singapore-what_is_taxable_for_businesses

What Is Taxable For Businesses (Local)?

1) Annuity (recurring annual payments)
An annuity is a continuous yearly payment, arising from any of the following:
- Annuity policy bought from an insurance company
- Gift or inheritance
- Payment for sale of an asset or surrender of a right

All annuities received in Singapore are not taxable unless they are received from the following sources:
- Partnership
- Supplementary Retirement Scheme
- Annuity policy bought by your employer, in place of a pension or other employment benefits which are payable to you during employment or upon retirement.

Depending on the source of your annuity, you will be taxed on:
- 3% of the total amount you paid for the annuity; or
- Full amount of annuity received if the total amount received is equal to the total amount you paid for the annuity; or 50% of the annuity payouts received from SRS.

2) Business Income
Business income is income derived from carrying on a trade, a business, a profession, or a vocation. Business income is taxable in the sole-proprietor's, partner's, or self-employed person's name. Therefore, a sole-proprietor, partner, or self-employed person who receives this income has to report the income in his individual tax form.
The business income will be added to all other personal income. The total is then subject to personal income tax rates.

3) Charge (alimony/maintenance payments)
Charge refers to income received under a deed or court order in Singapore. Some examples of charge includes:

- Alimony/maintenance payments
- Income from separation deed or order

This income is taxable.

4) Dividends (stocks, Bonds, Unit Trust, etc...)
Dividends are distributions by a company to its shareholders.
It represents returns on shareholder's capital, which may be paid in cash or in kind. For instance, a company may pay its shareholders in the form of company's shares.

Dividends derived in Singapore are taxable unless they are specifically exempted under the Income Tax Act.

Dividends exempt from tax
Dividends are not taxable if they are
- Foreign dividends received in Singapore on or after 1 Jan 2004. This excludes foreign source income received through partnerships in Singapore.

- Income distributions from unit trusts and real estate investment trusts (REIT), that are authorised under Section 286 of the Securities and Futures Act (excludes distributions out of franked dividends) on or after 1 Jan 2004.

- One-tier exempt dividends from companies under the one-tier corporate tax system.

How to report
You need to declare the taxable dividends under 'other income', and the amount of tax deducted (please refer to your dividend vouchers/statements) under ‘Singapore tax deducted at source’ in your tax form.

However, if you hold a Singapore NRIC, the relevant companies paying the dividends will provide information on your taxable dividends to us. You need not declare the dividends (this does not apply to dividends received by joint account holders or where shares are held through nominees).

If you received dividends from joint accounts or shares held through nominees, you need to declare the dividends in your tax form.

5) Employment Income
Employment income refers to gains or profits (whether in money or other forms) you earned from your employment.

Gains or profits from employment may include:
- Salary, bonus,
- Gains from exercise of stock options
- Retrenchment and retirement benefits

Salary
Salary is the payment (whether in money or other form) you received or was granted for services you provided to your employer.

Bonus
You may receive contractual and/or non-contractual bonus from your employment. Bonuses subject to income tax but are taxed at different points in time as explained below:

Contractual
Contractual bonus is payable according to the terms stated in your employment contract. It is treated as income of the year you gave your services, as specified in the contract.

This is regardless of when your employer pays you the bonus.

Example
Contractual bonus (e.g. 13th month bonus) is payable for services you provided in year 2006 as stated in your employment contract. You were paid the bonus in Mar 2007.

This contractual bonus will be taxable in Year of Assessment 2007 as 2006 is the year of service it is paid for.

Non-contractual
Non-contractual bonus is payable at the discretion of your employer. It is treated as income of the year in which your employer announced that it's payable.

This is regardless of when your employer pays you the bonus.

Example
If your employer announced in Dec 2006 that a non-contractual bonus is payable to its employees, this bonus is taxable in Year of Assessment 2007. This is regardless of when your employer pays you the bonus.

Director's fee
Your director's fees will be treated as income of the year in which they become due and payable. That is, your director's fee is deemed to be your income on the date they are voted and approved at the company's annual general meeting.

Commission
Commission is a payment you received for services you provided. It is taxable and must be reported in your tax form.

Other employment income
Other employment income may include allowances and benefits-in-kind given by your employer.
Allowances

You may receive transport allowance, meal allowance and etc. from your employment. They are taxable.

Benefit-in-kind
Generally, it refers to benefits provided by your employer in place of cash. They are taxable.

