Asia-Pacific Taxation Singapore 2010 Edition
TAX
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Singapore Asia-Pacific Taxation 2010 Edition
Contents 1
General
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2 2.1 2.2 2.3 2.4 2.5 2.6 2.7 2.8 2.9 2.10 2.11 2.12 2.13 2.14
Company Taxation Introduction Residence Taxable Income Capital Gains Tax Dividends Exempt Income Deductions Losses Grouping / Consolidation Tax Depreciation / Capital Allowances Amortization of Expenditure Interest Tax Rates Tax Administration
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Setting up Business
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Foreign Exchange Controls
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Tax Incentives
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6 6.1 6.2 6.3
International Tax Double Taxation Relief Withholding Taxes Avoidance of Double Taxation Agreements
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7 7.1 7.2 7.3 7.4 7.5
Anti-avoidance Rules Introduction Transfer Pricing Permanent Establishment Thin Capitalization Controlled Foreign Company (CFC) Provisions
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8 8.1 8.2 8.3 8.4 8.5
Taxation of Individuals Introduction Residence Taxable Income Capital Gains Tax Dividends
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8.6 8.7 8.8 8.9 8.10 8.11
Employment Income / Employee Benefits Exempt Income Deductions Personal Allowances and Rebates of Tax Tax Rates Tax Administration
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9 9.1 9.2 9.3 9.4 9.5 9.6 9.7 9.8 9.9 9.10
Indirect and Other Taxes Social Security Taxes Sales tax / VAT/ GST Customs Duty Excise Duty Stamp Duty Property Taxes Payroll Tax Inheritance tax Gift Tax Other Taxes
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Glossary
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Useful links
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Contact
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This chapter is based on information available up to March 31, 2010
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Summary Data Corporate Tax Rates The profits of a company, whether locally incorporated or registered as a branch, are subject to corporate income tax at the rate of 17 percent. Notwithstanding that, the effective tax rate is generally lower than 17 percent as a partial tax exemption is granted on the first 300,000 Singapore Dollars (SGD) of chargeable income where effectively, the first SGD 152,500 of chargeable income is exempt from tax. Newly incorporated companies may benefit from a full l exemption for the first SGD 100,000 of chargeable income and 50 percent on the next SGD200,000 chargeable income in the first three consecutive years of assessment provided certain conditions are met.
Historic headline rates Year of assessment
Rate
2010
17%
2008 and 2009
18%
2005 to 2007
20%
2003 to 2004
22%
2002
24.5%
2001
25.5%
2000
26%
Statutory reference: Section 43(1) of the Income Tax Act
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Personal Tax Rates
Resident
Year of Assessment 2007 onwards Current Chargeable Income (SGD)
Rates (%)
Tax (SGD)
First
20,000
Next
10,000
3.50
350
Next
10,000
5.50
550
Next
40,000
8.50
3,400
Next
80,000
14.00
11,200
Next
160,000
17.00
27,200 42,700
Above 320,000
20.00
Statutory reference: Part A of the Second Schedule of the Income Tax Act
Non-resident A non-resident is not entitled to claim personal relief and their income is assessed to tax depending on the types of income.
Currency 1 US Dollar = 1.4523. Singapore Dollars (average rate for 2009) 1 Singapore Dollar (SGD) = 0..6886 US Dollar (USD) (Source: Inland Revenue Authority of Singapore
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Singapore Asia-Pacific Taxation 2010 Edition
General The Republic of Singapore is an island State and is part of the British Commonwealth. Income is taxed in Singapore in accordance with the provisions of the Income Tax Act (Chapter 134, 2008 Revised Edition) and the Economic Expansion Incentives (Relief from Income Tax) Act (Chapter 86, 2005 Revised Edition). Generally, the Comptroller of Income Tax (CIT) is vested with the powers to administer the country’s tax legislation. Certain tax incentives are, however, being administered by other statutory boards, such as the Economic Development Board (EDB), International Enterprise Singapore (IE Singapore), Maritime and Port Authority of Singapore (MPA) and Monetary Authority of Singapore (MAS)). The tax year is usually referred to as the year of assessment. The year of assessment runs from January 1 to December 31. Income tax for a year of assessment is computed based on the income derived in the preceding calendar year from each source of income (e.g. the year of assessment 2010 would generally refer to the period January 1, 2009 to December 31, 2009). The preceding calendar year is referred to as the basis year. In the case of a trade, business, profession or vocation, the Inland Revenue normally accepts the accounting year as the basis year for the purposes of assessing the profits from the trade, business, profession or vocation. Income from other sources will also be accorded the accounting year basis of assessment. Income tax is generally imposed on a territorial basis under Singapore's tax law. This means that tax is charged on income that is accrued in, or derived from, Singapore or received in Singapore from outside Singapore although certain foreign-sourced income is exempt to encourage the repatriation of such funds to Singapore (see 2.6.). Singapore does not generally impose tax on capital gains. However, where the Inland Revenue can establish that such gains form part of the normal trading activities or result from transactions containing elements of trading, they are taxable as revenue gains.
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Company Taxation
2.1 Introduction The Income Tax Act defines a company as any company incorporated or registered under any law in force in Singapore or elsewhere. A company is chargeable to Singapore income tax on its income derived from, accrued in or received in Singapore. Notwithstanding that, certain foreign sourced dividends, branch profits and service income is exempt from Singapore income tax (see 2.6.). With effect from the year of assessment 2010, the income tax rate on companies (whether resident or not) is 17 percent on the tax adjusted profits of the taxpayer company.
2.2 Residence A company, whether incorporated locally or overseas, is considered as a resident of Singapore for tax purposes if the place of control and management of its business is exercised in Singapore. Generally, a company is treated as a resident of Singapore if, among other things, its directors’ meetings are held in Singapore.
2.3 Taxable Income The Income Tax Act charges tax on income and not on capital profits. For this reason, a distinction between income and capital is crucial. The heads of income chargeable to tax can be summarized as follows: ●
Gains or profits from any trade, business, profession or vocation
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Gains or profits from employment
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Dividends, interest or discounts
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Pensions, charges or annuities
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Rents, royalties, premiums and any other profits arising from property
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Any gains or profits of an income nature not falling within any of the above.
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2.4 Capital Gains Tax There is no capital gains tax in Singapore. However, the Inland Revenue Authority of Singapore (IRAS) generally takes a very strict approach in determining whether a transaction is capital or revenue in nature and they are likely to look at a number of factors, including the frequency of the transactions, the period of ownership and the overall intention of the parties at the time of the transaction.
2.5 Dividends With effect from January 1, 2003, a one-tier corporate tax system operates in Singapore whereby tax suffered at the corporate level, i.e. any underlying tax, is the final tax. Dividends paid by Singapore resident companies under the one-tier corporate tax system will be exempt from further Singapore tax in the hands of shareholders, irrespective of whether underlying tax has been suffered on the profits out of which the dividends are paid.
2.6 Exempt Income The following income (not an exhaustive list) is exempt from tax in Singapore and in some cases, certain qualifying conditions must be met before the exemption can apply: -
Interest from qualifying debt securities (QDS) - issued during the period from February 28, 1998 to December 31, 2013 and earned by non-residents who do not have a permanent establishment (PE) in Singapore - issued during the period from February 27, 1999 to December 31 , 2013 and earned by a non-resident who carries on operation through a PE in Singapore. The exemption can only apply if the funds used to acquire the QDS are not obtained from the Singapore operation
Interest from qualifying project debt securities issued during the period from November 1,
2006 to December 31, 2011 and earned by non-residents who do not have a PE in Singapore. The same restriction as in QDS applies where the non-resident carries on operation through a PE in Singapore
Discount, prepayment fee, redemption premium and break cost earned by non-residents where the same PE restrictions as QDS apply
Interest earned by non-residents from deposits in approved banks where the same PE restrictions as QDS apply
Dividends paid by Singapore resident companies under the one-tier corporate tax system Foreign-sourced dividends, foreign branch profits and foreign-sourced service fees derived by a Singapore resident company where all of the following conditions are met: -
Headline tax rate of the foreign jurisdiction from which the income is received is at least 15 percent
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The foreign-sourced income is subject to tax of a similar character to income tax in the foreign jurisdiction from which the income is remitted
- The exemption is beneficial to the Singapore resident company. The above conditions were temporarily lifted for all foreign-sourced income earned or accrued on or before January 21, 2009 and remitted during the period from January 22, 2009 to January 21, 2010 and such remittance made in the qualifying period would be exempted from tax.
Expenses Attributable to Exempt Income Expenses incurred or attributable to tax exempt income are deductible against such tax exempt income. Any excess expenses over such exempt income are not deductible against other income.
