Singapore is now one of the most attractive destinations in Asia, for talents, start-ups and businesses. As curious as it can be about the rich and successful neighbor, I took the course of Singapore taxation as part of the CPA program. Singapore is the one country that I could see that the taxation system has been well put in place to govern the country’s economy.
Capital gain nature versus revenue nature
In Singapore taxation system, there is a must to distinguish between income and capital receipts. Income tax is not imposed to capital gain. Only gain in revenue nature, which is the profit gained from your professions, vocation or business is subject to income tax. Investment is served as the platform for business to thrive. Investment in here can be monetary capital, fixed assets, machinery and equipments, IP, R&D cost … on the basis of the recipient’s profit making apparatus. Investors can be ensured that their investment would not be touched, neither any gain in case of disposal.
Following the revenue-expense rule, only expenses that are wholly and exclusively incurred in the production of income should be deducted. However, a certain concessions have been given to take the investment cost into account of the business result. Productivity and Innovation Credit, Capital allowance,… are being put in place to additionally compensate the investor for their investment by the tax saving if they keep carrying on their registered business.
Same at the individual levels, dividends and interest from investment such as debt securities or deposits with approved banks or finance companies, either within Singapore or from overseas is exempted from tax.
Taxation is to support the long-term strategies of the country
Pioneer status, which is equal to tax holidays and tax incentives, is given to businesses being at the center of the developing strategy of the country. The first tax incentives of Singapore was offered in 1959 to both foreign and local enterprises to encourage them to expand or establish their industrial activities in Singapore. From the mid 1960s onwards, the Government began to shift emphasis from developing industries which were driven by domestic or nearby market demand to building up an industrial base with an international export orientation. From 1975, an enterprise in a supporting industry with sophisticated technology and skills is eligible for pioneer status.
When Singapore focused on industrial activities such as the actual production or production of goods and materials, the Industrial building allowances were given for industrial buildings and structures. Later in the day, as this activity is no longer relevant in the current business priority of the country, the allowance is phased out with proper transitional timeline to make sure that all the investments going after the Government’s call is not left aside. To support enhanced land productivity among industrial uses, a more targeted scheme, the land intensification allowance was introduced.
Taking advantages of its location in the South East Sea, Singapore promotes shipping and ship management activities, aiming to become a harbor hub of the region. Income tax is thus exempted from income of approved international shipping enterprises. Singapore also set to become the financial and the start-up hub, a lot of tax incentives and favorable tax treatments are accordingly granted to businesses to attract investment. Catching the globalization trends, M&A allowance has been introduced, equal to 5% of the purchase consideration including any contingent consideration, to encourage companies to consider mergers and acquisitions as a strategy for growth and internationalization.
In order to encourage the productivity and innovation activities in Singapore, the Productivity and Innovation Credit became effective since 2010 and extended until 2017 to encourage business to make more substantial investment to transform their business. The deduction allowable for each qualified activities can go up to 400% of the expenditure. Qualified activities include activities related to the registration and obtaining patents, copyrights, R&D, training. Say, you spend $1 on training your staff, you will be allowed to deduct $4 from your revenue, thus $0.68 of tax liability. This equals to 68% tax saving.
Creating the giving culture
Donation to approved charity and to government will be deducted at 2.5 times of its value. Giving, thus, become a win-win tool for both the giver and the recipient. That is the reason why there are a lot of R&D funds in Singapore, which in turn push forward the productivity and creativity of the whole country. Also, public assets become widely available and accessible to Singaporean citizens and tourists. At the same time, business can cut a significant part of their taxable profit from their P/L.
At the individual level, deduction is given when an individual provides their support to parents, grandparents, spouse, children, siblings. A reasonable level deduction is granted, taking into account the status of the dependent to make sure that the tax payer has enough resource to take care of their family.
Calling for talents overseas
Beside the benefit of working in the developed country with high compensation and many opportunities to climb up, Singapore also provides expatriates with fair support during their stay. Like most of the taxation scheme in the world, there is difference in tax treatment between tax resident and tax non-resident in favor of the tax resident. In order to encourages the overseas staff, the resident rules gives concessions so that the tax residency status is easier to obtain. Typically, one must stay at least 183 days in a year to become tax resident, in Singapore, one can become tax resident if staying 183 days within 2 consecutive years or 3 consecutive years.
Personal Income Tax in the destination country is one of the most concerns when people go to work overseas. From a discussion that I had with a friend, when one holds an Employment Pass in Singapore, they will automatically receive a notice from the IRAS at the year end telling them how much they need to pay for tax. No declaration, no concern, the government takes good care of it for you.
Tax system is easy to access, and so is the IRAS office
Alike most of the developed country, the taxation reporting is Singapore moves from paper-based to computer based. I tried the tax refund machine at the airport and felt like mind blowing. It was so comprehensive and easy to do. Money was transferred to my credit card within 10 days.
If you ever have questions about taxation in Singapore, try its website of https://www.iras.gov.sg/. The website is very helpful, well design and user-friendly.
The Tax Department of IRAS is also very easy to find and access. It has an academic area to train Singaporean taxation. There are a gym area for the staff and a kindergarten for their children. It is true that until you get rid of the concerns about the basic needs that you can focus on efficiency and productivity of your work.