Salary in-lieu of notice/notice pay
Payment in lieu of notice to compensate you for early resignation or early termination of contract is taxable.

They are not deductible against your employment income. You cannot claim them as employment expenses.

Find out more about allowances and benefits-in-kind.

How to report
You need to declare all your employment income including allowances, benefits-in-kind and all other gains or profits from employment (before deduction of CPF contribution) under 'employment income' in your tax form.

If your employer participates in the auto-inclusion scheme, you do not need to declare your employment income. Your employer will send us your income details.

If you have more than 1 employment. You only need to declare your employment income from employer who does NOT participate in the auto-inclusion scheme.

You do not need to declare your employment income from employers who participate in the auto-inclusion scheme. These employers will send us your employment income details electronically. We will automatically include the income details in your assessment when we finalise your assessment subsequently.

Gains from exercise of stock options
As an employee, you may receive

Employee Share Option (ESOP)
An employee who is granted share options by an employer is subject to tax on any gains or profits arising from the exercise of the share option. This also applies to any other person who is granted share options as a result of any office held by him (e.g. a director or an external auditor).

Other Forms of Employee Share Ownership (ESOW) Plan
ESOW plans are plans that allow an employee of a company to own or purchase shares in the company or in its parent company. They include share awards and other similar forms of employee share purchase plans (excluding phantom shares and share appreciation rights).

Retrenchment & Retirement benefits
As an employee, you may receive
- Retrenchment benefits when your employer no longer needs your services; or
- Retirement benefits when you reached your retirement age.

Retrenchment benefits
Retrenchment benefits are payments given by employers to compensate for the loss of employment. Payments to compensate employees for the loss of employment are not taxable as they are capital in nature.

When is it taxable
Some employers may pay their employees lump sum payments that consist of payment for loss of employment and other payments that are taxable.

If you received any payments (such as salary in-lieu of notice, gratuity, ex-gratia and etc.) apart from the payment for loss of employment, they will be subject to tax.

You need to declare the full amount of retrenchment benefits under "employment - others" in your tax form.
If your employer is one of the participants of the auto-inclusion scheme, your employer will let us know the amount of your retrenchment benefits. You do not need to report the retrenchment benefits in your tax form.

Retirement benefits
All retirement benefits including gratuities and pensions are taxable unless they are specifically exempted under the Income Tax Act.

Retirement benefits are not taxable if they are received from the following tax exempt pension schemes/funds:

- Government pension schemes under any written law relating to pensions in Singapore (including the Pensions Act, Singapore Armed Forces Act and Parliamentary Pensions Act).
- CPF/designated funds.
- If you participate in existing approved pension and provident funds, the retirement benefits accrued from such funds up to 31 Dec 1992 will remain tax-exempt. The tax-exemption will apply when they are paid out on the date of retirement based on the statutory retirement age.

When is it taxable
If you receive the retirement benefits from existing approved pension and provident funds
- Before retirement
You are taxable on the total amount of retirement benefits received. You are not eligible for the tax exemption.
- After retirement
You are taxable only on funds accrued from 1 Jan 1993 to date of retirement. The funds will be taxed at the time the benefits are received.

6) Estate/Trust Income
Estate/trust income are income received in Singapore, from an estate under administration or a trust. These income are taxable.

Beneficiary of Estate Income

Non-Resident Beneficiary
If you are a non-resident beneficiary of an estate, tax on your share of income distribution will be paid by the personal representative of the estate.

Resident Beneficiary
When the personal representative of an estate distributes income from an estate under administration, the source of the income has changed. In the hands of the beneficiary it is a distribution of estate income. Therefore tax exemptions applicable to individuals do not apply to income derived from estates that are still under administration.

Income distribution from an estate is taxable on the beneficiary in the year he/she receives it and not the year the income is accrued to the personal representative.

Beneficiary of Trust Income

Non-Resident Beneficiary
If you are a non-resident beneficiary, tax on your share of entitlement or income distribution will be paid by the trustee of the trust.

7) Gains From Sale of Porperty (Real Estate)
Gains from sale of property
Generally, the gains derived from the sale of a property in Singapore is not taxable as it is a capital gain.

When is it taxable
When a person is deemed to be trading in properties, the gains from the sale of property in Singapore is income and it is taxable. As to whether a person is deemed to be carrying on a trade, it depends on the circumstances of that individual.