2.7 Deductions Generally, expenses incurred in the course of production of income are allowed in arriving at the taxable income. Allowable expenses include: ● Sum payable on money borrowed for capital employed in acquiring income: - Interest payable on such loans - Specified borrowing costs that are akin to interest or incurred to reduce interest costs would be tax deductible from the year of assessment 2008 ● Rent payable in respect of any land or building or part thereof occupied for the purpose of acquiring the income ● Expenses for repairs of premises, plant, machinery or fixtures or for the renewal, repair or alteration of implements, utensils or articles employed in acquiring the income ● Renovation and refurbishment expenditure incurred between February 16, 2008 to February 15, 2013 but excluding works on structural changes that require approval from the Commissioner of Building Control and professional or designer fees, antique and fine art ● Compulsory contributions made by employers to an approved pension or provident fund or society for employees ● A reasonable share of head-office or regional-office costs incurred overseas ● R&D expenditure incurred for any trade or business and for R&D undertaken in Singapore, expenditure incurred during the basis period for the years of assessment 2009 to 2013 need not be related to the current trade
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● Further tax deduction of 50 percent of the amount of qualifying R&D expenses incurred for the years of assessment 2009 to 2013 for R&D activities undertaken in Singapore ● Cost incurred in acquiring treasury shares transferred under a stock option or a share award scheme to a person by reason of any office or employment held in Singapore.
Non-deductible Expenditure Generally, expenses that are not incurred wholly and exclusively in the production of income, including expenses that are domestic, private and capital in nature, are not deductible for tax purposes. Examples of some of the expenses that are not deductible for tax purposes include: ● Expenditure or losses of a capital nature including costs of reconstruction or rebuilding of premises, buildings, structures or works of a permanent nature ● Sums recoverable under an insurance or contract of indemnity ● Income tax ● Expenses in respect of motor cars including rentals and other expenses on hired cars ● Expenses or disbursements incurred by a company to acquire shares (other than treasury shares) of its holding company, in respect of any right or benefit granted to any person by reason of any office or employment held in Singapore by that person.
2.8 Losses Trade losses incurred can be carried forward indefinitely. Businesses can carry-back trade losses and capital allowances of up to SGD 100,000 incurred in the current year. The use of tax losses carried forward by a company against its future profits is subject to the continuity of ownership test. Continuity of ownership is achieved if, on the prescribed dates, not less than 50 percent of the total number of issued shares of the company were beneficially held by the same shareholders. For the purposes of the comparison, where the shares of one company are held by another company, the shareholders of the second-mentioned company are deemed to be the shareholders of the first-mentioned company. If a substantial change in the ownership of the company occurs, the IRAS is given the discretionary power to allow the use of losses if it is satisfied that the change was not for the purpose of deriving a tax benefit or obtaining a tax advantage. In this circumstance, the loss may be deducted only against the profits from the same trade or business in respect of which the loss was incurred. Anti-tax-avoidance rules restrict the use of trading losses against dividend income received from an associate company.
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Under the Loss Carry-Back Scheme, a business (including a sole proprietor) or a company can carry-back its current year unutilized capital allowances and trade losses (qualifying deductions) to the preceding year of assessment. The Loss Carry-Back Scheme is primarily intended for the small business market although it applies to all businesses with the maximum amount of losses allowed for carry-back limited to SGD 100,000. Any unutilized capital allowances and trade losses in excess of the SGD 100,000 limit will continue to be available for carry-forward under the normal rules. Where qualifying deductions were incurred for the year of assessment 2009 and 2010, the Loss Carry-Back Scheme was enhanced to allow qualifying deductions of up to $200,000 for each year of assessment to be carried-back to three preceding years of assessment. Qualifying deductions incurred for the year of assessment 2009 can be carried back to the year of assessment 2006, 2007 and 2008 and those incurred for the year of assessment 2010 can be carried back to the year of assessment 2007, 2008 and 2009,
2.9 Grouping / Consolidation The Singapore group relief system was introduced with effect from the year of assessment 2003 and allows a loss making company within a group to transfer its current year unutilized losses, capital allowances and donations to offset the taxable profits of other companies in the same group. In order to group losses, the companies must be members of the same group on the last day of the basis period, have the same accounting year end and have made an election to group. A group means a Singapore incorporated company and all its Singapore subsidiaries. Two Singapore companies would also be members of a group if one is at least 75 percent owned by the other or if both are at least 75 percent owned by another Singapore company. Certain companies which have concessionary tax treatment under the Economic Expansion Incentives (Relief from Income Tax) Act and some investment holding companies may not be able to utilize the grouping provisions.
2.10Tax Depreciation / Capital Allowances General Tax depreciation (commonly referred to as capital allowances) is granted only in respect of plant and machinery used in a trade, business or profession. Plant and machinery is classified into working lives of 5, 6, 8, 10, 12 or 16 years for tax depreciation purposes.
Accelerated Capital Allowances With the exception of certain assets, all plant and machinery can be depreciated under the accelerated allowances scheme of three consecutive years. However, certain prescribed automation equipment, (e.g. robotics, computers, etc.) and power generators installed in a factory or office as back-up units in the event of power failures and efficient pollution control equipment can be written off in one year. New diesel driven goods vehicles and buses acquired to replace existing pre-Euro IV diesel vehicles registered on or after January 1, 1991
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would be granted a one-year write-off allowance. The new vehicles must be registered within the period February 15, 2007 to February 14, 2012 For capital expenditure incurred in the basis periods for the years of assessment 2010 and 2011, the capital allowances regime was enhanced to allow accelerated allowances to be claimed over two years; 75 percent write-down for the first year and 25 percent write-down for the second year.
Writing Down Allowances For Intellectual Property Rights A company carrying on a trade or business may claim writing down allowance on a straight line basis over five years on capital expenditure incurred between November 1, 2003 to October 31, 2013 in acquiring intellectual property rights used for that trade or business. To qualify, the legal and economic ownership of the intellectual property has to be with the Singapore company. For intellectual property rights acquired on or after February 17, 2006, application can be made to the EDB to waive the legal ownership requirement. Intellectual property rights for this purpose are defined as the right to do or authorize the doing of anything which would, but for that right, be an infringement of any patent, copyright, trademark, registered design, geographical indication, layout design of integrated circuit, trade secret or information that has commercial value. Where a Media and Digital Entertainment company or partnership acquires qualifying intellectual property rights during the period from January 22, 2009 to October 31, 2013, the writing down period would be reduced from five years to two years.
Writing Down Allowances For Approved Cost-Sharing Agreement For Research And Development Activities A person carrying on a trade or business may qualify to claim writing down allowance of 100 percent on expenditure incurred under an approved cost-sharing agreement for research and development activities in respect of that trade. To qualify, the cost-sharing agreement has to be approved by the relevant authority on or after February 17, 2006.
Integrated Industrial Capital Allowance Incentive The ‘Integrated Industrial Capital Allowance’ incentive enables approved companies to claim capital allowances on plant and machinery, where it is wholly owned by a Singapore company but being used by its subsidiaries outside Singapore. This incentive is available for an initial period of 10 years from the date of approval by the relevant authority.
Industrial Building Allowances Capital expenditure incurred on the construction or purchase (on or after January 1, 2006) of an industrial building used in a qualifying trade is typically depreciable over a period of 25 years with an initial allowance of 25 percent and an annual allowance of 3 percent. For capital
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expenditure incurred on or before January 1, 2006, industrial building allowances are not applicable if the building or structure is over 50 years old. In Budget 2010, it was proposed that industrial building allowance would be phased out with effect from February 22, 2010. Effectively, capital expenditure incurred after that date on the construction or purchase of industrial buildings or structures cannot qualify for industrial building allowance unless the expenditure was incurred under certain specified situations where transitional rules apply.
Land Intensification Allowance Incentive The new Land Intensification Allowance Incentive was announced in Budget 2010. The approving authority for the incentive is the EDB and the incentive is only applicable to construction costs for new buildings/structures and renovation or extension costs for existing buildings/structures used in one of the following industry sectors: ●
Pharmaceuticals
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Petrochemicals
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Petroleum
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Chemical Specialties
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Other Chemicals
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Semiconductor-Wafer Fabrication
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Aerospace
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Marine and Offshore Engineering
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Solar Cell Manufacturing
Tax Allowance for Qualifying Merger & Acquisition In Budget 2010, a new allowance for qualifying merger and acquisition (M&A) was announced to encourage companies to strategize for growth and internationalization. Qualifying M&A deals have to be executed from April 1, 2010 to March 31, 2015. The allowance to be granted is based on 5 percent of the value of the acquisition and the allowance is to be capped at $5 million. The allowance is to be written down over five years.
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2.11Amortization of Expenditure Amortization of capital expenditure is not tax deductible as in the case of intangible assets such as goodwill and intellectual property rights unless such rights qualify for writing down allowances (see 2.10). Where the amortized expenditure relates to research and development, tax deduction may be claimed on the expenditure incurred provided certain conditions are met (see 5) .
2.12Interest The following payments incurred for money borrowed on capital employed in acquiring income subject to tax are generally deductible: -
Interest expenses Specified borrowing costs that are akin to interest or are incurred to reduce interest costs (effective from year of assessment 2008) Notwithstanding this, the CIT may allocate the interest expense to the various assets and the amount of interest attributable to non-income producing assets would be disallowed for tax deduction.
