Our Managing Director, Boon Tan, was recently featured in the Orient magazine (a publication produced by the British Chamber of Commerce in Singapore) discussing the key tax concessions available to Expats in Singapore.

Read the full article.

With the presentation of the 2019 Budget by Treasurer Heng, now is the time to start planning for the preparation of your personal tax return. With that in mind, this article outlines points for expats to consider when it comes time for preparation of your Singaporean income tax return.

The good news is that your Singapore tax return is not going to be hard to do. For many, the process takes 5 minutes and is done online.

Your return is due for lodgement each year by 15th of April. As there is no withholding tax, you will be required to make a payment of your tax liability upon receipt of your Notice of Assessment from Inland Revenue Authority of Singapore (“IRAS”). Alternatively, IRAS does provided for you to pay your tax liability in monthly instalments (interest free) via direct debits from your Singaporean bank account.

Why is tax so simple in Singapore?

The key to the simplicity is the nature of the Singaporean tax system which is a territorial based system.

Singapore only levies tax on income sourced here.

The term “sourced” means income that is generated in Singapore – e.g., employment income, interest paid by a local bank. Foreign income, such as rental income from your principal residence or investment property in your home country, is not taxed in Singapore – even if you bring the funds to Singapore.

Other income generated from interest, dividends, and capital gains on the disposal of assets anywhere in the world is all exempt from tax in Singapore. Besides, there are limited deductions that one can claim as an individual.

Notwithstanding this, here are some of the key concessions that you may be eligible to claim.

Not Ordinary Resident (“NOR”) Scheme and your tax residency

A key concession for expats to consider claiming as an employee based in Singapore is the NOR Scheme.

The NOR Scheme was introduced as an incentive to global firms to use Singapore as a regional base, and to bring talented individuals to the country. Under the NOR Scheme, you can pro-rata your taxable income based on the number of days you have worked outside of Singapore during the year – meaning that your effective tax rate can be reduced to a rate as low as 10%.

You can apply the NOR Scheme to reduce your tax rate by exempting part of your income, which in turn, will reduce the marginal tax bracket you fall into. Note that this is a concession under Singaporean taxation and does not mean that the untaxed income in Singapore is therefore taxable in the country you worked.

To qualify for the NOR Scheme, you must meet all the following criteria:

1. Your taxable income in Singapore must be at least $160,000;
2. Travelled for work for at least 90 days during the year;
3. You are a tax resident of Singapore in the year you are claiming the concession; and
4. Must not have been a tax resident of Singapore for the three years prior to the year in which you are applying the NOR Scheme.

You can claim NOR for the first five years that you are a tax resident of Singapore. If you do not qualify for the Scheme for one year during this period because you did not travel at least 90 days, you will lose one year of eligibility.

To apply for the NOR Scheme, you must lodge a claim each year at the time you file your tax return. Your claim must list the number of days and where you have worked outside of Singapore and must be certified by your employer as being correct.

In years that you qualify but fail to make a claim for the NOR Scheme when you lodge your return, you cannot go back and amend the return to claim the concession.

In the 2019 Budget, it was announced that the NOR Scheme would be stopped as of 31 December 2019. Therefore, the last claims to enter the NOR Scheme will be due with the lodgement of the YA2020 income tax return. Individuals who are already in the midst of their 5-year NOR eligibility period can continue to make the claim post the end of this year.

Tax reliefs

Singapore’s tax system provides tax residents with tax reliefs which reduce your taxable income. You can claim and apply as many reliefs that you are eligible for each year.

Five common tax reliefs that can be applied when preparing your tax return include:

1. Spouse relief
   If you are supporting a spouse who is not working and/or earning less than $4,000 from worldwide sources, you can claim a relief of $2,000.
2. Child relief
   You are entitled to claim relief for supporting a child equal to $4,000 per child regardless of where they live. Each child must be aged less than 16, or if over the age of 16 they must be in fulltime education (not necessarily here in Singapore) and cannot have an annual income of more than $4,000 from worldwide sources. The system recognises stepchildren and adopted children as qualifying for this relief.
3. Life insurance premiums
   You can apply a tax relief of up to $5,000 for the payment of life insurance premiums if your insurance provider has a branch or presence in Singapore. You may, therefore, be able to claim this relief for premiums paid in your home country.
4. Foreign maid levy relief
   If you are a woman working in Singapore and employ a maid which requires you to pay the foreign maid levy, you will be able to claim a relief equal to twice the levy amount paid for one domestic helper.
5. Professional course relief
   Up to $5,500 relief is granted if you enrol into a course, seminar or conference that leads to an approved academic, professional or vocation qualification. The relief is calculated based on the amount spent on fees, tuition, aptitude tests and registration fees incurred.

