This country-specific Q&A provides an overview to tax laws and regulations that may occur in Singapore.
This Q&A is part of the global guide to Private Client. For a full list of jurisdictional Q&As visit http://www.inhouselawyer.co.uk/practice-areas/private-client-2nd-edition/
Which factors bring an individual within the scope of tax on income and capital gains?
Generally, tax on income is charged on –
- income accruing in or derived from Singapore ("Singapore-sourced income"); and
- income received (or deemed received) in Singapore from outside Singapore ("foreign-sourced income").
An individual is exempt from income tax on certain types of Singapore-sourced investment income, including dividends paid by Singapore-incorporated companies and interests derived from specified investments. All foreign-sourced income is tax exempt for individuals (excluding income received through a partnership in Singapore).
As Singapore's income tax regime is source-based, factors such as residence, domicile, nationality and citizenship do not, each on their own, give rise to tax liability, although residence and nationality / citizenship may affect tax rates, availability of reliefs, exemptions and treaty benefits.
On the other hand, locations of assets and economic activity relate directly to the source of income and are, therefore, factors for determining tax liabilities.
Singapore does not impose tax on capital gains. Nevertheless, gains from disposal of assets and properties can give rise to income tax liabilities if they are considered revenue (as opposed to capital) in nature. The test to determine the revenue / capital dichotomy is found exclusively in case law – it consists of the overarching enquiry of the taxpayer's intention to trade upon acquisition of the asset / property, and the interplay of various factors including length of holding period, circumstances of disposal, inter alia.
What are the taxes and rates of tax to which an individual is subject in respect of income and capital gains and, in relation to those taxes, when does the tax year start and end, and when must tax returns be submitted and tax paid?
As set out at Question 1, Singapore does not tax capital gains.
An individual resident in Singapore for tax purposes is subject to income tax at progressive rates between 2% to 22%. For non-resident individuals, different rates of tax apply to different categories of income - e.g. employment income is taxed at 15% or progressive resident rates, whichever is higher; director fees are taxed at 22%. If in the course of employment the taxpayer is granted rights to acquire shares (i.e. an employee stock option or share ownership plan) in the employer, the rights are deemed employment income and subject to tax at the time of grant, exercise or vesting (where applicable).
Income is taxed on a preceding year basis – individual income tax is filed annually between March and April in relation to income earned from 1 January to 31 December of the preceding year. Generally, individuals can enjoy up to 12 months interest-free instalments to pay up their income tax bills.
A Singapore Citizen or Permanent Resident employed in Singapore is required to pay monthly contribution to the Central Provident Fund – a compulsory comprehensive social security system. The rates of contribution by the employee are between 5% to 20% of wage, depending on his / her age.
Are withholding taxes relevant to individuals and, if so, how, in what circumstances and at what rates do they apply?
Certain income paid to non-resident recipients is deemed Singapore-sourced and subject to withholding tax. Of particular relevance to a non-resident individual recipient are –
- Income of a non-resident professional attributable to certain services rendered in Singapore is subject to withholding tax at 15% of gross income or 22% on net income, if the income is borne by a Singapore establishment.
- A director's remuneration received from a Singapore establishment is subject to withholding tax at 22%.
Depending on the tax residence of the recipient, the above-said withholding tax obligations may be modified by a tax treaty between Singapore and the jurisdiction of residence. Singapore has in force over 80 comprehensive tax treaties.
Is there a wealth tax and, if so, which factors bring an individual within the scope of that tax, at what rate or rates is it charged, and when must tax returns be submitted and tax paid?
Singapore does not impose any wealth tax.
Is tax charged on death or on gifts by individuals and, if so, which factors cause the tax to apply, when must a tax return be submitted, and at what rate, by whom and when must the tax be paid?
Singapore does not impose any estate tax or gift tax.
Are tax reliefs available on gifts (either during the donor’s lifetime or on death) to a spouse, civil partner, or to any other relation, or of particular kinds of assets (e.g. business or agricultural assets), and how do any such reliefs apply?
As set out at Question 5, there is no tax on gifts in Singapore.
Do the tax laws encourage gifts (either during the donor’s lifetime or on death) to a charity, public foundation or similar entity, and how do the relevant tax rules apply?
Donations made to approved institutions of public character ("IPC") or the Singapore Government for causes that benefit the local community are eligible for 250% tax deduction. IPCs include charities, universities, hospitals, public or private funds for the establishment of education or scholarships, etc.
How is real property situated in the jurisdiction taxed, in particular where it is owned by an individual who has no connection with the jurisdiction other than ownership of property there?
