Taxes in Singapore
Each nation on the planet has its taxation practices and laws in place to facilitate and fund government processes and activities. These taxes, however, can easily determine the comfort or discomfort of residing in that particular nation whether its property, personal or corporate taxes. This is not necessarily an aversion to paying taxes by both the native community or the foreigners living and working or conducting business within any country. Rather, taxes can easily affect incomes and revenues, putting more financial pressure on already strained budgets and, in some cases, making daily survival or business operations unsustainable. Let’s take the time to closely explore the two general taxes in Singapore i.e. Corporate Tax and Personal Income Tax to better understand how competitive Singapore is when it comes to creating a conducive business environment.
Singapore Corporate Tax
Singapore is one of the world’s most tax-friendly countries. There have even been claims by tax authorities in other nations such as the US that the country’s tax-haven status puts their investment prospects at a disadvantage. Revenue authorities in Singapore have opted to promote an investor-friendly environment as opposed to levying higher taxes for government income generation. The effect of such an approach has worked to the tax collector’s advantage since the country has since experienced a massive upsurge in foreign investor capital. Corporate tax is at a globally-low rate of only 17% which is far removed from other nations like the US at 21%, Australia at 25% and others like Japan that are at an all-time high of 32%, almost double that of Singapore. It’s no surprise therefore that investors often opt for the country over other global economic powerhouses where their businesses would still thrive.
Singapore Personal Income Tax
Income tax is often the biggest earner for state coffers due to the high number of employees in both the private and public sectors. Again, Singapore takes the lead with the lowest personal income tax of only 22%. The United States levies a much higher 37% while Canada and Japan are at the extreme with 54% and 56% respectively. Considering that income for all these developed nations is generally similar, Singapore automatically leaves the ordinary working-class people with more disposable income by a very wide margin. For workers who are eligible for all these countries to migrate and settle, Singapore becomes the choice destination without hesitation.
Property Taxes & Duties
Authorities in Singapore are pro-homeownership. The government has always made concentrated efforts to ensure sanity in the real estate trade through a series of legislations, support schemes and duties such as the Zero Capital Gain Tax and the Zero Tax Levies on Estates and Inheritance both of which encourage more investment into Singapore property.
- Zero Capital Gain Tax
The zero capital gain tax on all sales of properties is a move which automatically reduces the retail price of real estate very significantly. Property prices are also kept in check effectively with several measures that work to the advantage of the procurer.
- Zero Tax Levies on Estates and Inheritance
In addition to the zero capital gain tax, Singapore offers absolutely ZERO tax levies on Estates and Inheritances. Regardless of the fortune or properties left behind by a deceased, the state wants no part of it from the benefactors, a fact which has made it the most ideal place to amass wealth in for ordinary individuals and entrepreneurs from all over the globe. In contrast, other developed countries with similar economic statuses as Singapore have hefty taxes for estates and inheritances. The US, for instance, levies a solid 40% and yet it is not even the heftiest. Rather, Japan takes the lead with a resounding 55% tax with Canada following closely behind at about 50% although with slightly less-than-direct criteria.
Over the years, Singapore has also adopted several strict policies to control against speculation in property trades which in turn ensures long term sustainability. This was achieved through the introduction of timely cooling measure to prevent the market from overheating such as;
1) The Additional Buyer’s Stamp Duties (ABSD)
The ABSD, which is basically a ‘discouraging’ tax, is aimed at preventing property price hikes which would take the prices of properties beyond the reach of many first time homeowners. It is levied on subsequent property purchases to discourage multiple-property ownership.
However, there are exceptions for foreigners whose Nationalities and/or Permanent Residencies are of the following countries:
United States of America (only Nationality)
These group of foreigners enjoy the same treatment as Singapore Citizen and they are entitled to apply for a remission of the ABSD, subject to approval.
2) The Seller’s Stamp Duties (SSD)
To further discourage property hoarding as well as subsequent and ridiculous mark-up-and-resale practises, Singapore also introduced the Seller’s Stamp Duties (SSD) effective on all properties purchased. The duty is levied on any property that is bought on or after 11 March 2017 and then re-sold within the holding period which is three years from the date of initial purchase. The duty varies depending on the nature of the property and its initial acquisition criteria as well as the purpose of disposals such as divorce liquidation or estate disposal.
