Individual income tax in Singapore

Individual income tax in Singapore forms part of two main sources of Income tax, the other being corporate taxes on companies. Payable on an annual bases, it is currently based on the progressive tax system (for local residents), with taxes ranging from 0% to 20% since Year of Assessment 2007. The Year of Assessment (YA) is based on the calendar year commencing 1 January to 31 December, and is payable on a preceding year basis, whereby taxes payable per year of assessment is based on income earned in the preceding calendar year.

Taxation is based on the source principle, in which only income earned at source, in this case in Singapore, or those derived from overseas but received in Singapore, are taxable. Non-residents receiving income derived from outside Singapore are therefore not subject to tax. This system, however, has the potential in allowing for tax avoidance practises by individuals who derive income from abroad, gain tax exemptions via their non-resident status there, and utilising this income outside Singapore.

Tax rates

Tax rates differ based on the residential status of individuals. A resident is defined by anyone who resides permanently in Singapore, or is physically or receiving employment in the country for over 182 days, unless the taxpayer is a company director. Thus, residents who are on overseas employment for at least six months in a calendar year may choose to be treated as a non-resident in the following year of assessment, a status which may be renewed on an annual basis. Taxpayers who are required to travel overseas for the purpose of their employment in Singapore, or who are deployed overseas by the Government of Singapore for governmental functions are not eligible for this option.

From YA2003, Singapore residents may also opt for the Not Ordinarily Resident (NOR) Scheme, tailored for individuals who travel out of Singapore frequently. These individuals must, however, fulfill two criteria, namely being qualified as a resident during the Year of Assessment, and a non-resident for three consecutive Years of Assessmentimmediately prior to the Year of Assessment in which the application is being filed. Successful applicants are entitled to NOR status for five years commencing from the year of eligibility based on the above criteria, which will then allow the taxpayer to only pay income tax proportionate to the number of days spent in Singapore, and only on the portion earned directly in Singapore. This tax concession is only applicable if the taxpayer is outside Singapore for at least 90 days for business purposes, and taxes payable on employment income in Singapore exceeds 10% of that total income. A NOR taxpayer also enjoys tax exemption on income earned prior to arrival in Singapore. Further more, a non-citizen or non-PR taxpayer will not be taxed for employer contributions to any non-mandatory overseas contribution scheme, such as a pension fund, although the exemption amount is subject to a cap.

Individuals employed by non-resident employers will be taxed for income derived from employment in Singapore, even if the income itself is not paid locally. These individuals may, however apply for area representative status, if all criteria are met, upon which they may be taxed on the remuneration relative to the number of days spent in Singapore. Should the applicant be a Singapore resident, he will be taxed using either system, whichever is higher.

Tax rates for individual residents

Should an individual have an annual chargeable income of S$400,000, for example, his gross tax payable will be S$ [(20,000 X 0%) + (10,000 X 3.5%) + (10,000 X 5.5%) + (40,000 X 8.5%) + (80,000 X 14%) + (160,000 X 17%) + (80,000 X 20%)] = S$58,700 (Average tax rate = 14.7%).

The maximum tax payable went down from 22% in YA2005 to 21% in YA2006, and 20% in YA2007, with the rest of the scale rate adjusted accordingly. This is in line with the Singapore Government's gradual reduction of nominal individual tax rates since the 1980s, a trend similarly observed in other countries. Tax rates ranged from 3.5-33% in 1987, and dropped to a range of 2-28% in 1997. In 2002, it ranged from 0-26%, before dropping further since 2003.

Tax rates for individual non-residents

Non-residents are taxed at a flat rate of 15% (as at 10/09/08) or the resident rates above depending on which results in a higher tax. These taxes do not apply, however, if the said income is for a short-term employment scheme lasting no more than 60 days, unless the tax payer is a director, public entertainer or exercising a profession in Singapore. These professions, who derive income from non-employment sources such as via directorship and consultationary fees, are charged the following:

Taxable income

Interest

Rental

Others

Tax deductions

Only expenses incurred in the course of employment, are not reimbursable by the employer, and are not of capital in nature may be considered for tax deductions. This may include entertainment expenses, traveling expenses (only for vehicles registered for business services, and not including travel to and from work), and subscriptions paid to professional bodies or societies.

Taxpayers enjoy double tax deductions for personal and company donations, but with specific restrictions. Only donations made to a pre-approved list of charities, institutions, or the government for community benefit qualify. Donations may come in the form of cash, shares, computer hardware or software, artefacts of an artistic or heritage nature, and plots of land or buildings.

Donations made prior to 1 January 2005 which involves naming rights will be allowed single tax deduction only. Donations made in which the donar gains the rights to self-advertise are not tax deductible, and will be treated as advertising or marketing expenses. Similarly, donations which are bound for foreign charitable purposes do not qualify for any tax deduction, even if made via approved charities or institutions.

Resident taxpayers also enjoy various forms of tax reliefs which are claimable as tax deductions. They come in various forms, including
*Earned income relief: Relief automatically accorded to each taxpayer up to a maximum of S$1,000 for taxpayers below the age of 55. Taxpayers above this age as well as handicapped persons enjoy higher tax relief.
*Wife/handicapped spouse relief: Claimable for male taxpayers living with and/or supporting their spouses, up to a maximum of S$2,000. Up to S$3,500 may be claimable for a tapayer who's spouse/ex-spouse is handicapped.
*Child relief: There are three types of relief, namely the Qualifying Child Relief, which is claimable up to S$2,000, Handicapped Child Relief, up to S$3,500, and Enhanced Child Relief, claimable up to S$15,000 for female taxpayers filing their tax returns separately, are living separately from their husbands, are divorced, or are widowed. With effect from YA2005, the Enhanced Child Relief is replaced by the Working Mother’s Child Relief, which has a maximum claimable amount of S$25,000.
*Relief for delivery & hospitalisation expenses for 4th child: Aimed towards encouraging larger families, tax relief of up to S$3,000 may be claimable, so long that the expenses were incurred on or before 1 August 2004.
*Parents/handicapped parents/grandparent caregiver relief: Taxpayers who are supporting their parents, and who meet all specific criteria may claim up to S$5,000, or up to S$8,000 should the parent be handicapped. The grandparent caregiver relief comes into effect from YA2005, claimable for up to S$3,000.
*Handicapped brothers or sisters relief: Taxpayers supporting siblings who are handicapped may claim up to S$3,500 for each dependent.

Tax rebates

External links

* [http://www.iras.gov.sg/irashome/default.aspx Information on Individual Income Tax]
* [http://statutes.agc.gov.sg/non_version/cgi-bin/cgi_getdata.pl?actno=2004-REVED-134&doctitle=INCOME%20TAX%20ACT%0a&date=latest&method=part&segid=1073435543-001773#1073435543-001776 Income Tax Act]