Generally, stamp duties are charged on conveyance or transfer of any interest in real property in Singapore. In a typical residential property transaction, these three types of stamp duties are payable –
- Seller's Stamp Duty ("SSD") – SSD is payable if the property was acquired after 20 February 2010 and sold within the specified holding period (e.g. for properties purchased on or after 11 March 2017, the holding period is 3 years). SSD ranges from 0-16% on the value of the property, depending on the dates of purchase and sale.
- Buyer's Stamp Duty ("BSD") – BSD is charged at up to 4% of the property value.
- Additional Buyer's Stamp Duty ("ABSD") – ABSD is charged in every residential property transaction save for Singapore Citizens purchasing their first properties. ABSD rates range from 5% (for a Singapore Permanent Resident purchasing his / her first property) to 25% (for an entity purchasing any property). A foreigner purchasing any residential property would be liable for ABSD at 20% on the property value.
Property tax is charged on the annual value of every immovable property at progressive rates ranging from 0 - 20%, depending on –
- the annual value band applicable to the property;
- whether the property is residential or non-residential;
- whether the property is owner-occupied.
Annual value refers to the gross amount at which the property can reasonably be rented out for a year. Valuation of properties is determined by the revenue authority. Neither the chargeability nor the rates of tax is affected by the residence, nationality or citizenship of the owner.
Are taxes other than those described above imposed on individuals and, if so, how do they apply?
Goods and services tax ("GST") at 7% is levied on all taxable supplies of goods and services made in Singapore by a registered business and on the importation of certain classes of goods.
Is there an advantageous tax regime for individuals who have recently arrived in or are only partially connected with the jurisdiction?
An individual having in Singapore recently can benefit from the Not Ordinarily Resident ("NOR") scheme, if –
- He / she is a Singapore tax resident for that year; and
- He / she is not a Singapore tax resident for the three consecutive years immediately preceding that year.
An NOR taxpayer can enjoy tax concessions under the scheme for five years from the year in which he / she first qualifies for the scheme. The concessions are –
(a) The taxpayer would not be subject to tax on the portion of employment income corresponding to time spent outside Singapore for business reasons.
(b) Remittances of income earned prior to relocating to Singapore would be tax exempt.
(c) Employer's contribution to non-mandatory overseas pension fund or social security scheme would be tax exempt.
What steps might an individual be advised to consider before establishing residence in (or becoming otherwise connected for tax purposes with) the jurisdiction?
As set out at Question 1, residence does not, on its own, give rise to tax liability in Singapore. Singapore-sourced income and foreign-sourced income received in Singapore are, prima facie, subject to tax in Singapore.
Nevertheless, on acquiring tax residence in Singapore, the individual may consider making use of the NOR scheme set out at Question 10.
What are the main rules of succession, and what are the scope and effect of any rules of forced heirship?
Singapore law imposes few restrictions on testamentary freedom save for in respect of Muslims domiciled in Singapore, whose testamentary disposition is subject to the Administration of Muslim Law Act read with principles of the school of Muslim law professed by the testator.
A non-Muslim is generally free to dispose of his / her assets and properties by making a valid Will, subject to a claim under the Inheritance (Family Provision) Act. In the absence of a valid Will, the following rules or priorities of succession prescribed in the Intestate Succession Act will apply –
- If the intestate dies leaving a spouse (but without surviving children or parents), the spouse will be entitled to the whole estate.
- If the intestate dies leaving a spouse and children, the spouse will be entitled to half of the estate, and the children the other half of the estate to be divided equally.
- If the intestate dies leaving a spouse and parents (but without surviving children), the spouse will be entitled to half, and the parent(s) the other half, of the estate.
- If the intestate dies without surviving descendants, subject to the rights of the surviving spouse, the parents will be entitled to the estate in equal shares.
- If there are no surviving spouse, descendants or parents, the estate will be distributed equally among the intestate's brothers and sisters (or their children if they are deceased).
- If there are no surviving spouse, descendants, parents, brothers and sisters or their children, grandparents of the intestate will take the estate in equal shares.
- If there are no surviving spouse, descendants, parents, brothers and sisters or their children or grandparents, the uncles and aunts of the intestate will take the estate in equal shares.
- In default of the above, the estate will go to the Singapore Government.
Under the Inheritance (Family Provision) Act, a spouse or child of a non-Muslim testator may apply to the court for provision for maintenance if reasonable provision for the dependant is not made under the Will or the intestate rules.
Is there a special regime for matrimonial property or the property of a civil partnership, and how does that regime affect succession?