2.13 Tax Rates The profits of a company, whether locally incorporated or registered as a branch, are subject to corporate income tax at the rate of 17 percent. The effective tax rate is generally lower than 17 percent as a partial tax exemption is granted on the first SGD 300,000 of chargeable income as follows: ● 75 percent up to the first SGD 10,000 ● 50 percent on the next SGD 290,000. Effectively, the first SGD 152,500 of chargeable income is exempt from tax. Certain newly incorporated companies may claim in each of the first three consecutive years of assessment, full exemption for the first SGD 100,000 of chargeable income and 50 percent exemption on the next SGD200,000 chargeable income.
2.14 Tax Administration Income Tax Returns and Payment of Company Tax Forms (Form C) for the return of income are usually issued in January and are required to be completed and submitted by the date as stipulated by Gazette. The filing deadline is on November 30 of that year of assessment.
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A person who disputes the tax assessed in the Notice of Assessment may rely on the appeals and objection provisions in the Income Tax Act to obtain a discharge in the tax assessed. Unless arrangements have been made for tax to be paid by installments, the tax charged under a Notice of Assessment is due for payment within one month from the date of service of the Notice of Assessment. A penalty of five percent on the tax due will be imposed for late payment. If the tax remains unpaid after 60 days from the date of service of the Notice of Assessment, then for every month that it continues to remain outstanding, an additional penalty of one percent will be imposed, although the total additional penalty is limited to 12 percent of the tax outstanding.
Refund of Tax Where tax refund is due, the CIT will automatically refund the tax credit due within 30 days and the CIT will pay interest of five percent per annum when the refund is made after the 30 days. However, the tax credit will not be automatically refunded under certain circumstances and examples of such circumstances include the following: ● If there is outstanding taxes or penalties due and the credit will be used to set off the liability ● If there are outstanding enquiries which may impact the tax position ● Failure to comply with CIT’s request to furnish the necessary information to effect the refund.
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Setting up Business In general, a business may operate in Singapore through one of the following entities: ● A company incorporated in Singapore ● A branch of a company incorporated outside Singapore ● A business trust registered in Singapore ● A limited liability partnership ● A limited partnership ● A regional or representative office. A company incorporated in Singapore may either be a resident or a non-resident of Singapore for tax purposes (see 2.2). In this regard, generally there is no practical difference in the basis of ascertaining the taxable income of a resident company and a non-resident company, as they are both governed by similar provisions under the Income Tax Act. However, differences arise in certain aspects depending on the tax residence status of the company. These include the application of the tax treaty provisions, claim for unilateral tax credit, the application of certain tax incentives and tax exemption on the remittance of certain qualifying foreign-sourced income (see 2.6). A business trust is a business structured in the form of a trust created by a trust deed under which the trustee has legal ownership of the assets and manages the assets for the benefit of the beneficiaries of the business trust. Unlike a company, a business trust is not a separate legal entity. A business trust in Singapore has to be registered under the Business Trusts Act 2004 and is different from a private or unit trust in that it actively runs and operates a business or a trade. The business trust has to be run by a single responsible entity known as the trustee-manager which must be incorporated in Singapore. Singapore has an attractive tax regime for Real Estate Investment Trusts (REITs). In Singapore, a REIT is established as a unit trust and is regulated by the MAS. The REIT is managed by an asset manager and administered by a trustee, both of which are set up as companies limited by shares. Generally, REITs in Singapore are listed on the Singapore Exchange and their units are freely tradable. A number of tax concessions may be granted to REITs and they include: ● Tax transparency treatment at the trustee level where the trustee is not assessed to tax on the REIT’s taxable income that is distributed to the unit holders in the same financial year that the income is earned
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● REIT distributions to unit holders who are individuals regardless of their nationality or residence status are granted tax exemption, except for those who hold their units through a Singapore partnership ● The transfer of Singapore properties into REITs would be granted remission of stamp duties provided certain conditions are met ● Foreign-sourced income may be exempted from tax in Singapore; and ● The withholding tax rate for non-resident non-individual investors is at the reduced rate of 10 percent for distributions made on or before March 31, 2015. A Limited Liability Partnership (LLP) registered under the Limited Liability Partnerships Act has the status as a separate legal person. However, for tax purposes, an LLP is treated as a partnership and not as a separate legal person where each partner of the LLP is taxable on his or its share of income from the LLP. A Limited Partnership (LP) is a new business vehicle registered under the Limited Partnership Act which requires a minimum of two partners; one must be a general partner while the other is a limited partner. An LP does not have a separate legal personality from its partners. For tax purposes, each partner is taxed on his or its share of profits from the LP. Foreign companies can set up a regional or representative office (RO) in Singapore by registering it with IE Singapore. It is a temporary establishment and the foreign company is encouraged to either register itself as a branch or incorporate a subsidiary company in Singapore at a later date. The activities of an RO in Singapore are restricted to market research and liaison work on behalf of the foreign company. An RO cannot be engaged to carry on any trading or business activities in Singapore. If it does, it would expose the foreign company to Singapore taxation.
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Foreign Exchange Controls Although the Exchange Control Act is still in force, all exchange controls have been removed since June 1978. There are now no restrictions on inward or outward remittances, whether capital or revenue. Banks have been asked to observe the Government’s policy of discouraging the internationalization of the Singapore dollar when they consider granting credit facilities to non-residents. In addition, they are required to consult with the MAS before considering Singapore-dollar credit facilities exceeding SGD five million to any non-resident, or to a resident where the Singapore dollars are to be used outside Singapore.
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Tax Incentives Singapore grants investment incentives for activities that enhance its economic or technological development. The incentives are available to a wide spectrum of industries and cover the main headings of manufacturing, services, trading, entrepreneurial investment and finance. They are usually in the form of exemption from tax or reduction in the rate of tax applicable. The main incentives are described below.
Manufacturing and Services
Pioneer Enterprise Enterprises which incur significant capital expenditure in Singapore or introduce leading edge technology and manufacturing skills to Singapore may be approved as pioneer enterprises with the profits arising from the qualifying pioneer trade being exempt from income tax for a period of five to 15 years depending on a number of key factors, including the nature of the product, the technology involved and the overall level of investment in Singapore.
Development and Expansion Incentive The Development and Expansion incentive allows for a tax rate as low as five percent on profits beyond a pre-determined base for up to 10 years (with the possibility of extension for a further 10 years) and is targeted at enterprises engaged in projects which bring significant economic benefit to Singapore in terms of the overall business spending and the nature of the activities carried out in Singapore.
Pioneer Service Company A company engaged in qualifying services including, engineering or technical services, computer or information based services, industrial or production based services and other services as may be prescribed, may be approved as a pioneer service company with the profits arising from such qualifying activities being exempt from income tax for a period of five to 15 years, again, depending on the nature of the services, the benefit derived and the overall business spending in Singapore.
Headquarters (HQ) Program The HQ Program covers two main incentives: ●
Regional Headquarters (RHQ) Award; and
●
International Headquarters (IHQ) Award.
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To qualify for the incentives, the Singapore entity should provide corporate support and headquarters-related services and business expertise on a regional or global basis.
RHQ Award Under the RHQ Award, the Singapore entity is taxed at a concessionary rate of 15 percent. The RHQ Award is usually granted for a period of three years (with a possible extension of a further two years) on incremental qualifying income. The Singapore entity must meet all the minimum requirements set till the end of the incentive period.
IHQ Award The IHQ Award is targeted at entities that exceed the criteria for the RHQ award and provides for a customized incentive package with lower concessionary tax rates on qualifying income of zero percent, five percent or ten percent depending on the extent to which the entity meets or exceeds the relevant criteria, normally agreed on a case-by-case basis.. The IHQ Award will normally be granted for an initial period of five years with possible extension thereafter, depending on the continued level of HQ activities and overall business spending.
Shipping Services Incentives
Singapore Registry Shipping Scheme Tax exemption is granted on certain income derived by a shipping enterprise from international operation of its Singapore flagged ships and foreign ships. For the operation of a Singapore ship, the income which qualifies for exemption is that from: ● The carriage of passengers, mail, livestock or goods outside the limits of the port of Singapore ● Towing or salvage operations outside the limits of the port of Singapore ● The charter of the ship for use outside the limits of the port of Singapore ● The use outside the limits of the port of Singapore of the ship as a dredger, seismic ship or vessel used for offshore oil or gas activity. For a foreign ship, the income which qualifies for exemption is from the carriage of passengers, mail, livestock or goods shipped in Singapore but excluding such carriage arising solely from trans-shipment from Singapore. Singapore ships are ships flying Singapore flags, i.e. ships in respect of which a permanent certificate of registry has been issued under any written law in Singapore relating to merchant shipping.
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In Budget 2010, it was proposed that income derived from ship management services rendered to qualifying related special purpose vehicle would also qualify for tax exemption.
