frequently purchases and then sells real estate, the Inland Revenue Authority of Singapore will presume that you are in the business of trading real estate, rather than owning these assets for long term capital growth.

Purpose of Transaction

When an asset is not used for its intended purpose, this indicates that the asset was not actually purchased to be used as an asset.

A simple example would be purchasing a warehouse. If you leave the warehouse unused and vacant, then it has not actually been used for the purpose of a warehouse. Consequently, the sale of the warehouse is more likely to be a profit-generating motive. Conversely if the warehouse was purchased and used as a warehouse it is more likely to be an asset use motive.

Extent of Enhancement Work

When an asset is purchased, then significant resources are spent enhancing or renovating it prior to selling it, this would indicate the reason for the purchase was a profit motive. If an asset is purchased and renovated to be fit for specific use as a business asset, rather than for resale value, then this would more likely indicate an asset use motive.

Reason for Sale

The reason for selling the asset is also considered. If an asset is sold with a profit-making motive, it is more likely to be considered a trading asset. However if it is sold after being used for its intended purchase as an asset then it would be exempt from tax as a capital asset.

This factor is an important one. Even if a property is sold within two years, there could be a specific reason that indicates the property was still a capital asset. For instance, the sale may have been required due to liquidating the business, government acquisition, or other closure or reduction of business operations. In such situations, the sale would still likely be a capital gain because the underlying reason for the sale was not profit-generation.

Summary of Capital vs Trading Assets

The facts of the way an asset is used and the motivations for purchasing the asset determine if the asset is capital or revenue in nature. When an asset is purchased and used for a profit-motivation rather than an asset use motive, it is treated as a trading asset, or revenue in nature, rather than as a capital asset under capital gains rules.

The table below outlines the likely scenarios of how an asset could be classified.

	Likely Capital	Likely Trading
Holding Period	Over two years	Less than two years
Frequency	Low frequency	High frequency
Purpose of Transaction	To use as an investment or business asset	Profit-generation
Extent of Enhancement Work	Little renovations or work focused on adjusting asset for business use	High investment in enhancement or renovation to increase profit on sale
Reason for Sale	End of use, divest investment or liquidating business	To generate profits

Goods and Services Tax (GST) is a broad tax levied on the consumption of most goods and services that are sold in Singapore. Many countries have a similar, or even identical, tax as Singapore’s GST, although it may be known as a Value-Added Tax (VAT) in some countries. The Inland Revenue Authority of Singapore (IRAS) governs the application of GST and requires all GST registered businesses to file GST returns with them.

GST is only levied on goods and services that are sold within Singapore. This includes imported goods. However, exported supplies and services provided overseas do not attract GST.

The Rate of GST

The current GST rate (in 2023) is 8%. This is being increased to 9% from January 2024.

In simple terms this means if the cost of a product is $100 then the consumer would actually pay $108 including GST.

What Goods and Services GST Applies to

GST applies to most goods and services sold in Singapore, however there are some exemptions.

The exemptions include most financial services, the sale and lease of residential property, and the importation and local supply of investment-orientated precious metals.

How GST is Charged and Remitted

The business selling goods or services is responsible for both the collection of GST from customers and remittance of the GST to IRAS.

GST registered businesses are required to track their sales and the amount of GST they collect through their regular record keeping. This information is then reported to IRAS through the lodgement of a GST return. GST returns are lodged with IRAS on either a monthly or quarterly basis.

The GST that a business collects is known as output tax.

Conversely, the GST that a business pays in the course of making business purchases is known as input tax.

Lodgement of a GST Return

When a GST return is lodged, the business reports the total output tax collected and claims a credit for all the input tax that they have paid. The net amount of GST that the business pays is the total amount of GST that the business must remit to IRAS.

In the event that the business pays more input tax than they collect in output taxes, IRAS will owe the business a refund.

Businesses who fail to lodge their GST return on time are subject to a 5% late lodgement penalty. IRAS will also issue a demand notice for the outstanding payment. If the company fails to pay after 60 days from the date of their demand notice, future penalties of 2% each month may be applied. The maximum penalty for late GST payments is capped at 55%.

Evasion of tax payments can result in fines and imprisonment.

Who Needs to Register for GST

All businesses with an annual turnover in excess of SG$1million are required to register for GST. Any business with a lower turnover can voluntarily register.