The Women's Charter governs the division of matrimonial property. The courts have broad powers to order division / sale of matrimonial property upon legal termination of a marriage, with the final outcome depending largely on facts.
Subject to exceptions, a Will is revoked by the testator's marriage. A divorce, on the other hand, does not revoke a Will. Where an individual dies without a valid Will, the surviving spouse will be entitled to a share of the estate pursuant to the Intestate Succession Act.
Civil partnership is not a recognised legal concept in Singapore.
What factors cause the succession law of the jurisdiction to apply on the death of an individual?
Generally, under Singapore law, succession of movable assets (such as bank accounts) is determined by the law of the testator’s domicile at the time of demise, while succession of immovable assets is governed by the law of the jurisdiction where the immovable assets are located.
Accordingly, Singapore law applies to the succession of –
- Testators dying domiciled in Singapore in respect of their movable assets;
- Testators dying anywhere in respect of their Singapore-sited immovable assets.
How does the jurisdiction deal with conflict between its succession laws and those of another jurisdiction with which the deceased was connected or in which the deceased owned property?
As set out at Question 14, generally, succession of movable assets (such as bank accounts) is determined by the law of the testator’s domicile at the time of demise, while succession of immovable assets is governed by the law of the jurisdiction where the immovable assets are located. Regarding the formal validity of Wills, Singapore law would regard a Will as valid so long as its execution complies with the internal law of the system it follows.
Singapore courts have not had the opportunity to examine at length the application of renvoi in the context of succession laws. Based on English case law, it is generally thought that the doctrine would apply to succession issues.
In what circumstances should an individual make a Will, what are the consequences of dying without having made a Will, and what are the formal requirements for making a Will?
An individual with assets and properties in Singapore (particularly real property in Singapore) and an individual domiciled in Singapore should consider making a Will to help ensure his / her estate would be distributed according to his / her intentions. Having a Will could also help avoid disputes between potential beneficiaries of the estate.
In the absence of a valid Will, the estate of an intestate will be disposed of in accordance with the rules or priorities of succession under the Intestate Succession Act.
A Will would be regarded validly made if it is made in writing, signed by the testator with at least two witnesses present and subscribed by those witnesses in the presence of the testator.
How is the estate of a deceased individual administered and who is responsible for collecting in assets, paying debts, and distributing to beneficiaries?
For an individual dying with a valid Will, the executor(s) appointed in the Will would apply for a grant of probate in respect of the estate of the deceased. The executor(s) derives his / her authority to deal with the estate of the deceased (i.e. including collecting in assets, paying debts, and distributing to beneficiaries) from the grant of probate.
For individuals dying intestate, the courts may appoint an administrator by a grant of letters of administration. The grant entitles the administrator to deal with the estate of the deceased (i.e. including collecting in assets, paying debts, and distributing to beneficiaries).
Do the laws of your jurisdiction allow individuals to create trusts, private foundations, family companies, family partnerships or similar structures to hold, administer and regulate succession to private family wealth and, if so, which structures are most commonly or advantageously used?
The most commonly used structure for succession planning is trust. Under Singapore law, trusts are primarily governed by the Trustees Act and case law, which largely follows English case law. There are tax incentives catered to foreign and local trusts – under the relevant tax incentive, trust income derived from designated investments are tax exempt.
Private trust companies ("PTC") are also commonly used to act as trustees of family trusts. Subject to conditions, PTCs are exempt from the licensing requirement commonly imposed on commercial trust companies.
Partnerships are rarely used for succession planning in Singapore.
Given that foundations are a civil law concept, private foundations are not available as a succession planning tool in Singapore – a common law jurisdiction.
How is any such structure constituted, what are the main rules that govern it, and what requirements are there for registration with or disclosure to any authority or regulator?
In practice, generally an express trust is constituted when the settlor and the trustee execute a trust deed establishing the trust. No registration is required and information relating to the trust is protected by confidentiality under the Trust Companies Act – the public has no access to information relating to the trust. On the other hand, professional trustees are required to comply with reporting obligations under the Common Reporting Standard; they may also be obliged to produce trust information to the revenue authority if a valid Exchange of Information request is made by a treaty partner for information relating to a specific taxpayer.
For companies constituting a part of a structure –
- The identities of shareholders, directors and company secretary are accessible by the public;
- Companies are required to maintain a register of beneficial owners and to make the information available to public agencies upon request. However, the information will not be made publically available.
What information is required to be made available to the public regarding such structures and the ultimate beneficial ownership or control of such structures or of private assets generally?