Approved International Shipping Enterprise (AIS) The AIS incentive was introduced to increase the competitiveness of shipping companies operating from Singapore. It is targeted at established international ship operators with established worldwide networks. Under the AIS incentive, it provides for tax exemption on the qualifying profits derived by the approved companies from the international operation of foreign flagged ships. Amongst others, the qualifying profits include those arising from: ● Carriage of passengers, mail, livestock or goods from outside the limits of the port of Singapore by any foreign ship, and includes the income from the charter of such ships ● Carriage of passengers, mail, livestock or goods by a foreign ship to Singapore solely for the purpose of trans-shipment ● Towing or salvage operations carried out outside the limits of the port of Singapore by any foreign ship, and includes the income from the charter of such ships ● Operation outside the limit of the port of Singapore of dredger, seismic ship or any vessel used for offshore oil or gas activity ● Chartering of any foreign dredger, foreign seismic ship or any foreign vessel used for offshore oil or gas activity outside the limits of the port of Singapore. In Budget 2010, it was proposed that income derived from ship management services rendered to qualifying related special purpose vehicles would also qualify for tax exemption.
Approved Shipping and Logistics Scheme The Approved Shipping and Logistics Scheme is targeted at companies with an established track record in the provision of freight and logistics services and provides for a reduced tax rate of between 10 percent -15 percent for an initial period of ten years on qualifying services income and management fees received by the approved company.
Ship Brokers and Forward Freight Agreement Traders In Budget 2010, it was announced that companies that solely carry on a business in ship broking and / or forward freight agreement trading may qualify for a concessionary tax rate of 10 percent for a period of 5 years.
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Maritime Financing Incentive This incentive was introduced to promote the growth and development of ship financing activities in Singapore.
Approved Shipping Investment Enterprise Under this incentive, tax exemption is granted to an approved shipping investment enterprise on income derived from the chartering or finance leasing of sea-going ship and sea-going Singapore ship for use outside Singapore port limits, acquired during the incentive period from March 1, 2006 to February 28, 2011. Each term of the incentive period is for 10 years and is renewable.
Approved Shipping Investment Manager Under this incentive, qualifying income derived from managing the vessel portfolio of an approved shipping investment enterprise is taxed at a concessionary rate of 10 percent. The approval period for the incentive is from March 1, 2006 to February 28, 2011 and the incentive period is for 10 years.
Approved Container Investment Enterprises (ACIE) Under this incentive, the qualifying income of an ACIE derived from leasing of containers which it owns and uses for international transportation of goods can qualify for five percent or ten percent concessionary tax rate. The approval period for the incentive is from April 1, 2008 to February 28, 2011.
Approved Container Investment Manager (ACIM) Under this incentive, the qualifying income of an ACIM derived in connection with and incidental to the strategic control and management of ACIEs can qualify for 10 percent concessionary tax rate. The approval period for the incentive is from April 1, 2008 to February 28, 2011. In Budget 2010, it was proposed that the expiry date for all the incentives under the Maritime Finance Incentives be extended from February 28, 2011 to March 31, 2016.
Approved Tourism Events The Approved Tourism Events incentive is targeted at event companies who have a track record in organizing or staging world class events and activities and provides for a reduced rate of 10 percent tax on income derived from qualifying tourism events. The incentive was introduced with effect from April 1, 2005 for an initial period of five years.
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Trading
Global Trader Program The Global Trading Program is targeted at companies which are established with a worldwide network and a good track record and carry on the business of international trading of commodities, futures, including petroleum and petroleum products. Companies qualifying under the Global Trader Program may benefit from reduced tax rates of either five or ten percent depending on the level of Singapore business spending and the reported turnover in Singapore. The incentive period is for five years with provision for extension.
Approved Cyber Trader Approved cyber trading companies are liable to pay income tax at a concessionary rate of 10 percent over a period of up to five years on qualifying products and receive certain investment allowances in respect of qualifying new fixed capital expenditure. A qualifying company must be a well established company incorporated in Singapore which uses the internet to conduct its international trading and marketing activities, host its web site and contents in Singapore and base a minimum number of personnel in Singapore.
Investment
Enterprise Investment Incentive The Enterprise Investment Incentive is primarily targeted at start-up companies engaged in innovative and high-growth activities with substantial R&D content in relation to a specific product, process or service. The incentive is initially available for five years and provides for deduction of losses incurred on the disposal of shares or liquidation of the qualifying start-up company. Although primarily targeted at Singapore investments, overseas start-ups may also be approved on a case-by-case basis.
Overseas Enterprise Incentive The Overseas Enterprise Incentive is designed to encourage companies to invest in approved overseas investments and projects and provides for tax exemption on dividends from qualifying investments (irrespective of the foreign source income rules [see 2.6.]) as well as exemption on relevant components of Singapore source income which is connected with the overseas investments and projects or other qualifying activities.
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Financial Services Sector Financial Sector Incentive (FSI) Scheme The FSI scheme aims at promoting and encouraging the development of the Singapore financial services sector. The scheme offers a concessionary tax rate of five percent for qualifying high growth and high value-added activities (i.e. Enhanced Tier) and 10 percent (proposed to be changed to 12 percent with effect from January 1, 2011 based on the 2010 Budget Announcements) for mature and critical financial activities (i.e. Standard Tier). Initial award periods may vary from five, seven and ten years based on headcount and the scope of activities undertaken. Any subsequent renewal of these incentives would depend on the incremental commitments to Singapore.
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Under the FSI scheme, qualifying activities can be categorized as follows: Enhanced Tier
Standard Tier
High growth, high value-added activities
Broad range of financial activities important to the development of Singapore as a financial services hub
Qualifying activities:
Qualifying activities:
Bond Market (FSI-BM)*
Lending and related activities
Derivatives Market (FSI-DM)
Debt Capital Market
Equity Market (FSI-EM)
Equity Capital Market
Credit Facilities Syndication (FSI-CFS)*
Treasury
Project Finance (FSI-PF)*
Fund management, trust administration, custodian and other advisory services
Islamic Finance (FSI-IF)
Headquarter services and Qualifying Processing Services Company (FSI-HQ)
* To streamline and reduce administrative costs on the administration of these incentives, they are now merged under a new FSI-Debt Capital Market award.
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Fund Incentives To enhance Singapore attractiveness as a fund investment hub, the following tax incentives are available to funds set up as trust funds and companies:
Real Estate Investment Trust (REITs) Subject to certain conditions (such as the trustee distributing at least 90 percent of its taxable income to its unitholders in the same year in which the income is derived and where certain administrative procedures are complied with), a REIT may enjoy tax transparency on the following types of income: ● rental income, income from the management or holding of immovable property but not including trading gains from the disposal of immovable property ● income that is ancillary to the management or holding of immovable property but not including gains from the disposal of immovable property and Singapore dividends ● income (excluding Singapore dividends) that is payable out of rental income or income from the management or holding of immovable property in Singapore, but not out of gains from the disposal of such immovable property ● distribution from an approved sub-trust of the real estate investment trust out of certain income.
Designated Unit Trust (DUT) and CPF Approved Unit Trust (CPF Unit Trust) Under the DUT scheme or CPF Unit Trust scheme, specified income (such as gains or profits from the disposal of securities, interest and foreign dividends received in Singapore, etc) derived from designated investments are exempted from Singapore income tax at the trust level. In general, DUT and CPF Unit Trusts are essentially taxed only on interest income where Singapore tax has been withheld at source. No deductions of expenses are allowed against interest income where Singapore tax has been withheld. Distributions made by DUT and CPF Unit Trusts are not subject to Singapore withholding tax provisions.
Approved Unit Trusts (AUTs) AUTs are subject to Singapore income tax in respect of their investment income (i.e. interest and dividends) and one-tenth of the gains realized from the sale of their investments (i.e. taxable gains). The remaining gains (i.e. nine-tenths) realized from the sale of the securities are not taxable (i.e. non-taxable gains). Expenses incurred by AUTs may be deductible against gains or losses from the disposal of securities, interest and dividends, subject to conditions.
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Qualifying Fund Subject to conditions, specified income derived by a qualifying fund managed or advised by any fund manager in Singapore in respect of designated investments would be exempted from Singapore income tax. This incentive is applicable to funds constituted as trusts and companies outside Singapore provided that the funds are not 100 percent beneficially owned / held, directly or indirectly, by investors in Singapore; including investors who are resident individuals or PEs in Singapore. The funds or its trustees (where the funds are constituted as trust) should also not have a permanent establishment in Singapore (other than a fund manager) and should not carry on a business in Singapore.
Foreign Trusts Subject to conditions, specified income earned by a foreign trust or an eligible holding company from designated investments would be exempt from Singapore income tax.
Philanthropic Purpose Trusts Income derived from any funds or assets in any foreign account of a philanthropic purpose trust constituted on or after February 18, 2005 and administered by a trustee company in Singapore; and income derived from any fund or assets of an eligible holding company established for the purposes of that philanthropic purpose trust which are held for the foreign account of that trust are exempted from Singapore income tax subject to conditions.
