Last updated on 7 de April de 2023
Singapore is one of the most prosperous countries in the world, and one of the most desirable destinations for expats. We do an in-depth analysis of taxes in Singapore.
Content
- Introduction
- Cost of Living
- Taxes on Earned Income
- Capital Income Taxes
- Sales Tax
- Stamp Duty (Real Estate Transfer Tax)
- Corporate Tax
- Singapore Public Finances
- Conclusion
Introduction
Singapore is one of the most successful countries in the world. In just a few decades, it has gone from being a very poor country to leading multiple rankings on prosperity, quality of life, and innovation.
The key to this success has been a legal and tax framework that is very conducive to economic development: attracting investments and talent, promoting savings, and long-term planning.
Taxation in Singapore have been meticulously planned to build the type of country that its officials wanted to develop.
Singapore uses its own currency, the Singapore Dollar (SGD), which is one of the strongest currencies in the world. Throughout this analysis, we will use an approximate exchange rate of $1 = €1 = SGD 1.50.
Cost of Living
Singapore is not a cheap country. However, according to WorldData.info, gross salaries in Singapore are significantly higher than in the United States and most European countries. And because the tax burden is significantly lower, net salaries are much higher.
As a result, the standard of living that Singapore can offer us is substantially better than in most other places on the planet.
At the same time, Singapore offers a wide range of public services to its population. Consequently, these lower tax rates do not translate into poorer and fewer public services but are the result of greater efficiency.
Taxes on Earned Income
Like in most developed countries, income from work is subject to payments to the social security and income taxes:
Social Security
The Social Security in Singapore is managed by the Central Provident Fund Board (CPFB). The CPFB is a savings and pension plan for citizens and residents of Singapore. It is responsible for managing the country’s financing needs in the areas of retirement, health care and housing.
A very interesting fact about the money contributed to the CPFB is that most of it is saved and can be invested. This means that what we pay in terms of Social Security contributions is not intended to pay the current retirees, but to capitalize our own pension for the future. And they offer us multiple investment possibilities including cash deposits, stocks, bonds, ETFs, and even physical gold.
In addition to that, the money we have saved in the CPFB can also be used to finance the down payment on a home. And, if we leave Singapore at some point in the future, we can take our savings with us. Consequently, the money is not necessarily locked up until retirement.
The contributions to Singapore’s Social Security system are paid by both the worker and the employer.
It should be mentioned that the first two years we live in Singapore, our payments to the CPFB will be lower than usual. From the third year onwards, we will pay the same as the country’s nationals.
The maximum amount of salary on which we will pay social security is SGD 72,000 ($48,000/€48,000). Although, if we receive a bonus at the end of the year, this maximum base can increase to SGD 102,000 ($68,000/€68,000).
The following table shows social security rates in Singapore, as well as the maximum amounts that can be paid:
It is worth noting that the rates indicated in this table are applicable to those workers aged 55 or less. Rates are lower for those over 55, 60 and 65. For example, the worker’s rate (for the third year and later) is reduced from 20% to 13%, 7.5%, and 5%, respectively.
Income Tax
Income tax in Singapore follows a progressive structure and has the following rates:
- 0 to 20,000 SGD ($0-$13,333/€0-€13,333): 0%
- 20,000 to 30,000 SGD ($13,333-$20,000/€13,333-€20,000): 2%
- 30,000 to 40,000 SGD ($20,000-$26,667/€20,000-€26,667): 3.5%
- 40,000 to 80,000 SGD ($26,667-$53,333/€26,667-€53,333): 7%
- 80,000 to 120,000 SGD ($53,333-$80,000/€53,333-€80,000): 11.5%
- 120,000 to 160,000 SGD ($80,000-$106,667/€80,000-€106,667): 15%
- 160,000 to 200,000 SGD ($106,667-$133,333/€106,667-€133,333): 17%
- 200,000 to 320,000 SGD ($133,333-$213,333/€133,333-€233,333): 18%
- More than 320,000 SGD (More than $213,333/€213,333): 22%
Additionally, the first 12,550 SGD ($8,367/€8,367) of income is tax-free, regardless of what we have to pay according to income tax calculations.
As you can see, the income tax brackets in Singapore are significantly more attractive than those found in most developed countries.
Total Tax Burden on Earned Income
The best way to analyze the total level of taxation on labor income in Singapore is to compare the employee’s net salary with the employer’s total cost.
The following table indices the total level of taxation depending on the employee’s salary in Singapore. The calculations have been made for a person who has been living in Singapore for 3 or more years, is 55 years old or younger and receives a bonus.
Remember that we would pay less taxes in our first two years in the country, if we are over 55, or if we received all the compensation as regular salary:
What is the difference between total and real taxation in the table? Total taxation includes all payments made to the country’s social security. This means we only take into account what the employee has received as net salary.
However, remember that social security payments, made to the CPFB, are mostly savings in the name of that individual. This is very similar to a pension plan. With the additional advantage that it can be used to purchase a home or take with us if we leave the country. As a result, these social security contributes cannot really be considered taxes.
