Are you a foreigner who is staying or working in Singapore? Are you looking at ways to reduce your taxable income? Do you want to know more about the special tax schemes in Singapore? Here’s a brief article on how you can save on your tax in Singapore.
When will a foreigner be treated as a tax-resident in Singapore?
For taxation purposes, IRAS treats both non-Singapore permanent residents and non-Singapore citizens as foreigners. If you’re a foreigner, you will be considered as a tax-resident only if you stay or work in Singapore for a minimum of 183 days in the prior year that is the year earlier to the Year of Assessment.
What does taxable income include in brief?
Any income you earn or obtain from Singapore will be subject to income tax. Income earned via employment, business, trade, profession, vocation, property, investments, and other sources (royalties, annuities, estate, trust income, or winnings) will fall under the “taxable income” category.
IRAS offers several schemes to foreigners in order to help them save on tax. Take a look at the various schemes below (in brief):
Based on your tax residency status, the tax you’re liable to pay will be determined. You’ll be considered as a tax resident, if you comply with the following conditions:
Here, employment costs refer to the expenses you’ve incurred completely and exclusively during the process of earning your income with respect to your employment in Singapore. On certain approved employment expenses, a deduction might be allowed versus your income so that your taxable income reduces.What kind of employment expenses are considered as “allowable”?
By entering your allowable employment expenses details in your tax return under the section 'Employment Expenses'.
If the same income is taxed twice, it will result in double taxation. Here, international double taxation refers to – taxation in the country where the income was earned and taxation in the country where the income was received.
In order to reduce the effects of double taxation, a country might sign a Double Taxation Agreement with another country. Once a country signs a Double Taxation Agreement with Singapore, that country will be referred to as a “treaty country”.
The Double Taxation Agreement benefits will be available only to the tax residents of the treaty country as well as Singapore.
Based on what provisions a Double Taxation Agreement provides, you can claim your benefit in the form of tax exemption on your income. This tax exemption is applicable for teachers, personal services, researchers, athletes, artistes, students, etc. The provisions rendered by each DTA might vary. You’ll have to check the specific tax treaty to know about the particular provisions that are applicable to you.
Tax resident of a treaty country: If you’re a tax resident of a treaty country (a foreign country that has signed a DTA with Singapore), your same income (in Singapore) might not get taxed twice.
Tax resident of Singapore: If your income is derived from a foreign country, you might be liable to pay tax in that treaty country. Nonetheless, you can still claim the benefits pertaining to DTA that exempts you (Singapore tax resident) from paying tax in the treaty country or qualifies you for the decreased tax rate.
In order to receive this benefit, you’ll have to submit COR (the Certificate of Residency) to the foreign tax authority as proof that you’re a Singapore tax resident.
Suppose you’re an Indian who is living in Singapore, and you are paying tax in India for the income you're earning in Singapore because you're still a tax resident in India. But then the IRAS sends you a tax bill for the same income for which you're already paying tax in India. This is called double taxation.
However, luckily, Singapore and India have a Double Taxation Avoidance Agreement, so you will rarely end up in this predicament. However, if you are a foreigner earning your income in Singapore, you will have to check whether your home country and country of residence have a tax treaty.
You can make different kinds of donations to approved IPCs (Institutions of Public Character) in order to qualify for tax deduction.
Cash donations: A cash donation you make to the Singapore government or an approved IPC for specific purposes that helps the local community. However, note that if you make a donation to a registered charity that is not approved by the IPC, you will not be exempt from paying tax on the same. This is because not every registered charity has been approved by the IPC.
Computer donations: Gifts donated related to computers such as computer software, hardware, accessories, and peripherals like printers, scanners, and monitors. Computer donations are considered tax-deductible provided you meet the following conditions:
You need to make a donation to selected research, educational, or other institutes and any approved Institution of a Public Character. Also, the kind of computer software and/or hardware you donate needs to be approved by IDA (the Infocomm Development Authority of Singapore). You also need to submit your application to IDA through their official website in order to access the value of your donated computer appliance.
Artefact donations: You can make an artefact donation in the form of gifts to a museum. You can make this kind of a donation by being either an individual or a corporate donor. An artefact donation will be regarded as tax-deductible when you comply with the conditions given below:
The museum you intend to make a donation to must have the “Approved Museum Status” with NHB (the National Heritage Board). The artefact you intend to gift to the museum must be considered worthy enough for donation by the National Heritage Board. You’ll have to either apply to NHB or the museum in order to determine the donated artefact’s value.
Land and building donations: Gifts in the form of buildings or lands to an approved Institution of a Public Character. You can make this donation both as an individual donor as well as a corporate donor. The approved IPC or you as the donor along with a property valuer will have to evaluate the donated building or land according to the market value.