Prescribed Locally Administered Trusts (LAT) Specified Singapore-sourced investment income and foreign-sourced income derived by LAT would be exempted from Singapore income tax. Broadly, to qualify as a LAT, the settlors must be individuals and the beneficiaries must be individuals, charitable institution, trust or body of persons established for charitable purposes only. In addition, at least one of the beneficiaries is not a settlor of the trust.
Resident Fund Exemption Scheme Subject to conditions, specified income derived by an approved company incorporated and resident in Singapore from designated investments arising from funds managed in Singapore by a fund manager in Singapore are exempted from Singapore income tax at the fund level provided the company is not 100 percent beneficially owned, directly or indirectly, by investors in Singapore, including investors who are resident individuals and permanent establishments in Singapore.
Enhanced Tier Fund Incentive The Enhanced Tier Fund Incentive is available for funds with a minimum fund size of S$50 million at the point of application. Under this scheme, the tax exemption incentives under the
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Qualifying Fund and Resident Fund Exemption Schemes, as highlighted above, would each be enhanced as follows: ● no restriction on the residence status of the fund vehicles and investors ● extended to funds constituted as limited partnerships ● lifting of the investment limit imposed on resident non-individual investors.
Finance and Treasury Centre Approved companies which provide finance and treasury services to related and associated companies outside Singapore are taxed at 10 percent on income arising from provision of qualifying services. Tax exemption may be granted on specified income of approved related companies received in Singapore. Under certain circumstances, Singapore-based associated companies of the approved companies can also qualify as approved network companies. The incentive period is from five to ten years with provision for extension.
Approved Trustee Company An approved trustee company will be taxed at a concessionary rate of 10 percent on income derived from specified trust and custodian services to non-residents in respect of nonSingapore dollar investments, specified persons such as foreign companies and foreign mutual fund corporations.
Offshore Leasing Income of a leasing company derived from Singapore in respect of offshore leasing of certain machinery or plant is taxable at the concessionary rate of 10 percent. Offshore leasing is defined for Singapore taxation purposes as the leasing of machinery or plant where: ● The leased asset is used outside Singapore; and ● Leased payments are denominated in currencies other than the Singapore dollar and are not deductible against any income accruing in or derived from Singapore. A leasing company can elect to have the whole of its offshore leasing income taxed at the prevailing corporate tax rate and such election made is irrevocable.
Insurance An approved insurance company engaging in the business of insuring and reinsuring offshore risks will be taxed at the concessionary rate of 10 percent on: ● Income arising from the business of insuring and reinsuring offshore risks
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● Dividends and interest derived from outside Singapore, gains or profits from the sale of offshore investments and interest from Asian Currency Unit (ACU) deposits derived from: - investment of its insurance fund established under the Insurance Act for the offshore insurance business - investment of its shareholders’ funds established in Singapore, which are used to support the offshore insurance business. Tax exemption may be granted on income derived by an approved insurance or reinsurance company from underwriting offshore and onshore marine hull and liability risks and specified investment income. An approved general insurer or reinsurer company may be granted tax deduction on special reserves set aside for certain offshore risks. The incentive period is 10 years. Captive insurance companies may apply during the period from February 17, 2006 to February 16, 2011 for tax exemption in respect of underwriting income derived from insuring offshore risks and specified offshore investment income. The incentive period is 10 years. Tax exemption for a period of five years may also be granted on income derived from the underwriting (insuring or reinsuring) of offshore qualifying specialized insurance risks; namely terrorism risks, political risks, energy risks and aviation and aerospace risks and specified offshore investment income. The approval period is from September 1, 2006 to August 31, 2011. A direct insurance broker, general reinsurance broker or life reinsurance broker may apply during the period from April 1, 2008 to March 31, 2013 to be an approved insurance broker. Under the incentive, concessionary rate of 10 per cent can apply to commission income, brokering and advisory fees derived from non-Singapore based clients. The incentive period is 10 years. Specified income of a life insurer apportioned to the policyholders of the insurer may be taxed at 10 percent concessionary tax rate. In Budget 2010, the following changes were proposed for approved general, life and composite insurers: ● A sunset clause of five years till March 2015 would be set for the incentive and a review mechanism would be put in place to determine whether the incentive would be further extended after March 2015 ● An approved recipient would be awarded an incentive period of ten years ● New headcount requirement would be imposed for approved recipients (except for captive insurers). There would be a transition period of three years from 1 April 2010 to 31 March 2013 for existing incentive recipients to meet the necessary headcount requirement and those who
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meet the criteria after 31 March 2013 would continue to qualify for the incentive for the remaining tenure of their awards.
Islamic bonds With effect from January 1, 2005, a concessionary tax rate of 10 percent will be granted on payouts (including discount arising from secondary trading) earned by companies and bodies of persons in Singapore from Islamic debt securities substantially arranged by financial institutions in Singapore. In addition, income tax exemption may also be extended on any amount derived by an investor (including Singapore companies) from Islamic debt securities issued during the period from February 16, 2008 to December 31, 2013, where the amount payable is not deductible against any income of the issuer that is accruing in or derived from Singapore Payouts earned by a non-resident will be exempted from withholding tax. The Islamic debt securities must be endorsed by a Shari’ah council, body or any committee formed for the purpose of providing guidance on compliance with Shari’ah laws. In addition, the payouts from such securities must be periodic and supported by a regular stream of receipts from underlying assets. The incentive applies to securities issued from January 1, 2005 to December 31, 2013. Payouts of income derived by resident and non-resident individuals from Islamic debt securities are exempt from tax. With effect from January 1, 2005, the imposition of stamp duty on the following qualifying Islamic financing arrangements will be remitted: ● Immovable property situated in Singapore which is onward sold to purchaser by a financial institution; and ● Immovable property situated in Singapore which is onward leased to purchaser by a financial institution. The above arrangement must be endorsed by a Shari’ah council, body or any committee formed for the purpose of providing guidance on compliance with Shari’ah laws and stamp duty must be paid by the financial institution when it purchased the immovable property.
Research and Development (R&D)
Enhanced R&D Deductions Qualifying expenditure on R&D carried out in Singapore will be eligible for 150 percent tax deduction during the year of assessment 2010. With effect from the year of assessment 2011, this scheme will be enhanced further under the Productivity and Innovation Credit Scheme (see below).
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R&D Tax Allowance Scheme Under the scheme, a company can be granted R&D tax allowance during the basis period in any year of assessment from the years of assessment 2009 to 2013. Generally, the R&D tax allowance is limited to 50 percent of the company’s chargeable income or $150,000, whichever is lower. The amount of R&D tax allowance that a company can accumulate is capped at $450,000. A company that incurs incremental qualifying R&D expenditure during the years of assessment 2010 to 2016 can utilize its R&D tax allowance during the same period, up to the amount of incremental R&D expenditure or the amount of assessable income for that year of assessment, whichever is lower. Any balance not fully utilized by the year of assessment 2016 will be disregarded.
R&D Incentive for Start-Up Enterprise Scheme (RISE) The scheme is for start-ups making losses in their first 3 years of assessment falling between the years of assessment 2009 to 2013 (both years inclusive) has expended at least $150,000 a year on qualifying R&D activities in Singapore. Such start-ups can obtain a cash grant by converting their adjusted tax losses of up to $225,000 into a cash grant computed at the rate of 9 percent, i.e. $20,250.
Productivity And Innovation Credit In Budget 2010, the Government introduced the Productivity and Innovation Credit (Credit) which will provide 250 percent tax deductions for investments in the following six activities: ●
Research and Development
●
Registration of Intellectual Property Rights
●
Acquisition of Intellectual Property Rights
●
Design activities
●
Automation through technology or software
●
Training of employees.
All businesses will be eligible for the credit based on the amount they invest but is capped at $300,000 of qualifying expenditure for each activity. It will be available for five years during the years of assessment 2011 to 2015. For R&D activities, qualifying expenditures exceeding $300,000 will be eligible for 150 percent tax deduction, subject to conditions.
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For the years of assessment 2010 and 2011, a combined cap of $600,000 of qualifying expenditure is allowed for each activity to help SMEs benefit from the Credit scheme. To support small, growing but cash-constrained businesses, companies can opt to convert up to $300,000 of the Credits a year into a cash grant of $21,000. With the introduction of the Credit, the R&D Allowance Scheme and RISE will be phased out.
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Singapore Asia-Pacific Taxation 2010 Edition
International Tax
6.1 Double Taxation Relief Singapore has concluded Double Taxation Agreements (DTAs) with a number of countries (see 7.2.) and bilateral relief by way of foreign tax credit is available to a Singapore tax resident in respect of foreign taxes paid. The amount of foreign tax credit to be claimed is restricted to the lower of the Singapore tax payable on the income net of expenses, and the actual foreign tax suffered. Where there is no DTA, unilateral tax credit relief is available for all foreign-sourced received in Singapore by Singapore tax residents. Again, the relief is granted is restricted to the lower of the Singapore tax payable on the income net of expenses, and the actual foreign tax suffered. With effect from the Year of Assessment 2010, commonwealth tax relief can no longer be claimed. The Singapore tax legislation does not allow any utilized foreign tax credit to be carried forward or carried back.
