While Singapore’s tax policies are friendly enough to both citizens and foreigners, the precise benefits you’ll be getting depend on your tax residency status in the city-state. And in case you’re wondering, it just so happens that tax residents in Singapore enjoy better income tax rates and more tax reliefs than their non-resident counterparts.
Sadly, however, tax residency is not open to everyone. The Inland Revenue Authority of Singapore (IRAS) only awards the privilege to certain individuals and corporations.
Read along to find out the qualification requirements, plus how you can secure tax residency in Singapore as a foreign or domestic individual, or as a company.
Who Qualifies as a Tax Resident in Singapore?
Now, as it turns out, tax residency in Singapore is not exclusive to the city-state’s citizens. Even foreign individuals and companies can successfully register as tax residents. They just need to meet the requirements.
When it comes to individuals, for instance, the IRAS will consider you a tax resident in a particular financial year if:
- You happen to be a Singapore Citizen (SC) or Singapore Permanent Resident (SPR) who only travels out of the country on a temporary basis.
- You happen to be a foreigner who has physically stayed and worked in Singapore for at least 183 days in the calendar year preceding the year in question. Please note, however, that such tax residency status does not extend to company directors.
Now, with that, comes a variety of benefits.
For instance - as a tax resident in Singapore, you can expect an income tax rate of low as 0% on the first S$20,000, 2% on the next S$10,000, and so forth. What’s more, the IRAS allows you to file for deductions and capitalize on various tax relief schemes.
But, if you fail to qualify for tax residency, you’ll be paying an income tax rate of between 15% and 22%. The IRAS charges non-resident employees a flat rate of 15%, or the corresponding resident tax rate - whichever results in a higher amount.
And that only applies to the employment income. Other forms of non-resident income like pension, rental income, and directors’ remuneration attract a tax rate of 22%.
Determining Tax Residency of a Company
Another favorable thing about Singapore’s tax residency is, it doesn’t end with individuals. The IRAS stretches to accommodate even corporations as tax residents.
Then get this. The qualification requirements themselves are pretty straightforward. You’re essentially allowed to register your company as a tax resident if it’s based in Singapore and managed directly from the city-state.
This applies even to foreign companies. That means foreigners can go ahead and secure tax residency for their entities, organizations, societies, and corporate bodies.
But, it doesn’t end there. It’s also possible for non-resident individuals to secure tax residency status for their corporations. You just need to apply for a Certificate of Residence via the IRAS myTax Portal.
Ultimately, when your company’s tax residence status is confirmed, you can use it to:
- Save your foreign company from additional taxation overseas, thanks to Singapore’s Double Taxation Agreements (DTAs). Just present the certificate to tax authorities in participating countries and they’ll immediately exempt you from double taxation.
- Qualify for tax exemption on any new companies that you subsequently set up in Singapore.
- Secure tax exemptions on foreign-sourced service income, foreign branch profits, and foreign-sourced dividends.
Unfortunately, though, such tax residency status is not permanent in Singapore. The IRAS happens to award the certification on a year to year basis. That means you could pay tax as a resident in one year, and then get downgraded to non-resident status in the subsequent financial year.
Now, to avoid such an outcome, you might want to keep the headquarters of your company in Singapore. That’s because the IRAS only qualifies foreign corporations that are managed directly from the city-state.
Criteria for Individuals to be Considered a Tax Resident
For IRAS to officially recognize you as a tax resident in Singapore, you should pass at least one of the following tests:
- Quantitative Test.
- Qualitative Test.
Quantitative Test for Tax Residents
The Quantitative Test fundamentally applies to foreign employees, with the exception of company directors, professional consultants, and public entertainers.
To qualify for the tax residency status, you should either have:
- Physically stayed and worked in Singapore for a minimum of 183 days in the preceding calendar year. For instance - your stay in 2019 should add up to 183 days to acquire tax residency status in 2020; or
- Continuously stayed or worked in Singapore for three consecutive years. Even if you clocked less than 183 days in your first and third years, the IRAS will still grant you tax residency status for all three years - thanks to Singapore’s three-year administrative concession; or
- Worked in Singapore for a period spanning across two calendar years, within which you should have been physically present for a minimum of 183 days. This is known as the two-year administrative concession.
Qualitative Test for Tax Residents
The Qualitative Text, on the other hand, assesses Singapore Citizens (SC) as well as Singapore Permanent Residents (SPR).
Now, for the sake of clarity, SPR refers to foreigners who qualify for permanent residence by virtue of:
- Investing in Singapore.
- Studying in Singapore.
- Holding an Employment Pass or an S Pass.
- Being an aged parent of a Singapore Citizen.
- Marrying a Singapore Citizen.
Whichever category you fall into, the IRAS will grant you tax residency status if you permanently reside in Singapore. And in case you happen to travel out of the country, your absence should be temporary and completely understandable.
Criteria for Entities to be Considered Tax Residents
Your entity can only be considered as a tax resident if it meets the following conditions:
- It happens to be registered as a company, society, fellowship, corporation, or fraternity in the city-state. Singapore’s tax residence status happens to accommodate a wide range of bodies.
- It’s not a sole proprietorship or a partnership. Income generated from sole proprietorships is typically taxed as part of the owners’ personal income. Then when it comes to partnerships, each partner is generally charged individual tax rates on their share of the overall proceeds.
- It’s managed and controlled directly from Singapore. That means all the strategic decisions on the company policies and activities should be made within the city-state. To determine that, the IRAS will, for instance, consider the location of your company’s AGM and Board of Directors meetings.
It’s worth noting, though, that the IRAS usually awards tax residency status after evaluating the factors as they applied in the preceding calendar year. For example - a company can only be considered to be a Singapore tax resident in the year 2021 if its management decisions throughout 2020 were made directly from Singapore.
Where to Start
So there you have it. You can now go ahead and use these pointers to get your Singapore tax residency journey started.
For the best possible outcome, though, consider leaving the technical bits to Wealthbridge’s professional tax experts. They happen to know all there is to know about Singapore’s tax policies, plus all the legal tricks you could apply to secure and maintain tax residency as a foreigner in Singapore.
Also if you are looking for a comprehensive guide to learn more about personal income taxes in Singapore, then read our article here.