To determine if a person is trading in properties, IRAS applies a set of guidelines known as the "badges of trade". There are criteria under the badges of trade and IRAS considers all facts of each case to determine whether the gains are taxable.

Examples of the criteria are as follows:
- Frequency of transactions (buying and selling of properties)
- Reasons for acquiring and selling of property
- Financial means to hold the property for long term
- Holding period

Gains from sale of shares & financial instruments
Generally, profits or losses derived from the buying and selling of shares or other financial instruments on your own account are viewed as personal investments.

Capital gains are not subject to tax. If you buy and sell shares or other financial instruments at a profit, the profit is not subject to tax.

When is it taxable
To determine whether an individual is trading, factors such as the frequency and volume of transactions, the interval between the purchase and sale, and the manner of financing the purchase of shares, will be taken into consideration.

8) Income Receive Outside Singapore
Generally, overseas income received in Singapore on or after 1 Jan 2004 is not taxable. These include overseas income paid into a Singapore bank account.

You do not need to declare overseas income that is not taxable.

When is it taxable
Overseas income is taxable in Singapore if...
- It is received in Singapore through partnerships in Singapore.
- Your overseas employment is incidental to your Singapore employment. That is, as part of your work here, you need to travel overseas.
- You are employed outside Singapore on behalf of Government of Singapore.

9) Interest Income
Interest received from deposits with approved banks or licensed finance companies in Singapore on or after 1 Jan 2005 is not taxable.

You do not need to declare interest that is not taxable.

Interest from the following sources is taxable
- Deposits with non-approved banks
- Deposits with finance companies not licensed in Singapore
- Pawnshops
- Loans to companies, persons etc.

10) Pensions
Pension is a payment made to an individual after his retirement.

Government pensions
The full sum of government pensions received in Singapore is exempt from tax if you are a Singapore tax resident.

Pensions from approved pension schemes
The amount of pension accrued up to 31 Dec 1992 in the approved funds in Singapore is exempt from tax if you retired at the normal retirement age stated in the pension or provident funds/schemes.

You will be taxed on that part of the pension paid out of contributions made to the funds after 31 Dec 1992.

For instance, if there was $100,000 in your pension fund as at 30 Dec1992 and your ex-employer made another payment of $100,000 to your pension fund on 3 Mar 1993, amounts paid out of the second $100,000 is taxable.

You need to declare the taxable pensions under 'employment - others' in your tax form.

11) Rental Income From Property (Real Estate)
Rent received from the letting of property in Singapore is subject to income tax, while your property is subject to property tax. Your rental income includes rent of the premises, maintenance, furniture and fittings. After deductions for allowable expenses (such as property tax), the net amount is taxable.

Gross rent - Total allowable expenses = Net taxable rent

For jointly owned property
The rental income is taxed on all the joint owners based on their share in the property. It does not matter which party receives the rent or whether the owners paid for the property.
This also applies to rental loss. The rental loss is apportioned to joint owners based on their share in the property.

12) Royalty
Royalty is the income received for the right to use:
- Copyrights
- Patents
- Trademarks and etc.
- Royalty earned in Singapore is taxable.

Royalty is earned in Singapore if It is paid directly or indirectly by a person resident in Singapore or by a permanent establishment in Singapore. It is deductible against any income earned in or derived from Singapore.

Tax concession
To qualify for the tax concession, the royalties must be received for :
- any literary dramatic, musical or artistic work: or
- approved intellectual property or approved innovation
- If you qualify for the tax concession, you wll be taxed on the lesser of :
- amount of royalties after allowable deductions; or
- 10% of the gross royalties.
- The tax concession does not apply to royalties or payment received for any work published in any newspaper or periodical.

13) Withdrawal from Supplementary Retirement Scheme (SRS)
You can withdraw funds from your SRS account any time. Withdrawals can only be made in cash. However, the time of withdrawal determines the taxable amount of the sum withdrawn. For early withdrawal, a 5% penalty will be imposed.

You can withdraw your SRS monies over 10 years from the date of your first penalty-free withdrawal. Withdrawals are penalty-free only if they take place after the statutory retirement age that was prevailing at the time of your first SRS contribution. The statutory retirement age for all SRS members is currently at 62.

Spreading out your withdrawals will generally result in greater tax savings.

Under the Income Tax Act, where an SRS member dies, any sum standing in his SRS account shall be deemed to be withdrawn ('Deemed withdrawal' amount) on the date of his death even though no physical withdrawal may have been made on that day.

Last Updated: 08 November 2008