6.2 Withholding Taxes Withholding tax at the appropriate rate is payable if the following payments are made to nonresidents: ● Any interest, commission, fees, or any other payments in connection with or relating to any loan or indebtedness or with any arrangement, management, guarantee, or service relating to any loan or indebtedness where such arrangements, management, guarantees or services are rendered in Singapore – at the rate of 15 percent ● Royalty or other payments in one lump sum or otherwise for the use of or the right to use any movable property – at the rate of 10 percent ● Any payment for the use of or the right to use scientific, industrial or commercial knowledge or information – at the rate of 10 percent / prevailing corporate tax rate ● Any payment for assistance or service rendered in Singapore in connection with the application or use of scientific, industrial or commercial knowledge or information - at the prevailing corporate tax rate ● Any payment for the management or assistance in the management of any trade, business or profession where the services are rendered in Singapore – at prevailing corporate tax rate ● Rent or other payments under any agreement or arrangement for the use of any movable property – at the rate of 15 percent
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● Director’s remuneration – at the rate of 20 percent ● Any payment for services rendered in Singapore by non-resident professionals – at the rate of 15 or 20 percent ● Consideration from sale of real property transactions by a non-resident property trader – at the rate of 15 percent ● Payment to a non-resident public entertainer for services performed in Singapore - at the rate of 15 percent. In Budget 2010, it was announced the withholding tax rate would be reduced to 10 percent for payments made during the period from 22 February 2010 to 31 March 2015. The rate of withholding tax may be reduced in accordance with the provision of the respective DTAs. Certain categories of payment such as that for shrink-wrap software and payments for the use of or the right to use information and digitized goods by end-users are exempt from withholding tax.
Dividends Currently, Singapore does not impose withholding tax on dividends.
6.3 Avoidance of Double Taxation Agreements In addition to Singapore’s domestic arrangements that provide relief from international double taxation, Singapore has entered into DTAs with the following countries: The rates listed below are those negotiated under the respective double tax treaties. Please note that actual domestic rates are, in many cases, lower than that under the treaty. In such cases, the domestic rate prevails. Country
Tax on Dividends (1) (%)
Tax on Interest (%)
Tax on Royalties (%)
Australia
15
10
10 (10)
Austria
0 or 10 (2)
5 (4,6)
5
Bahrain
Exempt
5 (4)
5
15
10
10 (10)
5 or 15
5 (3,4)
5 or 3 (11)
Bangladesh Belgium
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Country
Singapore Asia-Pacific Taxation 2010 Edition
Tax on Dividends (1) (%)
Tax on Interest (%)
Tax on Royalties (%)
Brunei
10
5 or 10 (3,4)
10
Bulgaria
5 (2)
5 (4)
5
Canada
15
15 (2)
15 (16)
China
7 or 12
7 or 10(3,4)
10
Cyprus
Exempt
7 or 10 (3,4)
10
5
Exempt
10
0, 5 or 10
10 (4)
10
15
15 (4)
15 (16)
Estonia
5 or 10 (4)
10 (4)
7.5
Fiji
5 or 15 (4)
10 (4)
10
Finland
0, 5 or 10 (4)
5 (4)
5
France
10 or 15
10 (4,5)
Exempt (10)
Georgia
Signed but not ratified
Signed but not ratified
Signed but not ratified
Germany
5 or 15
8 (4,9)
8
Hungary
5 or 10 (4)
5 (4,6)
5
India
10 or 15
10 or 15(3)
10
Indonesia
10 or 15
10 (4,7)
15 (16)
Israel
5 or 10 (4)
7 (4)
5
10
12.5 (4)
15 or 20 (16)
5 or 15
10 (4)
10
5 or 10 (4)
10 (4)
10
Kuwait
Exempt
7 (4)
10
Latvia
5 or 10 (4)
10% (4)
7.5
Czech Republic Denmark Egypt
Italy Japan Kazakhstan
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Country
Singapore Asia-Pacific Taxation 2010 Edition
Tax on Dividends (1) (%)
Tax on Interest (%)
Tax on Royalties (%)
Signed but not ratified
Signed but not ratified
Signed but not ratified
Lithuania
5 or 10 (4)
10 (4)
7.5
Luxembourg
5 or 10 (4)
10 (4)
10
Malaysia
5 or 10
10 (4)
8
Malta
Exempt
7 or 10(3,4)
10
Mauritius
Exempt
Exempt
Exempt
Mexico
Exempt
5 or 15(3,4,7)
10
Mongolia
5 or 10 (4)
5 or 10(3,4)
5
Morocco
Signed but not ratified
Signed but not ratified
Signed but not ratified
Myanmar
Exempt
8 or 10(3,4)
10 or 15 (12,16)
Exempt or 15
10 (4)
Exempt (10)
15
15
15
5 or 15 (4)
7 (4)
7
5 (4)
7 (4)
8
10 , 12,5 or 15
12.5 (4)
10
Papua New Guinea
15
10
10
Philippines
15 or 25
15 (7)
15 or 25 (14,16)
Poland
10 (4)
10 (4)
10
Portugal
10 (4)
10 (4,7)
10
Exempt
5 (4)
10
5 (4)
5 (4)
5
5 or 10 (4)
7.5 (4)
7.5
Libya
Netherlands New Zealand (17) Norway Oman Pakistan
Qatar Romania Russian Federation
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Country
Singapore Asia-Pacific Taxation 2010 Edition
Tax on Dividends (1) (%)
Tax on Interest (%)
5 or 10 (4)
Exempt
Signed but not yet ratified
Signed but not yet ratified
Signed but not yet ratified
South Africa
5 or 15 (4)
Exempt
5
South Korea
10 or 15
10 (4)
15 (16)
15
10 (3,4)
15 (16)
10 or 15 (4)
10 or 15(4,5)
Exempt (10)
10 or 15
10 (8)
5 (10,14)
40 (inc. underlying tax)
Domestic rates
15 (10,16)
20
10 or 25(3,4)
15 (9, 16)
Turkey
10 or 15 (4)
7.5 or 10 (3,4)
10
Ukraine
5 or 15
10 (4)
7.5
5
7 (4)
5 (8)
5 or 15
10 (4)
10
5
5
8
5, 7 or 12.5 (4)
10 (4)
5 or 15 (12,16)
Slovak Republic
Slovenia
Sri Lanka Sweden Switzerland Taiwan Thailand
United Arab Emirates United Kingdom Uzbekistan Vietnam
Tax on Royalties (%)
10
Notes 1. Dividends paid by a company which is a resident of Singapore to a resident of a treaty country are exempt from any tax in Singapore which is chargeable on dividends in addition to tax chargeable in respect of the profits or income of the company. The rates shown in this column therefore reflect the position of the other treaty country. 2. Exempt if paid to specified export credit agency. 3. Lower rate or exemption if received by a financial institution; 4. Exempt if paid to the government; 5. Exempt if paid by an approved industrial undertaking; 6. Exempt if paid by a bank and received by a bank; 7. Exempt if paid to bank but linked to government loan agreement or paid to specific financial institutions/banks; 8. Exempt if paid in respect of an approved loan or indebtedness. 9. Exempt if paid in respect of a loan guaranteed by specific credit insurance company.
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10. Royalties on literary or artistic copyrights, including film royalties, are taxed at non-treaty rate; 11. Lower rate for payments in respect of industrial, commercial or scientific equipment; 12. Lower rate for payments in connection with patents, designs, secret formulas/processes, or industrial, commercial or scientific equipment/experience; 13. Exempt if paid to the government; 14. Exempt for approved royalties; 15. Lower rate or exempt for industrial royalties in accordance with domestic laws; 16. Royalties derived from Singapore are subject to a final tax of 10 percent with effect from January 1, 2005. 17. New treaty has been signed with New Zealand but has not yet been ratified.
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Anti-avoidance Rules
7.1 Introduction Where the Inland Revenue is satisfied that the purpose or effect of any arrangement is to directly or indirectly: ● Alter the incidence of any tax that is payable or would otherwise have been payable by any person; ● Relieve any person from any liability to pay tax or to make a return under the Income Tax Act; or ● Reduce or avoid any tax liability imposed or that would otherwise have been imposed on any person by the Income Tax Act. It may disregard or vary the arrangement and make such adjustments (including the computation or recomputation of gains or profits or imposition of liability to tax) so as to counteract any tax advantage obtained or obtainable by that person from or under that arrangement. The above does not apply to any arrangement made before January 29, 1988 or carried out for bona fide commercial reasons and that does not have tax avoidance or reduction as one of its main purposes.