If we consider payments made to the CPFB to be a forced savings vehicle, we will see that the percentage of real taxation is much lower. Especially for those with low and medium incomes, whose taxes are insignificant.
Another way to analyze these numbers is to invert them. We look at the percentage the worker receives from the money spent by the employer:
As you can see, Singapore’s tax structure has two fundamental characteristics:
First, income taxes in Singapore are low. The percentage that goes to the government is insignificant for low- and middle-income earners. Even for high income earners, the level of taxation remains very attractive.
Secondly, all workers are forced to save a very substantial percentage of their income. This makes most of the population accumulate savings in the long term.
Capital Income Taxes
Another way to make money is through income from savings and investments, and these receive a very favorable tax treatment in Singapore. As you will see, the Asian country is not only an ideal place to build wealth but also to keep it:
Dividends and Interest
In almost all cases, tax residents in Singapore do not pay taxes on the dividends and interest received. This is valid whether the income comes from within the country or abroad. And it does not matter if it comes from a company we control, a listed company, a foreign government bond, or a bank account.
Capital Gains
Realized capital gains from our investments are also tax-exempt. It does not matter where they come from: financial assets, real estate, precious metals or cryptocurrencies.
The only situation in which we would have to pay taxes on our capital gains in Singapore is if, on a regular basis, most of our income comes from buying and selling real estate in the country. In that case, the government considers that we are not just investors, but carrying out a business activity.
Rental Income
Net rental income is the only type of capital income subject to taxes in Singapore.
Net rental income can be calculated as the gross rent received minus all deductible expenses (insurance payments, repairs, mortgage interest, fees, etc.) or simply by taking 85% of the gross rent. We can choose the option that is most beneficial to us.
The taxable amount is subject to the same income tax rates as income from work, which can be as high as 22%.
Sales Tax
Sales Tax or VAT is known as Goods and Services Tax (GST) in Singapore. It is applicable to almost all products and services. GST is only 8%, a significantly lower percentage than in most developed countries
Real estate, financial services and exports are exempt from GST.
Stamp Duty (Real Estate Transfer Tax)
If there is an area in which Singapore does impose considerable taxes is in the purchase of a home. This is intended to discourage large fortunes from accumulating a substantial amount of real estate in the country. After all, Singapore is a small country in terms of land.
The amount of Stamp Duty to be paid in Singapore depends on the price of the property, the nationality of the buyer, and whether the buyer is a resident of Singapore.
All buyers pay the BSD (Buyer’s Stamp Duty), while some pay the ABSD (Additional Buyer’s Stamp Duty). The following table shows the total tax paid, based on the property’s value:
As you can see, based on the price of the property, a citizen with Singaporean nationality will pay between 1% and 4% in taxes, a non-national resident between 6% and 9%, and a non-resident foreigner between 21% and 24%.
Finally, it should be noted that taxes are higher for Singaporeans and foreign residents if they wish to purchase additional homes. The maximum rate for this type of transactions would be 19%.
Corporate Tax
The general corporate tax rate in Singapore is 17%. This rate is very attractive compared to other developed countries. Also, remember that dividends are not taxed, so there is no double taxation.
At the same time, the corporate tax rate for small businesses is lower than 17%. This is because 75% of the first 10,000 SGD ($6,667/€6,667) of profit are exempt from taxation, and 50% of the next 190,000 SGD ($126,667/€126,667) too. And on the resulting amount to be paid, a 25% reduction will be applied, up to 15,000 SGD ($10,000/€10,000).
Finally, startups have special conditions. In this case, the first 100,000 SGD ($66,667/€66,667) of profits have a 75% exemption, and the next 100,000 SGD a 50% exemption. And again, a further 25% reduction on the amount to be paid will be applied, up to 15,000 SGD.
To better understand the effective corporate tax rate for small businesses in Singapore, let us look at the following table:
Given there is no tax on dividends, these corporate tax rates represent the entire level of taxation to which corporate profits are subject.
Singapore Public Finances
Before concluding this analysis, we will briefly discuss the state of Singapore’s public finances.
According to data from the CIA World Factbook, Singapore’s level of public debt ended 2020 at 153% of GDP. This level may seem high, but we must understand why this debt has been issued.
The truth is that the Singaporean government has no net debt. The country’s assets are significantly larger than its debt. The debt issued is intended to make it possible for local and international investors to carry out credit risk-free investments denominated in Singapore Dollars. In fact, the government is not allowed to finance public spending with debt.
Until 2019, all money was used to carry out financial investments, mainly in the fixed income market. Since then, the government may also consider investing part of those proceeds in developing the country’s infrastructure.
Conclusion
Singapore is one of the most attractive countries in the world from a tax point of view. This small Asian country knows where it wants to go and what type of activities it wants to promote. For this reason, Singapore is an ideal place to work hard, start a business, make money, save, and invest.
If you are considering moving there, you will probably not regret it. And remember that Singapore has one of the most important international airports in the region.
If you liked this analysis of taxes in Singapore, I encourage you to subscribe to my newsletter:
Clear Finances
And if you want to learn about the tax structure of another interesting country, check out the following link:
Taxes in Switzerland – A Complete Guide
Comments are closed.