How are such structures and their settlors, founders, trustees, directors and beneficiaries treated for tax purposes?
The settlor of a trust is generally not subject to tax in relation to income of the trust. Trust income is, in the first instance, chargeable to tax in the hands of the trustee at 17%. In addition –
- For a non-resident beneficiary, tax assessed at the trustee level represents the final tax – the beneficiary would not be liable to tax in respect of his / her share of entitlement to the income of the trust.
- For a resident beneficiary, where Singapore revenue is satisfied that the beneficiary may be regarded as being 'entitled to' a share of trust income, the said share may be taxed in the hands of the beneficiary. In such circumstances, the beneficiary may benefit from any exemptions, concessions or foreign tax credits available to him / her under the income tax regime.
Further, trusts administered by Singapore trustees may benefit from tax incentives catered to foreign and local trusts – under the relevant tax incentive, trust income derived from designated investments are tax exempt.
Are foreign trusts, private foundations etc recognised?
Given that foundations are a civil law concept, private foundations are not available as a succession planning tool in Singapore.
A trust governed by foreign law is recognised in Singapore.
How are such foreign structures and their settlors, founders, trustees, directors and beneficiaries treated for tax purposes?
The tax treatment for trusts, their settlors, trustees and beneficiaries are set out at Question 20. There is no distinction in tax treatment solely on account of the fact that the trust may be regarded as a foreign trust, save for the foreign trust incentive catered to trusts with settlors / beneficiaries who are foreigners.
To what extent can trusts, private foundations etc be used to shelter assets from the creditors of a settlor or beneficiary of the structure?
If a trust is properly constituted, assets of the trust are generally regarded as belonging to the trust and sheltered from claims by creditors of the settlor. This is because the settlor no longer has any interest in the trust assets. However, where the settlor has extensive reserved powers under the trust, such said powers could render the trust vulnerable to attacks by creditors.
For a beneficiary with a fixed interest in the trust, his / her share may be vulnerable to attacks by his / her creditors as his / her beneficial interest is regarded as his / her property from the trust's inception. A discretionary beneficiary, on the other hand, is not generally regarded as having legal ownership in assets of the trust – an attack mounted by his / her creditors would be less likely to succeed.
However, the courts have powers to, among others, set aside –
- any conveyance of property into a trust made with the intent to defraud creditors; and
- any disposition of property made with the object of reducing the amount of maintenance payable or depriving the spouse of rights to the property.
Private foundations are not available as a wealth planning tool under Singapore law as the foundations are a civil law concept.
What provision can be made to hold and manage assets for minor children and grandchildren?
Typically, discretionary trusts are used to hold and manage assets for minor children / grandchildren – the children may be set up as discretionary beneficiaries or a class of beneficiaries under the trust. There is no special tax treatment for trusts set up for minors.
Are individuals advised to create documents or take other steps in view of their possible mental incapacity and, if so, what are the main features of the advisable arrangements?
Individuals can consider creating a Lasting Power of Attorney ("LPA") to appoint donees for the management of his / her personal welfare and / or property affairs in the event of loss of mental capacity. The LPA is a creature of the Mental Capacity Act. For the LPA to be valid, it must be registered with the Public Guardian.
What forms of charitable trust, charitable company, or philanthropic foundation are commonly established by individuals, and how is this done?
In Singapore, charities are commonly established as charitable purpose trusts or companies limited by guarantee. Philanthropic foundations are a civil law planning instrument and are, accordingly, not available as a vehicle for establishing charities.
To establish a valid charitable purpose trust, the purpose of the trust must fall within one of four categories, i.e. for the relief of poverty, advancement of education, advancement of religion or other purposes beneficial to the community.
Charities in Singapore are required to be registered, and subject to regulation under, the Charities Act.
What important legislative changes do you anticipate so far as they affect your advice to private clients?
Changes to tax incentive schemes
Several tax incentive schemes catered to the trust and wealth management industry are up for review by 31 March 2019.
Structures constituted / approved for purposes of existing schemes prior to 31 March 2019 can continue to benefit thereunder. Families and individuals who wish to take advantage of the schemes should act swiftly.
Singapore Government is expected to announce further tax incentives to support growth of the wealth management industry in the upcoming Budget 2019.
Variable Capital Company ("VCC")
A new corporate vehicle tailor-made for funds, known as the VCC, was introduced in 2018. The VCC may issue / redeem shares at net asset value without shareholder approval, as well as pay dividends out of capital. It is also possible to re-domicile a similar structure to Singapore under the VCC framework.
It is widely expected that a tax incentive catered to the VCC will be introduced in 2019.