7.2 Transfer Pricing In February 2006, the Inland Revenue released the IRAS Circular: Transfer Pricing Guidelines (Main Circular) with detailed guidance on, and documentation requirements for, transfer pricing and advance pricing arrangements (APAs). Singapore transfer pricing guidance, in general, has strong parallels to Organisation for Economic Co-operation and Development (OECD) transfer pricing principles. Like its counterparts in most countries, the Inland Revenue endorses the arm’s-length principle as the standard to guide transfer pricing. This is supported by Section 34D of the Singapore Income Tax Act, effective from the year of assessment 2010, addressing transactions not at arm’s-length. The Inland Revenue is of the opinion that taxpayers should exert reasonable efforts to undertake a sound transfer pricing analysis to ascertain an arm’s-length price, as well as demonstrate that such analysis has been performed. Comprehensive contemporaneous documentation will go towards demonstrating a reasonable compliance effort. Otherwise, scant documentation, especially for complex or significant transactions may lead to scrutiny and challenges. Since the release of the Main Circular, the Inland Revenue has been gradually increasing its focus on transfer pricing. A second circular, Transfer Pricing Consultation Circular (TPC Circular), was released by the Inland Revenue in July 2008, with the aim of fostering transfer pricing awareness and compliance. The Inland Revenue has also started to monitor and
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examine the level of transfer pricing compliance by adopting several steps including sending questionnaires, follow-up questions and field visits to selected taxpayers. With the increasing interest by Singapore taxpayers in APAs, in October 2008, the Inland Revenue released additional transfer pricing guidance in the form of a circular providing administrative guidance on APAs. More recently in February 2009, the Inland Revenue released finalized transfer pricing guidance for related party loans and services (e-tax guide). Under the e-tax guide, the Inland Revenue provides a concessionary arm’s-length mark-up for specific routine support services provided to related parties, under certain conditions.
7.3 Permanent Establishment The definition of PE under Singapore domestic law can be argued to be broader than that found under most of Singapore’s DTAs due to the absence of PE exclusions normally found under Singapore’s DTAs. Furthermore, there is no prescribed physical presence time limit under which supervisory activities in connection with a building or work site, construction, installation or assembly project in Singapore would be excluded from the definition. Accordingly, in the absence of treaty protection, a PE may be triggered even with one day presence in Singapore. The definition of PE under most of Singapore’s DTAs generally follows the OECD model treaty definition.
7.4 Thin Capitalization There are no thin capitalization rules in Singapore.
7.5 Controlled Foreign Company (CFC) Provisions There are no CFC provisions in Singapore.
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Singapore Asia-Pacific Taxation 2010 Edition
Taxation of Individuals
8.1 Introduction Singapore has one of the lowest personal tax rates in Asia Pacific and adopts a territorial basis of taxation. In addition, there is no capital gains tax or pay-as-you-earn system. A resident in Singapore is subject to tax on all income accrued in or derived from Singapore as well as foreign sourced income received in or remitted into Singapore from outside Singapore. However, with effect from the 2005 year of assessment, all foreign sourced income received in or remitted into Singapore by a resident individual (except through a partnership in Singapore) is exempt from tax. Non-residents are only taxed on income accrued in or derived from Singapore. Internationally assigned personnel attached to regional or representative offices in Singapore may qualify to be taxed on a portion of their employment income based on the number of days spent in Singapore if their responsibilities cover a number of countries that they frequently visit. These responsibilities should be clearly stated in their employment contracts. In addition, qualifying Not Ordinarily Resident (NOR) taxpayers (see 8.6) may also be eligible for time apportionment of employment income.
8.2 Residence Generally, an individual is resident in Singapore for a year of assessment if they reside or exercise employment (other than as a director of a company) in Singapore for 183 days or more in the calendar year proceeding the year of assessment. It is the current practice of the Inland Revenue to regard individuals exercising employment in Singapore for three consecutive years or more as residents throughout the employment period in Singapore, even though the 183 day rule may not be met in the first and final year of employment. In addition, under another administrative concession applicable to foreign employees (excluding directors of a company and public entertainers) who entered Singapore from January 1, 2007, the foreign employee who stays or works in Singapore for a continuous period of at least 183 days straddling two calendar years would qualify as a resident for both years.
8.3 Taxable Income There is no statutory definition of what constitutes business income of an individual. In the absence of statutory guidelines, the question of whether a business or trade exists is one of fact. Essentially, there are no limitations on the capability of an individual to carry on a trade or business. The source of income from employment is generally the place where the employment or service is performed, irrespective of where the contract is made or the remuneration is paid (see 8.6.). Remuneration from employment is defined in the Income Tax Act to include, any wages, salary, leave pay, fee, commission, bonus, gratuity, perquisite or allowance.paid or granted in
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respect of the employment, whether in money or otherwise. The benefits paid or granted, in money or otherwise, are chargeable to income tax.
8.4 Capital Gains Tax There is no capital gains tax in Singapore (see 2.4).
8.5 Dividends See 2.5.
8.6 Employment Income / Employee Benefits Employment income or profits for employment services rendered in Singapore are taxable and regardless of who or where the employer may be, or where the remuneration is paid. Typical items of an employee’s compensation package, shown in the list below, are taxable: ● Salary, wages, bonuses and allowances ● Accommodation provided by the employer. The taxable value of the accommodation provided is the lower of the annual value of the property (basically the yearly rental obtainable for the unfurnished property), or 10 percent of the employee’s taxable employment income. In either case, the taxable benefit is reduced by any payment made by the employee towards the accommodation; however, the 10 percent rule does not apply to a company director where their income from the company is less than the annual value of the property provided for their use ● Leave passage. The cost of leave passage and incidental expenses are usually treated as taxable benefits. However, as a concession, the taxable value of the home leave passage is restricted to 20 percent of one return fare each for the expatriate and their spouse, plus two return fares for each child. Remission of leave passage is available to expatriate employees of a company that is awarded or granted extension of certain incentives such as the Pioneer or Operational Headquarters incentives before January 1, 2004. Any fares in addition to these are taxable in full ● Motorcar. If an employee is provided with the use of a motorcar by their employer, and they use the motorcar for private purposes, the value of the taxable benefit provided to them is ascertained by standard formulae prescribed by the Inland Revenue ● Share and stock option. Any gain or profit derived (directly or indirectly) by any person by the exercise, assignment, release or acquisition of a right or benefit to acquire shares in a company is income if the right or benefit is obtained by them by reason of their office or employment. The employee will be taxed on the full amount of the gain or the profit derived from the exercise, assignment, release or acquisition of the right or benefit to acquire the shares. The taxable gain is the difference between the open market value of the shares and the price paid to acquire the shares on the exercise date. Current law now connects
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the taxability of the gains to the employment source. In addition, deferral on the taxation of gains is allowed where shares are subject to a moratorium. However, a deemed exercise rule would accelerate taxation on unexercised/restricted stock options, or unvested/restricted shares for departing expatriates, unless the tracking option alternative applies ● In addition, there are a number of tax incentives given to employee equity-based remuneration plans provided certain conditions are met under the Qualified EEBR Scheme, ERIS (SMEs) Scheme, (previously known as Entrepreneurial (EEBR)), ERIS (All Corporations) Scheme (previously known as Company EEBR) and the ERIS (Start-Ups) Scheme ● Household furniture and assets. If the employer provides the employee with the use of certain household furniture and assets, the employee is regarded as having derived a taxable benefit. The taxable value of such benefit is computed at standard rates prescribed by the Inland Revenue ● Contributions to foreign pension funds. Contributions made by the employer to overseas pension and provident funds in connection with the employee are generally deemed taxable income of the employee, unless certain conditions are satisfied.
NOR Taxpayer Scheme The scheme, which took effect from the 2003 year of assessment, provides tax relief for a period of five years to individual taxpayers who meet each of the following conditions: ● They must be a tax resident for the year of assessment in which they wish to qualify for the scheme ● They must have been a non-resident for the three consecutive years of assessment before the year they first qualify for the scheme ● They must have income of at least SGD 160,000. The tax benefits include tax exemption of employer’s contributions to non-mandatory overseas pension or social security scheme, subject to certain limitations and time apportionment of employment income, provided certain time and minimum tax conditions are met.
8.7 Exempt Income Certain income of individuals may be exempt from income tax. Singapore dividend income is exempt from Singapore tax (see 2.5.). With effect from January 1, 2005, Singapore source interest income from deposits with approved banks and licensed finance companies are exempt from income tax.
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With effect from January 1, 2004, all foreign source income of resident individuals (except if received through a partnership in Singapore) is exempt from Singapore tax.
8.8 Deductions Expenses qualify for deduction only if they are wholly and exclusively incurred in the production of an individual’s income and are not capital in nature and their deduction is not prohibited by statute. Generally, deductions allowable against an individual’s income are limited.
8.9 Personal Allowances and Rebates of Tax Personal reliefs, given as deductions against income, are available to a resident individual depending on their personal circumstances in the year preceding the year of assessment.