3) Loan to valuation (LTV)
Singapore authorities have also put in place the Loan to valuation (LTV) measure which is meant to curtail the value of a property that citizens can acquire by allowing lending institutions to only provide a part of the property’s value (usually 75%). The measure, however, remains friendly to first-time homeowners who only have to pay about 25% of the total property value whereas those purchasing a second property can only secure less than half the total value.
The chart below gives a cursory summary of the existing cooling measure.
ERA Research, July 2018
Evading the Bubble; Singapore’s Genius Measures
While the cooling measures may not seem so attractive to current homeowners wishing to add more properties to their name, they have effectively maintained sanity in the real estate trade as intended by the authorities. Other countries that have left the industry to deal with market forces without any government interference have since felt the nasty effects of the bubble.
According to the 2019 Report of the UBS Global Bubble, Hong Kong has been hit hard by the property bubble after real estate prices were left to soar unchecked. Singapore’s property on the other hand remains fair-valued which indicates that the country’s efforts in keeping the property price in check have been very effective so far. The stark contrast between real estate performances between the two countries took shape sometime after 2010 with the key differences between the two being the government intervention (or lack of it in the case of Hong Kong). While real estate prices have shot up considerably in the Chinese metropolitan city, Singapore properties have firmly stood their value-ground, giving first-time homeowners a fighting chance in the race to acquire residential and commercial properties.
In retrospect, the ABSD is not peculiar to Singapore alone. It is an international practice that is aimed at safeguarding local property values against speculative tendencies from profiteering individuals with lots of disposable income. While other countries may not have effective controlling measures like Singapore, they indeed levy additional taxes and duties on foreigners purchasing properties as well. In Hong Kong, it is pegged at 25% while British Columbia and Canada are closely behind, both at 25%. Other countries, however, charge almost half as much which has somehow hurt property values in the long run such as the UK and the New South Wales whose duties are pegged at about 12% and 8% respectively again. The ABSD is, therefore, a welcome measure that keeps real estate affordable for everyone regardless of income brackets as well as maintains a stable environment that is conducive for both foreign and domestic investment without fear of escalating property values.
Navigating Annual Property Taxes
Once you have acquired your property, the next obligation to pay attention to is the Annual Property Tax. This is simply calculated by multiplying your property’s annual value with the applicable Singapore Property Tax rate. The annual property value itself is based on an estimation of the gross annual rent of the property were it to be rented out, excluding furniture, furnishings and maintenance fees. It is determined based on estimated market rentals of similar or comparable properties and not on the actual rental income received.
For instance, a homeowner whose property’s annual value is $20 000 with an applicable rate of 10% will pay $20 000 X 10% = $2000 yearly. The property tax, however, differs depending on whether you are living in the property yourself or renting it out. Let’s just take a look at both scenarios for a quick comparison;
- Case 1: Property Taxes when living in your property
This is the best arrangement as far as tax rates are concerned because the owner enjoys the less hefty owner-occupier tax rates. It is common for standard houses and flats. Assuming your property’s annual value is $45 000, only $37 000 will be charged at 4% which is the lowest band (The first $8000 is exempted). You will therefore fork out $37 000 X 4% = $1 480 annually.
- Case 2: Property Taxes for rented-out properties
Taxes for rented out categories are much higher due to the addition of income tax on top of the regular property tax.to start with there is no exemption value at all and the full value of the property is taxed on a graduated scale starting from the first $30 000 @ 10% then 12% for the next $15 000. For the same property value of $45 000 as in Case 1, tax will be charged as $30 000 X 10% + $15 000 X 12% = $4 800. This is much higher than the own-use tax by almost a factor of 4. This type of tax is common for apartment buildings and rental condos.
The Inland Revenue Authority of Singapore advises property owners to pay their taxes through the GIRO facility which offers homeowners a lot of benefits from convenient services, easy refund processing up to interest exemptions and deductions on tax instalments. Those who choose not to use the facility are however obligated to pay their property taxes on or before the 31st of January each year. The authority would have mailed the tax bill to the registered address by December 31 to allow some room for property owners to prepare and process their payments.
To conclude, it is worth noting that Singapore is just about the only developed nation that has effectively managed to keep real estate values in check over the past decade despite fluctuations in economic performance. The country’s ability to successfully avoid being in the bubble zone can be mainly attributed to its strict enforcement of a series of cooling measures which have managed to fend off speculators both from within and abroad. As such, the prospects of real estate are quite bright and members of the working class can feasibly look forward to acquiring their first property without having to fork out fortunes or risk foreclosure due to erratic property prices.