Singapore Tax Guide For Professionals:
An Executive Summary

This is an introductory guide for Professionals, linking in to our full Singapore Fact-File. If you'd rather dive right in to the Fact-File, you can use the navigation on the right of this page, or start from the Singapore home page.

Business Formation: In terms of business format, some types of professional are bound by the rules of their profession, and have to use partnerships. But more and more, you can choose to form a partnership or a limited company, which may help with liability. Most professionals have to be appropriately qualified or licensed. Companies have to register with the Accounting and Corporate Regulatory Authority (ACRA), although the process itself is fairly painless. All businesses also have to register for tax and licenses are required across a wide range of activities. Limited companies do have to report annually, but smaller companies don't have to be audited. And remembering that the only two certainties in life are death and taxes, inevitably you'll have to make annual tax returns, whether you're a limited company or not. Smaller businesses don't have to submit much in the way of accounting information with their tax returns, but as you get bigger, it gets more arduous. And of course if you take on staff, life becomes more complicated!

Basis of Domestic Taxation: The only really important decision for a professional is whether to be taxed as an individual trader or as a company, and if you are obliged to work in a partnership then there is no choice in the first place. Due to the territorial basis of taxation in Singapore the differences are often quite small anyway. Individuals pay up to 20% on employment income; the self-employed pay the same, but can deduct a wide range of business expenses. Incorporated companies pay 17%, and incentives can make a big diffference to the final bill, especially for a start-up company. Husbands and wives can't play too many games, but if you employ your spouse, it is deductible for profits tax purposes. Capital gains tax in Singapore is at the same rate as income tax, so the usual game of trying to turn income into capital is not particularly interesting. But with tax rates so low, it's not much of an issue. Residence doesn't much affect taxation: with territorial taxation, what matters more is if you have a permanent establishment (fixed place of business). If there's one aspect of your business on which you should consider taking paid-for advice, it's probably the tax structure. It's so important to get it right at the beginning!

Basis of International Taxation: A professional firm usually has a static location, and you'll trade from there. If you're selling services to corporates overseas it can be complicated because the foreign country may take a bite out of your returns, called withholding tax. Then you have to turn to double tax treaties to try to get the money back; luckily Singapore has lots of them and more are on the way. If you set up a branch in a foreign country, you need to try to avoid the 'permanent establishment' trap, and you may get bogged down in local VAT. If you send staff - or yourself - to work in foreign countries you need to think hard about their tax situation in advance, both in respect of local income taxation and perhaps because of withholding tax.

Tax-Efficient Structures: With very low corporate and individual tax rates, there appears to be not much need for exotic structures to minimize tax. But if you think that 17% is still too much tax to pay then there is a case to be made for locating your business in an out-and-out low-tax, 'offshore' jurisdiction, especially if you are eventually planning to retire somewhere out of Singapore. As yet, there are no 'CFC' rules in Singapore, so that profits made in such places can stay there. Singapore has its own trusts legislation, but offshore structures are often useful for asset protection reasons as well, and anti-avoidance law has not gone nearly so far in Singapore as in, for example, the UK. Non-resident contractors meaning to trade in Singapore can also use offshore structures, as long as they avoid the 'permanent establishment' trap.

Incentive Programmes: Singapore is extremely welcoming to new and incoming businesses, unlike most other jurisdictions, and there are a number of support schemes operated by various levels of government, offering loans, direct grants and assistance. Some of the schemes are particularly useful for start-up businesses. Although not many of them apply to professionals, it is well worth investigating what's on offer. However, the saying: 'He who sups with the devil needs a long spoon' comes to mind. The schemes are well-intentioned, no doubt, but they can be intensely bureaucratic, with very intrusive qualification procedures, and a long 'tail' of reporting requirements.

Employing People: Many businesspeople will just tell you: 'Don't do it'. 'Marry in haste; repent at leisure', they say, and it was never so true than when it comes to employment. Don't kid yourself that employees will feel that they owe you anything. Today's workers, encouraged by a slew of anti-business legislation, and the general nannying attitude of government, often feel that the world owes them a living, although it must be said that Singapore is far better than many countries in this respect. Many employers of course bring problems on themselves by treating employees as little better than slaves. If you do need staff try as hard as you can to use contractors (ie self-employed people) rather than employees. The tax authority has plenty to say about that, of course, so if you are left with no choice, realize that you will have to provide details of your employees to the tax authority, operate compulsory social security schemes, and conform with local employment law, albeit that is much more liberal than elsewhere in the world. Of course, there are plenty of exceptions to these rather sweeping generalizations. Lucky you if you find some!

Pensions, Social Security, Health Care and Insurance: Meaning, for the professional herself. Singapore is quite as prescriptive in this respect as most advanced countries and social security contributions are quite high. Central Provident Fund rules apply both to employees and the self-employed, although for the latter only in respect of health-care. Most professionals will probably want to find tax-efficient ways of making provision for their pensions. It's important to separate these from your business itself, in case of failure. If you have it in mind to retire to somewhere else, then the time to start is now, in terms of building up a pension away from the grasp of the tax authorities, although individual tax rates in Singapore are not very high in any case.

Living Internationally: Perhaps you plan to live out your life as a respected and contented member of your local community. The salt of the earth, one might say, if that's not patronising. But some people will find themselves drawn intentionally or otherwise to an international existence, doing business and/or living in other countries. There are many challenges: apart from the difficulty of arranging your tax affairs satisfactorily, there are the problems that go along with property ownership, education of your children, international removals, health care and pension provision, just to take some of the more obvious issues. Of course no one can predict the future with any certainty, but there are all too many stories of people who have trapped themselves in the wrong investment in the wrong currency in the wrong place, with multiple taxmen on their backs. Most such problems are avoidable, with forethought.

Introductory Guides

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Part 1: Singapore Business Formation for Individuals

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