8.10 Tax Rates Residents An individual who is a resident of Singapore is entitled to claim personal reliefs as deductions from their assessable income. Only their chargeable income (i.e. assessable income less personal relief) is subject to income tax at the graduated rates of tax as follows:
Year of assessment 2007 onwards Current Chargeable Income (SGD)
Rates (%)
Tax (SGD)
First
20,000
Next
10,000
3.50
350
Next
10,000
5.50
550
Next
40,000
8.50
3,400
Next
80,000
14.00
11,200
Next 160,000
17.00
27,200 42,700
Above 320,000
20.00
Statutory reference:
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Non-residents A non-resident is not entitled to claim personal relief and their income is assessed to tax depending on the types of income.
8.11 Tax Administration Returns and Compliance Forms for the return of income are usually issued in January/February and are required to be completed and submitted to the Inland Revenue by April 15. If such a form is not issued, the onus lies with the taxpayer to obtain the Form and submit it by April 15. Married couples are assessed separately. Assessments are made by way of notices of assessment. Any objection against a notice must be lodged in writing within 30 days from the date of issue of the notice. Except where an extension of time to pay the tax assessed has been granted by the Inland Revenue, the tax is due for payment one month after the date of issue of the notice of assessment. In practice, the Inland Revenue allows the tax to be paid in equal monthly installments. A maximum of 12 installments is allowed.
Termination of Residence An employer is required to notify the Inland Revenue if the expatriate employee ceases or is about to cease employment in Singapore. In addition, they are required to withhold all monies due to the expatriate employee for clearance of the employee’s tax. The notification must be lodged not later than one month before the employee’s cessation of the employment or date of departure from Singapore, whichever is earlier. The employer can only release funds due to the expatriate employee upon receiving permission from the Inland Revenue or until 30 days after notification of the employment cessation was made, whichever is earlier.
CPF The CPF was introduced as a compulsory retirement benefit scheme for employees in Singapore, but it has since been extended to enable members to use the scheme to purchase residential and commercial properties, gold and shares in approved companies, and to pay for certain medical and educational fees. Only Singapore citizens and Singapore permanent resident employees are required to contribute to the CPF. The tax advantages of the CPF include deductions for statutory contributions.
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Supplementary Retirement Scheme (SRS) The SRS, introduced with effect from April 1, 2001, is voluntary and in addition to the CPF scheme. Contributions made by a resident individual to SRS are eligible for tax relief, subject to certain restrictions. In general, investment returns are accumulated tax free within the SRS (with the exception of certain Singapore dividends) until withdrawal, when half of the sums withdrawn will be taxed. However certain premature withdrawal would be subject to tax in full and an early withdrawal penalty. The maximum SRS contribution rate for Singaporeans and Singapore Permanent Residents is 15 percent while the SRS contribution rate for foreigners is 35 percent. Employers are not allowed to make SRS contributions. With effect from October 1, 2008, employers are allowed to make SRS contributions on their employee’s behalf.
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Singapore Asia-Pacific Taxation 2010 Edition
Indirect and Other Taxes
9.1 Social Security Taxes There is no social security tax in Singapore.
9.2 Sales tax / VAT/ GST All goods and services supplied for domestic consumption by a taxable person17 and goods imported into Singapore will be liable to Goods and Services Tax (GST) at the prevailing standard rate of seven percent (effective July 1, 2007) unless they are specifically zero-rated or exempt. Reverse charge on the import of prescribed services is currently suspended in Singapore, as the Finance Minister has not prescribed any imported services that would be subject to reverse charge. Generally, a trader whose taxable turnover exceeds or is expected to exceed SGD one million in a 12-month period is required to register for GST. Where the annual taxable turnover is less than SGD one million, a trader can register for GST on a voluntary basis subject to certain conditions. The GST regime in Singapore is broad-based. Supplies that are exempt from GST are limited to certain financial services and the supplies of residential property. Some examples of exempt financial services are: ● Provision of any loan, advance or credit ● The exchange of currency ● The issue, allotment or transfer of ownership of an equity or debt security ● The provision, or transfer of ownership, of a life insurance contract or the arrangement provision, or transfer of ownership, of any contract of re-insurance. Zero-rating applies to goods exported from Singapore and the performance of international services. A credit offset mechanism exists whereby the registered trader is required to account only for the net GST charged on their supplies after deducting the allowable GST paid/payable by them on supplies made to them. The accounting period for GST is normally the accounting quarter of the registered trader. The option is given for a shorter accounting period of one month. GST returns must be filed within one month from the end of the relevant accounting period. 17
A person who is or is required to register under the GST Act.
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9.3 Customs Duty Singapore is effectively a duty-free port with import duties only on a limited number of items. They are petroleum products, motor vehicles, tobacco products and intoxicating liquors. The rates of duties are either specific or ad valorem. No duties are imposed on exports from Singapore.
9.4 Excise Duty See 9.3.
9.5 Stamp Duty Stamp duty is payable on documents relating to property and shares as described in the First Schedule to the Stamp Duties Act (Cap 312) The rate of ad valorem duty imposed depends on the nature of the documents.
9.6 Property Taxes Property tax is assessed on immovable property and is payable in advance in January by the landowner or the registered leaseholder. It is generally computed as a percentage of the annual value of all houses, land, buildings and tenements. The annual value is the gross amount at which the property can reasonably be expected to be let from year to year having regard to the fact that all outgoings and maintenance are borne by the landlord. With effect from July 1, 2001, the rate of property tax is 10 percent. A concessionary rate of tax of four percent is assessable on the annual value assessed on owner-occupied residential property. With effect from 2011, the flat four percent tax rate for owner-occupied property will be replaced by a progressive tax structure with three tax brackets of zero, four and six percent.
9.7 Payroll Tax The collection of payroll tax was suspended from April 1, 1985.
9.8 Inheritance tax Estate duty was abolished on February 15, 2008.
9.9 Gift Tax There is no gift tax in Singapore.
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9.10 Other Taxes Skills Development Fund Levy The Skills Development Fund (SDF) Levy Act requires every employer to pay monthly SDF levy for each of their employees. With effect from October 1, 2008, SDF levy contribution is payable by employers for all employees up to the first SGD 4,500 of gross monthly remuneration at a reduced levy rate of 0.25 percent or SGD 2, whichever is greater. Remuneration is defined as any wages, salaries, commissions, bonuses, overtime pay, allowances and other benefits paid in cash.
Foreign Workers Levy The foreign workers levy is payable by an employer in respect of the following classes of foreign workers in Singapore: ● Foreign construction workers from non-traditional sources (e.g. Philippines, Sri Lanka, Indonesia and Thailand) ● Malaysian Block Work Permit construction workers ● Non-construction workers (e.g. factory workers, shipbuilding and repairing workers and domestic servants) from non-traditional sources.
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10 Glossary
ACU
Asian Currency Units
ACIE
Approved Container Investment Enterprises
ACIM
Approved Container Investment Manager
AIS
Approved International Shipping Enterprise
AUT
Approved Unit Trust
BM
Bond Market
CFC
Controlled Foreign Company
CFS
Credit Facilities Syndication
CIT
Comptroller of Income Tax
CPF
Central Provident Fund
DM
Derivatives Market
DTAs
Double Taxation Agreements
DUT
Designated Unit Trust
EDB
Economic Development Board
EEBR
Employee Equity-Based Remuneration
EIC
Eligible Investment Company
EM
Equity Market
ERIS
Equity Remuneration Incentive Scheme
FSI
Financial Sector Incentive
GST
Goods and Services Tax
HQ
Headquarters
IE Singapore International Enterprise Singapore IHQ
International Headquarters
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IRAS
Inland Revenue Authority of Singapore
LAT
Prescribed Locally Administered Trust
MAS
Monetary Authority of Singapore
MPA
Maritime and Port Authority of Singapore
NOR
Not Ordinarily Resident
OECD
Organisation for Economic Co-operation and Development
OHQ
Operational Headquarters
PE
Permanent Establishment
QDS
Qualifying Debt Securities
R&D
Research and Development
REIT
Real Estate Investment Trust
RHQ
Regional Headquarters
SDF
Skills Development Fund
SGD
Singaporean Dollar
SMEs
Small and Medium-Sized Enterprises
SRS
Supplementary Retirement Scheme
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11 Useful links Further to the information contained in the preceding sections, information and developments regarding tax laws in Singapore can be obtained from the following web sites:
KPMG Global Tax Web site: www.kpmg.com/tax
KPMG Singapore Web site: www.kpmg.com.sg
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12 Contact For further information, please contact: Owi Kek Hean Executive Director KPMG Tax Services Pte Ltd 16 Raffles Quay #22-00 Hong Leong Building Singapore 048581 Tel: +65 6213 2623 Fax: +65 6224 6461 Email:
[email protected]
The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. © 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved. KPMG and the KPMG logo are registered trademarks of KPMG International, a Swiss entity.
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