Singapore Tax Policy Explained
With the existence of technology and mobile devices, it’s easier than ever to work from anywhere. Singapore’s Tax Policy simplifies tax filing for a diverse workforce and businesses embracing remote work. After all, these modernisation changes were sped up by the 2020 pandemic, making the notion of a truly mobile and remote workforce a reality. But this diverse workforce and business model may lead to confusion when filing tax returns of Foreign Income Tax, whether at the corporate or individual level. Singapore adheres to the principle of not taxing foreign-sourced income, meaning income earned overseas and not in Singapore.
For example, foreign companies with no local footprint in Singapore can remit their foreign income to a Singaporean bank without being taxed. The same principle also goes to non-resident individuals, referring to those who stayed in Singapore for less than 183 days. Such practices encourage foreigners and foreign businesses to utilise Singaporean banks and management firms.
You might also be interested in the guide to taxes for freelancers and self-employed persons.
If you’re a Singapore company or a resident, the rules explained above don’t apply. If your income was received in Singapore, meaning it was remitted, transferred, or brought into Singapore, it would be taxed. Foreign income used to settle business debts held in Singapore will also be subject to tax. Lastly, the taxable foreign income also includes movable property, such as equipment and raw materials brought to Singapore.
There are a few instances where your foreign income can be exempted from being taxed, even if you’re a resident or a Singaporean company. When your income has already been taxed by the foreign jurisdiction where it originated, you no longer need to pay taxes in Singapore. This is known as the “subject to tax rate” condition.
Another instance is when the highest corporate tax rate of the foreign jurisdiction was at least 15%. For example, a dividend from a corporation based in Hong Kong, where it’s taxed at 16%, would not be taxed once the dividend is received in Singapore. This is known as the “foreign headline tax rate” condition.
Starting in the year 2024, an update to the Singapore Tax policy will implement a change to the income tax rate for non-resident individuals. The rate will be increased from 22% to 24%, aiming to achieve consistency with the top marginal income tax rate for resident individuals. This adjustment aligns with Singapore’s ongoing efforts to uphold fairness and equality in its tax policy.
If your overseas income does not meet the above criteria, your income is still taxable in Singapore. But there is a tax credit available for any tax you did pay overseas. So, let’s say you’re a Singaporean company with an interest income from a subsidiary in Malaysia; the income is already taxed in Malaysia. You qualify for a tax deduction based on the tax paid in Malaysia when you pay your taxes to the Singaporean government.
There was a previous update to the Singapore Tax policy last 6th November 2021, wherein companies will need to provide written notice in cases where the amount of Foreign Tax Credit exceeds the appropriate limit due to a downward adjustment of foreign tax paid in another country.
Related Reference: A Beginner’s Guide to Singapore’s Goods and Services Tax (GST)
Foreign income that’s not earned or transferred to Singapore is most likely tax-free. However, if you’re a Singaporean company or a resident, your foreign transferred income to your bank will most likely be taxed, according to Singapore’s Tax Policy.
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