Donations

If you have made donations during the year to a local cause, you are able to claim a deduction of 2.5 times the amount you donated. To be able to make a claim, donations must be made in cash to the Government or any institution of public character which allows for their donations to be claimed at the 2.5 times rate.

Claiming everything you are entitled to

While the Singaporean tax system is a lot simpler than others around the world, you should speak with a qualified advisor ahead of lodging your personal return and ensure that you claim all the concessions you are entitled to.

About the author

Boon Tan is an experienced Accountant and has been working in the international tax advisory sector for over ten years. Born in Australia with Singaporean roots, Boon relocated to Singapore at the end of 2015.

As an expat living in Singapore, he has first-hand knowledge and experience of what expat families go through to establish themselves in a new city. He regularly draws on his in-depth understanding of the local Singaporean tax system and a network of in-country specialists in expat hot-spots around the world including USA, UK, Asia Pacific, and Australia to provide bespoke tax advice to clients.

Treasure Heng delivered the 2019 Singapore Budget on the afternoon of 18 February 2019. This Budget was the first Mr Heng delivered as the anointed leader of the Fourth Generation of Government leaders and marked the mid-term of the current Government.

At the end of Treasurer Heng’s Budget speech, we were given an outline of the focus for the current and future years on the areas including innovation, defence, infrastructure and community.

Whilst the headlines in the media have been on the expansionary nature of the budget, from an expat perspective there were two significant announcements made in the Budget Speech and annexures which have a direct impact on the expat community in Singapore.

Reduction in the Dependency Ratio Ceiling (DRC)

As an island, the scarcity of land means that Singapore’s greatest assets is human capital. The Singapore Government acknowledged early on of the need to develop human capital and therefore introduced programs and incentives for expats to bring their skills and knowledge to the country so that locals could learn and gain from their experience.

Different classes of visas for workers were introduced – Employment Passes for professionals, Work Permits for semi-skilled workers and S-Passes for technical staff.

As Singapore grew and the quality of its education system (from primary through to tertiary levels) developed, it was clear that the need to “import” a workforce with skills and knowledge could be reduced.

The DRC was introduced to legally cap the proportion of the employees that an employer could fill with foreign workers on Work Permits or S-Passes. Different industries have different requirements and therefore the DRC is set and reviewed regularly to account for economic conditions and the skillset of local Singaporeans.

The 2019 Budget has announced a reduction of the DCR for Work Permits and S-Passes over the next two years for the services sector.

For Work Permits, the current 40% reduced to 38% from 1 January 2020 before stopping at 35% from 1 January 2021. While the DCR for S-Passes will fall from 15% to 13% before capping at 10% over the same timeframe.

The services sector incorporates business services, insurance, retail and wholesale trade, hotels, communication services and the food and beverage industry.

Given that Work Permits and S-Passes have a duration of two years, the structural changes to the workforce will be impacted immediately as the DCR will be taken into consideration during the renewal process for individuals on these passes over the next two years.

Removal of the Not Ordinary Resident (NOR) Scheme

Whilst the quotas for professionals holding an Employment Pass have not been changed, a significant announcement affecting these expats was the removal of the NOR scheme from 31 December 2019.

The NOR Scheme was designed to act as an incentive for multi-national companys to base global or regional roles here in Singapore. Under the NOR Scheme, individuals meeting the eligibility criteria are able to pro-rata their taxable income to take into account the number of days that they were outside of Singapore for work. The proportion of taxable income related to work outside of Singapore was not subject to Singapore tax.

Individuals can only apply the NOR Scheme for a maximum of five years from the first year that they are eligible – for many expats this will be the first five years that they are in Singapore.

The effect of the announcement means that expats must ensure that they make the claim for the NOR Scheme when they prepare their return in 2020 as this will be last year in which you can be granted NOR status and obtain the ability to claim NOR in the years after the end of this year.