The donation value will depend on the donated property’s market value as advocated by the Inland Revenue Authority of Singapore (IRAS). The valuation cost will not fall under the “tax-deductible” category. For tax deduction claim reasons, the date on which you make a donation will also be the date on which you transfer your property lawfully to the approved Institution of a Public Character.Donations under PATIS (the Public Art Tax Incentive Scheme):
NHB (National Heritage Board) manages this scheme. Under PATIS, you can make a donation as a corporate or an individual donor. Starting from 1 April 2006, both individuals and companies can donate works of art (for public demonstration) or sculptures to either the NHB or any of its authorised recipients in order to be eligible for tax deduction. As a donor, you’ll have to submit an application to NHB requesting them to evaluate the worth of the work of art or sculpture you’ve donated.
Under the Public Art Tax Incentive Scheme, eligible donations include:
Shares donations: You can make this donation only as an individual donor. This donation will be considered as tax-deductible when you donate gifts to approved IPCs in the form of public shares that are indexed on SGX (Singapore Exchange) or units (in unit trusts) traded in Singapore.
The approved Institution of Public Character will assess the worth of the units or shares you’ve donated. You cannot transfer shares or units that have a holding period or a restriction under this kind of a donation scheme. The date on which you make a donation will also be the same date on which the legal authority of your donated shares or units will be transferred to the approved Institution of Public Character
Under the NOR Scheme, you’ll be eligible for several tax concessions such as:
You should apply and get the NOR status. In the earlier 3 Years of Assessment, you should be a non-resident. In that Year of Assessment, you should be a Singapore tax resident.
When you comply with these qualifying criteria, you’ll be recognised with the NOR status for 5 continuous YAs.
When you’re working for a foreign firm and function out of an office in Singapore in order to deliver your responsibilities, a section of your income corresponding to the number of days you spent away from Singapore for business purposes will not be taxed. You need to meet certain qualifying conditions in order to be eligible for the Area Representative Scheme or ARS.Eligibility Criteria
This tax deduction scheme will help you to make an investment in a startup company or when you want to render assistance in a company’s growth via their business networks or management expertise. Angel Investor Tax Deduction scheme is valid from 1 Mar 2010 to 31 Mar 2020.Eligibility Criteria
Rental income corresponds to the entire rent amount plus any correlated payments you collect when your property is rented out. Rental income will be inclusive of rent pertaining to maintenance, premises, fittings, and furniture. You’ll be liable to pay income tax for the rental income you receive.
Rental income will be taxed starting from the date on which it is due and needs to be paid to you (the owner of the property). Rental income is not taxable on the actual date you receive it.
Costs incurred within the tenancy period and expenses that occurred exclusively for generating the rental income can be considered for tax deduction. The following is a list of allowable rental expenses.
Housing loans: The interest you’re liable to pay on the mortgage or loan you’ve taken in order to buy a rented property.
Property tax: Tax payable for the rental period. (Property tax you need to pay in 2018 for renting out your property in 1018)
Repairs: Any kind of a repair you do in the course of the rental term in order to bring back your property to its original condition.
Fire insurance: The premium you’re liable to pay on fire insurance.
Maintenance: Expenses that are involved in taking care of the property. To name a few – pest control, maintenance charges, painting, etc.
Expenses incurred while getting a tenant: Legal fees, stamp duties, agent’s commission, and advertising – in order to find successive tenants.
Costs (management or supervision fees): Expenses involved in hiring a third party who can perform activities like making sure monthly rentals are received on a timely basis, property maintenance, answering the queries of tenants, taking care of their complaints, etc. You can choose a professional organisation or a property agent to take care of these kinds of activities.
When you pay the supervision fees to an associated party such as your relative or your own organisation, you will have to prove that the amount you’ve paid is per the market rate and also is equivalent to the services provided.
Fittings and furniture: Restoring the furniture to its original condition. Here, furniture can include electrical appliances, fixtures, etc. Costs involved in renting of furniture.
Internet costs/expenses: Payment made on your tenant’s behalf (provided your tenant has not reimbursed your payment subsequently).
Utility costs: The payment you’ve made on behalf of your tenant (the condition being your tenant doesn’t reimburse your payment at a later date).
A cash payout: For any eligible expense you have incurred between the 2013 Year of Assessment and 31 July 2016, you’ll qualify for 60% cash payout.
For any eligible expense you’ve incurred on or post 1 August 2016 and up to 2018 Year of Assessment, you’ll be eligible for 40% cash payout conversion rate.
Tax allowances/deductions: Tax deductions of 400%/allowances on spends of up to S$400,000 in a single year for every qualifying activity (in total there are 6 qualifying activities).
Note: This scheme will expire post 2018 Year of Assessment. Any business that intends to choose the cash payout option on eligible expenses must ensure that the expenses are incurred within their basis period for the 2018 Year of Assessment ends.Business and IPC Partnership Scheme (BIPS)
Under the Business and IPC Partnership Scheme, as a business owner, you can get a tax deduction of 250% on eligible expenses you have encountered with when you sent your company’s eligible employees to participate and render services to IPCs (Institutions of a Public Character) inclusive of secondments.Land Intensification Allowance (LIA)
If your company is eligible for Land Intensification Allowance, you will be able to raise a claim for eligible capital expenses you ended up paying during the construction of a participating structure or building.