This turnover threshold only applies to businesses who are not GST exempt. Exempt businesses are businesses that deal with goods or services that are exempt from GST. This includes businesses that provide financial services, sell or lease residential property, or import and supply investment-orientated precious metals. To be given a registration exemption from IRAS, at least 90% of the company’s total revenue must be GST exempt and the net balance of GST collected must be negative (otherwise resulting in a refund).

Once a business is registered for GST they are required to remain registered for a minimum of two years.

If a company decides to voluntarily register for GST the company director(s) must complete e-Learning courses in “Registering for GST” and “Overview of GST”. They are exempt from needing to complete these courses if they have already completed these courses within the past two years, or they have experience managing another GST registered business, or have their GST returns prepared by an individual who is an Accredited Tax Adviser (ATA) or Accredited Tax Practitioner (ATP).

IRAS can also impose additional conditions for GST registration and compliance. When a company fails to meet these requirements, IRAS may cancel the company’s GST registration.

How to Register for GST

A company can register for GST online through their myTax Portal or they can post a paper application to IRAS. Alternatively, they can engage a designated filing agent to submit the application on their behalf.

The company cannot charge GST until they have received approval from IRAS.

Once registration is approved, IRAS will send a letter that includes the company’s GST registration number and the effective date of GST registration.

The effective date of GST registration is the date that the business must commence charging and collecting GST from.

What Happens When You Fail to Register for GST on Time

To understand what happens if you fail to register for GST on time we present this real life case study. Names and specific identification have been hidden or changed for anonymity.

The case:

An Australian company incorporated a company in Singapore to act as the local contracting party for services to be provided in Singapore.

As an Australian company, they were familiar with the Australian approach to GST registration. This differs from the Singapore requirements in that, in Australia, GST registration can be backdated and it can be made on a voluntary basis without additional requirements.

The threshold for GST registration in Australia is AU$75,000 and only applies to GST taxable goods and services. In both countries GST registration is considered voluntary registration when the annual turnover is below the relevant threshold.

Unlike Australian registration, voluntary registration in Singapore needs to be approved. In some cases, approval for voluntary registration needs to be accompanied by a bank guarantee for future payments of GST to IRAS. 

The Singapore company, in our case, proceeded to provide services with GST included in the price. However, they did this without formally registering for GST in Singapore.

In Singapore this is regarded as a severe contravention of the GST laws. This is because GST registration must be approved and the commencement date confirmed, prior to the business charging GST.

The company attempted to backdate the registration, which is not permitted in Singapore.

IRAS consequently imposed fines and potential action against the directors.

Summary of GST Registration Requirements in Singapore

In summary, it is important to be aware of the requirement to register for GST.

If you intend to register on a voluntary basis, understand that this is not automatic, and you need to meet the required conditions and be approved for registration. Otherwise, you must keep an eye on your quarterly turnover and register as soon as your projected turnover will hit the required turnover threshold.

GST applies to most goods and services sold in Singapore, with exemptions for financial services, residential property and importing of investment-oriented precious metals.

Once you receive your registration letter from IRAS, you can commence charging GST from the date indicated as your registration date.

Failure to follow the requirements for GST registration can result in fines and other penalties for all Directors of the Singapore company. 

A Singapore Company is governed by the Singapore Companies Act. which is administered by the Accounting & Corporate Regulatory Authority (ACRA). There are 5 essentials that need to be covered when starting a company in Singapore. These five essentials include having a resident Director, a shareholder, a Secretary, a Singapore business address and at least $1 in capital.

To be a tax resident Singapore Company your company must be managed and controlled in Singapore. This generally means that meetings of the Board of Directors of the company must be undertaken in Singapore. 

Getting these company registration requirements right will assist in ensuring that your company is appropriately set up in Singapore.

1: The Requirement to have a Resident Director

Under the Singapore Company Act all Singapore companies are required to have at least one resident director. Without a resident director, a company will be contravening the Companies Act and risks being deregistered.

An individual is an ordinary resident of Singapore if they are a Singapore Citizen, a Singapore Permanent Resident, or an Employment Pass or EntrePass holder. This means that the individual is legally able to live and work in Singapore and have a residence in Singapore. 

It is important to note that individuals on working visas can only be appointed to the company which is sponsoring their permit.  

If you are planning to incorporate a company in Singapore but you do not have any resident individuals to be a director then you do have the option of nominating a resident director (usually a professional who is paid to fulfil the requirement).

2: The Requirement to have a Shareholder

All Singapore companies are required to have at least one shareholder. Shareholdings designate who owns the company, as well as who has the various rights, privileges, and responsibilities within the company.