Individuals who have already been granted NOR status can continue to claim the scheme as long as they meet the annual eligibility requirements.

What should you do now?

As a business owner you should now consider your human resource requirements and look at how the DRC changes will affect your pool of talent. Where appropriate, consider the business’s eligibility to apply for an Enterprise Development Grant to assist with the upskilling of staff or the restructure of workplace processes through the implementation of technology.

For individuals who have just arrived in Singapore, ensure that you are aware of the NOR Scheme eligibility criteria and make sure that you lodge an application for NOR status with the lodgement of your tax return in 2020.

In both cases, seek professional advice and guidance to ensure that you are ready for the change.

About the Author – Boon Tan

With his Singaporean ties and Australian upbringing, Boon has a first-hand appreciation of what it is like to establish yourself and your business as an expat in  Singapore. He regularly draws on his in-depth understanding of the local Singaporean tax system and a network of in country specialists in expat hot-spots  around the world including USA, UK, Asia Pacific and Australia to provide bespoke advice to his clients.

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.

What are the tax consequences of arriving in Singapore and becoming tax resident?

Resident individuals are subject to tax on income accruing in or derived from Singapore or received in Singapore from outside of Singapore.
However, overseas income received in Singapore on or after 1 January 2004 is generally not taxable.

Taxpayers are assessed on a calendar year and tax is computed on a preceding year basis. Taxpayers must file a tax return by 15 April in the following year.

In addition, expatriate individuals can opt for the Not Ordinarily Resident scheme if he spends at least 90 days outside of Singapore for business reasons in respect of his Singapore employment and his total Singapore employment income is at least SGD160,000.

What is the minimum time I can remain in Singapore without being tax resident?

182 days.

Does Singapore tax its residents on a world wide or territorial basis?

Income tax is imposed on the basis of territoriality.

Is foreign income taxable in Singapore e.g. foreign rental income, foreign interest income and foreign dividend income?

All foreign income received by individuals in Singapore is exempt from tax where the tax authority is satisfied that the exemption will be beneficial to them, unless received through a partnership. Foreign dividends, branch profits and service fees received through a partnership may be exempt subject to conditions.

Does Singapore tax on a remittance basis?

No.

Does Singapore have a sales tax or VAT tax on purchases?

Singapore impose a Good and Services Tax of 7%.

Does Singapore have a capital gains tax that taxes me when I sell foreign assets?

There is no tax on capital gains. However, gains from the realization of capital assets can be included in ordinary business income and subjected to income tax if the sales were carried out in the course of a trade carried on by the taxpayer.

Does Singapore have an estate tax or death tax?

No.

What is the top tax rate in Singapore?

Individuals are tax at progressive rates and the top tax rate is 20% for income over SGD320,000.

Does the tax rate vary for different types of income and if so what are the rates?

Royalties received in connection with literary, dramatic, musical or artistic work or from a local or branch of a foreign publisher are taxed at a concessionary rate of 10% of the gross amount.

What are the common tax deductions available in Singapore?

• Self, Spouse and Child reliefs;
• Life Insurance premiums and pension funds contributions

Does Singapore require joint tax returns to be filed for me and my spouse or are separate tax returns required?

Separate tax returns are required.

If I have a foreign company or foreign trust before I arrived in Singapore is the income of that company or trust taxable?

No.

Do children under 18 pay a higher rate of tax on certain types of income?

No.

Is there a gift tax in Singapore?

No.

What are the personal tax exemptions in Singapore e.g. a gift from an overseas relative or a foreign insurance payout?

None.

When I leave the country is a ‘termination payment’ taxed by Singapore before I leave?

Termination payments which are compensation attributable to the loss of employment such as redundancy are not taxable.

If I receive shares as part of my salary is this taxed in Singapore?

Yes. Share options granted by virtue of an employment are a taxable benefit and the gains accrue as income in the year in which the option is exercised. The taxable value is the open market value at the time of the exercise less the amount paid for the share option.

What are other tax consequences of leaving the country?

An individual who leaves Singapore permanently is deemed to have derived a gain from the unexercised or restricted stock option plan, unless his employer is granted approval to keep track of the options. If the subsequent actual gain is less than the taxable gain, the taxpayer can apply for a reassessment of his tax liability.