LIA was introduced in the 2010 Budget. It aims at supporting industrial users with increased land productivity. LIA is offered to businesses that belong to the industry sector and have huge land takes plus a low GPR (Gross Plot Ratio).
This allowance will let you claim for a tax deduction in case of wearing away of eligible fixed assets like sign boards, industrial equipment, and office machinery. Usually, a capital allowance is granted in lieu of depreciation, which does not fall under the tax-deductible category.
The following business-related expenses qualify you for tax deductibility:
Borrowing costs as an alternative for interest expense or to bring down interest costs: To name a few, borrowing costs can be bank option fees, guarantee fees, early redemption charges, prepayment fees, etc.
Dividend payments made on preference shares: A preference share can be a share that is distributed with an obligatory redemption date or a share that comes with a redemption option which can be exercised by a shareholder.
Donations: Mostly, a donation is not considered as a tax-deductible expense since it doesn’t incur during the generation of income. Nonetheless, you’ll be able to raise a claim for tax deduction when you make a donation to an IPC or to the Singapore government. Also, the condition being, your donation should be benefiting the local community. These kind of donations are termed as Approved Donations.
Employee Equity-Based Remuneration (EEBR) Scheme for Corporate Tax: Under this scheme, when your organisation offers incentives to its employees via ESOs (employee stock options) or distributes awards via treasury shares, incentives awarded will be considered tax-deductible.
Re-employment of Former Employees or Employment Assistance Payment (EAP): As an employer, it is mandatory that you provide a one-off Employment Assistance Payment to a former employee if you’re not successful in finding an appropriate job for the qualifying former worker who intends to work post his or her retirement age. This Employment Assistance Payment will be considered tax-deductible.
Expenses Incurred before Commencement of Business:
Impairment Loss on Trade Debts: You’ll qualify for tax deduction when you either face losses over debts or impairment losses on your financial assets. The tax deduction will be applicable only if the debts are pertaining to the business or trade & are revenue by nature.
Intellectual Property (IP) Licensing Expenditure: When your company incurs Intellectual Property Licensing Expenditure during the process of licensing IPRs (intellectual property rights) in order to use it in your trade or business, it will be considered for tax-deduction under Section 14D or Section 14D of the ITA (Income Tax Act). Also, when IPRs are utilised for an eligible Research and Development project.
Interest Adjustment: Any interest expense you incur with respect to non-income generating assets will not be considered for tax deduction. Generally, an interest expense will increase your liability (example: bank overdraft, loans, etc.) unless and until it is completely paid.
In case your company has incurred any interest expenses with respect to non-income generating assets, your company will need to make necessary interest adjustments during the process of computing tax.
Interest Incurred on Late CPF Contributions: You’ll be subjected to interest by the CPF Board when you fail to make the CPF contributions to the Board within the deadline. The CPF Act clearly states that if you fail to make your CPF contribution within the stipulated timeline, it will be treated as an offence. The late interest you’re liable to pay is treated as a penalty and will not come under tax-deductible category.
Interest Incurred on Late Payment of Fees to a Management Corporation for a Strata Title Plan (MCST): A late payment interest will be levied on you if you fail to make your contributions to MCST within the prescribed deadline. A late payment interest will be considered for tax deduction only when it is incurred during the generation of income.
Interest Incurred on Loans to Refinance Earlier Loans or Borrowings: Any Interest expense you incurred on borrowings or taking loans in order to finance income-generating assets will be tax-deductible. Also, you need to comply with certain conditions to qualify for this.
Medical Expenses: As an employee, your medical expenses will be taken into consideration for tax deduction. However, to qualify for tax deduction, a cap (1% of your complete remuneration accumulated for the year) will be applicable.
Motor Vehicle Expenses: Any motor vehicle expense you incurred on your goods & commercial vehicle (bus, lorry, and van) are tax-deductible. A motor vehicle expense can be maintenance charges, repairs, fuel costs, and parking charges.
Private Hire Car Expenses: From the 2014 Year of Assessment, the motor vehicle expenses you incurred for using foreign cars (rental) out of Singapore (example: a rental car you used in Malaysia for business purposes) will be considered for tax deduction. To qualify for tax deduction, you must have utilised the cars exclusively for business-related reasons.
Business Losses and Unutilised Capital Allowances: To bring down the tax you’re liable to pay, you can choose to use your business losses and unused capital allowances in order to balance out the income on which you will be taxed.
Double Tax Deduction for Internationalisation Scheme: Under this scheme, as a business owner you can raise a claim for double tax deduction automatically on eligible costs that you’ve incurred between 1 April 2012 and 31 March 2020. An expenditure cap will be applicable. If you comply with the eligibility criteria, you’ll qualify for double tax deduction without any need for approval.