The Inland Revenue Authority of Singapore (IRAS) administers the tax system in Singapore. It acts as an agent of the Government and provides services in administering, assessing, collecting, and enforcing payment of taxes.
Foreign investors are subject to the following taxes in Singapore:
1. Withholding Tax
The one-tier corporate tax system was introduced by the Ministry of Finance through its 2002 budget. Taking effect on 1 January 2003, the one-tier system replaced the prevalent tax imputation system.
The IRAS had introduced a 5-year transition period during which all companies had to adopt the one-tier tax system. According to the IRAS, the following companies got transferred automatically to the one-tier tax system:
(i) A resident company with no section 44 balances as of 31 December 2002, taking effect on 1 April 2003.
(ii) All new companies incorporated on or after 1 January 2003.
a. Dividends
A full imputation system is, however, adopted whereby the tax payable by the
company on its corporate profits is passed on as tax credits to its shareholders upon
payment of dividends. Normally, under the tax imputation system there are no
reclaims by foreign investors. However, investors with domestic income tax exposure
may be eligible for rebates if their marginal tax rate is less than the corporate income
tax rate of 18%. Under the one-tier corporate tax system, income tax payable on the
normal chargeable income of a company is a final tax in Singapore. This means that
shareholders will not be taxed on such dividend income. Only companies on the
one-tier corporate tax system can issue one-one-tier exempt dividends.
b. Interest
A withholding tax is imposed on interest paid to non-Singapore tax residents. The withholding tax rate is 15% (a final tax) for interest earned by non-Singapore tax residents not engaged in business in Singapore or having a permanent establishment in Singapore. This rate is further reduced by the Double Tax Agreements (DTAs) between Singapore and the resident country of foreign investors. In cases where relief is sought under the DTAs, a Form IR585 must be submitted to the IRAS. However, interest earned by such non-residents from deposits with an approved Singapore bank is free from withholding tax.
The government of Singapore has announced the extension of the period for tax incentives for the debt market for an additional 5 years until 31 December 2013 for QDS, issued by an approved bond intermediary, or any Singapore financial institution. This would include SGS issued during the period from 28 February 1998 to 31 December 2013.
2. Corporation Income Tax
Resident companies are taxed in Singapore on income accruing in and derived in Singapore. From assessment year 2008, the rate of corporation income tax is 18%.
3. Capital Gains Tax
There is no capital gain tax (CGT) for listed and traded equity shares and fixed-income securities in Singapore, although gains from certain transactions may be deemed as revenue in nature and subject to corporate income tax. Certain gains from the sale of shares in private real property companies may also be considered revenue gains.
4. Double Taxation
Singapore has double taxation treaties with 69 countries. Double taxation agreements in place can be found on the IRAS website.
295. Goods and Services Tax
Effective 1 April 1999, a GST on domestic consumption was introduced. The tax is paid when money is spent on goods or services, including imports. It is a multi-stage tax, which is collected at every stage of the production and distribution chain. The current GST rate is 7%.
Also, transaction charges and custody fees are subject to GST. However, non-resident investors are exempt from GST.
6. Tax Reclaim
Tax reclaim services are not provided in the Singapore market as there is no withholding tax component for dividend payments. An 18% corporate tax on the company’s gross profit will be automatically deducted from clients entitled dividends.
For interest payment on corporate bonds or government bonds, there is a general 15% withholding tax applied on non-resident investors.
Clients can directly file for a tax reimbursement, depending on the DTA rates, from the IRAS. IRAS has already put in place an efficient tax reclaim process.
29 Inland Revenue Authority of Singapore. http://www.iras.gov.sg/irasHome/page.aspx?id=812
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There are no standard forms for the reclaims. As a usual market procedure, the client can write directly to IRAS, for instance at the end of the year, giving details of all the payments eligible for the reduced tax rate.
Custodian banks and other intermediaries may aid investors in the filing of tax reclaims, depending on legal and service level agreements between the parties.
7. Stamp Duty
A stamp duty is imposed on commercial and legal documents relating to shares and immovable property.
For the registration of shares held in the physical form, a stamp duty of SGD10 is applicable for registration with no change of beneficial ownership, and 0.2% of the share price multiplied by quantity and foreign exchange conversion, if applicable.
This is then rounded up to the nearest hundred for registration with a change of beneficial ownership.
Transfer taxes in the form of government stamp duties are payable by registered stockholders at the rate of SGD0.20 per SGD100 of Singapore shares.
308. Regulatory and Tax Information Summary
Table 2.3 summarizes some of the key tax treatments and regulatory considerations for easy reference.
Table 2.3 Summary of Regulatory and Tax Information
Items SGS Bills SGS Bonds Corporate Bonds
Restrictions on Foreign Investment None None None
Capital Gains Tax None None None
Custodian
Local Investors MEPS+
Participating Banks
MEPS+
Participating Banks
Central Depository Pte. Ltd
Foreign Investors MEPS+
Participating Banks
MEPS+
Participating Banks
Depository Agent Interest Income and Withholding Tax
All Retail Investors None None None
Resident Institutional Investors 10% 10% (If SGS issued after 28 February
1998)
10% (If QDS)
Non-Resident Institutional Investors None None None
Trading Income Tax
Financial Institutions 10% (Primary Dealers are exempted) 10% (Primary Dealers are exempted) 18% (5% for FSI-BM companies) FSI-BM = Financial Sector Incentive-Bond Market; MEPS+ = MAS Electronic Payment System Plus; QDS = qualifying debt securities; SGS = Singapore government securities Source: Monetary Authority of Singapore.
30 Deutsche Bank AG. 2009. Direct Securities Service Market Guide–Singapore.