Shareholders are required to participate in the Annual General Meeting and any Extraordinary General Meetings of the company, where the management decisions for the company are made.

There is no specific requirement that shareholders be Singapore residents. However, where a shareholder is not a Singapore resident, such shareholders will be subject to their local taxation laws on the receipt of income distributed to them from the Singapore company.

3: The Requirement for a Secretary

The Singapore Companies Act requires every company to appoint a Company Secretary. This Secretary is the individual who is responsible for ensuring that the company complies with the relevant legislations and regulations, as well as keeping Board Members informed of their legal responsibilities.

Your Secretary must be an individual who is a resident living in Singapore. As a position regulated by ACRA, they must also have the experience, academic, and professional qualifications necessary to fulfill their role. These individuals are usually lawyers, accountants or chartered secretaries.  

If you are a sole director of a company, you are not able to act as company secretary – you will need to appoint another person to act as Company Secretary. 

While not a legal requirement, it is recommended that you engage a corporate service provider to act as your Company Secretary.  Such professionals are known as Registered Filing Agents and are regulated and approved by ACRA to act in such a position. 

4: The Requirement for a Singapore Address

It is mandatory for all Singapore companies to have a local registered office in Singapore. This address is required from the point of incorporation.

The address must be a physical address (not a PO Box) and must be the address where all communications and notifications are sent. The address must also follow certain requirements regarding being an address that is open and accessible to the public for a least 3 hours during each business day.

If your business is run from a home base or you have yet to set up a public office, then you have the option of using a corporate service provider as your company’s registered address.

5: The Requirement for at Least $1 SGD in Shareholder Capital

Share capital is the money that the shareholders have invested into the company. This share capital must be maintained for the life of the company. At the time of incorporation, a minimum of $1 in capital must be paid.

While shares can technically be issued in any currency, for convenience Singapore dollars are preferred.

A key consideration in determining the level of share capital for a company is understanding that it is customary in commercial practice to expect a company to have a high level of share capital.  For example, when applying for a commercial lease, the prospective landlord is likely to request that the capital in the company be sufficient to cover the annual rental commitment.  

Similarly, if your company is sponsoring an individual for a working visa, the Ministry of Manpower is likely to request that the share capital of the company is equal to the annual salary of the employee applying for a working visa. 

Corporate Tax Residency for Singapore Companies

It is important to note that the mere fact that a company is incorporated in Singapore does not mean that the company is automatically a tax resident. In Singapore the tax residency of a company is determined by where the business of the company is controlled and managed.

The concept of control and management for a company does not mean where the day-to-day operations of the company are carried on – thus the location of the trading activities and physical operations are not considered. Rather, the concept of control and management is considered from a corporate governance perspective.

In Singapore, it is generally accepted that if a company holds its board of directors meetings in Singapore, it will be considered that control and management is being undertaken in Singapore – making the company a tax resident for the Year of Assessment.

It is important to note that Singapore corporate residence for tax purposes is determined by examining the facts as they stand in the Year of Assessment. Corporate residency in Singapore can change each year.

Notwithstanding the definition in the Act, the Inland Revenue Authority of Singapore (“IRAS”) in practice shall examine the preceding Year of Assessment to determine corporate residency.

Corporate residency is important as only Singapore resident companies will be able to obtain a Certificate of Residency from IRAS and therefore, apply any provisions of double tax agreements between Singapore and another jurisdiction. 

Starting a Company In Singapore

While there are a number of requirements involved in the establishment and running of a company in Singapore, the above five requirements cover the basic essentials needed to incorporate the company.

A trusted advisor like CST, will ensure that you have all your bases covered when you set up your Singapore company. We can act as your registered company address, provide Corporate Secretarial services, provide a nominee Director, and even assist with setting up a Singapore bank account. 

With our company incorporation services provided free when you sign up to one of our tax and accounting service packages, now is the time to contact us to discuss your company needs. 

Overview of Tax Residence Rules

The Singapore Tax Act classifies taxpayers as either residents or non-residents. This is important because residents and nonresidents are taxed in a different manner.

Note that the concept of “domicile” is not relevant for Singapore income tax liability. “Residence” is the relevant test and this is defined under Section 2 of the Singapore Tax Act.

The definition includes a “qualitative test” as an individual who “resides” in Singapore in the year preceding the year of assessment is regarded as a tax resident in Singapore.

This turns on a number of factors. The term ‘reside’ is not statutorily defined and therefore it is to be given its ordinary meaning when interpreting Singapore law.