The employer of an expatriate is required to notify the tax authorities and withhold the salary for the purposes of tax clearance should the expatriate cease employment in Singapore, or leave Singapore for a period of more than 3 months.

Are there any tax consequences of me transferring money from Singapore to my say home country?

None.

Celebrating Singapore’s 50th year of independence, the 2015 budget was delivered by the Deputy Prime Minister and Minister for Finance on 23 February 2015. Also known as the “Jubilee Budget”, much of the focus in the budget has been placed on the country’s ability to provide the required resources to Singaporeans for their future, for example, through promoting innovation and by providing tax incentives to encourage the businesses for their international efforts.

Below are some of the highlights:

Corporate Income Tax Rebate

The Corporate Income Tax Rate remains at 17% and the partial tax exemption of a company’s first $300,000 of normal chargeable income (CI) is also to stay in place. The Corporate Income Tax Rebate which allows companies to receive a 30% rebate on their tax payable to a cap of $30,000 will be extended for another two Year of Assessments (YAs) until 2017 YA. However, the maximum rebate will reduce to $20,000 in 2016 and 2017 YAs from current $30,000. Companies that have chargeable income less than $540,000 (ie. in YAs 2016 and 2017) will not be affected by the new measure.

Change in Top Marginal Tax Rate

The marginal tax rates for the highest income earners with chargeable income above $320,000 will increase from 20% to 22%. However, the government has also announced a personal income tax rebate of 50% capped at $1,000 per taxpayer, which is be granted to all tax resident individual taxpayers for YA 2015.

Double Tax Deduction for Internationalisation Scheme

Businesses may claim 200% tax deduction on qualifying expenditure incurred on qualifying market expansion and investment development activities. The scope of qualifying expenditure supported under the Double Tax Deduction (DTD) for Internationalisation scheme will be enhanced to include qualifying manpower expenses incurred for Singaporeans posted to new overseas entities.

The amount of qualifying manpower expenses to be allowed a DTD will be capped at $1m per approved entity per year for expenses incurred from 1 July 2015 to 31 March 2020.  Businesses will have to apply to International Enterprise (IE) Singapore to enjoy the concession on manpower expenses. Further details to be released by May 2015.

Introduction of International Growth Scheme (IGS)

This is a new scheme by the Government with the aim of providing greater and more targeted support for larger Singapore companies in their internationalisation efforts. Under the IGS, qualifying Singapore companies will enjoy a concessionary tax rate of 10% for a period not exceeding five years on their incremental income from qualifying activities such as headquarter functions and specific business lines. IE will release further details by May 2015.

Approved Royalties Incentive (ARI)

The ARI was introduced to encourage companies to access cutting-edge technology and know-how for substantive activities in Singapore. Under the scheme, tax exemption or a concessionary tax rate may be granted on approved royalties, technical assistance fees or contributions to R&D costs made to a non-resident for providing cutting-edge technology and know-how to a company for the purpose of its substantive activities in Singapore.  A review date of 31 December 2023 will be legislated for this scheme to ensure that the relevance of the scheme is periodically reviewed.

Productivity and Innovation Credit (PIC) Scheme & PIC Bonus

The Productivity and Innovation Credit (PIC) scheme was enhanced in 2011 to grant a total of 400% tax deduction or allowance for the first for the first $400,000 of expenditure for qualifying expenses incurred from YA 2011 to YA 2018. The qualifying activities are (subject to conditions):

• R&D activities
• registration of intellectual property rights (IPR)
• acquisition of IPR
• investments in design done in Singapore
• spending on equipment or software aimed at automating processes; and
• costs of training employees so as to upgrade skills and capabilities

To encourage small businesses to undertake meaningful productivity investments, businesses that invest a minimum $5,000 per YA in qualifying activities under the PIC scheme are entitled to the cash bonus (PIC Bonus) equal to the PIC expenditure incurred up to an overall cap of $15,000 for all three YAs combined (YA 2013 – YA 2015). There has been a good take-up of the PIC scheme and the PIC Bonus will be allowed to expire after YA 2015 as it was intended as a transitional measure. However, businesses will continue to benefit from the PIC scheme extended until YA 2018.