FTC CORPORATE & TAX ADVISORY PTE LTD 22 FEBRUARY Copyright 2012 FTC Corporate & Tax Advisory Services

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1 FTC CORPORATE & TAX ADVISORY PTE LTD 22 FEBRUARY

2 TAX TEAM MEMBERS : FRANKIE TAN, CPA SINGAPORE, LLM (QUEENSLAND), ACCREDITED TAX ADVISOR (INCOME TAX & GST) NAH EE LING, CPA SINGAPORE, ACCA, ACCREDITED TAX PRACTITIONER (INCOME TAX & GST) TEN DAN LING, ACCA, BSC (HONOURS) JERRICK ZHOU, ACCA 2

3 FTC CORPORATE & TAX ADVISORY Established years First client 1984, the Jebsen & Jessen Group in SEA. Still our client today, 28 years! ACCA Gold Star Award since 1996 to now (16 years) signifying that training in the firm meets ACCA s definition of best practice. Gold Star Award validated and renewed every 2 years. (1996 to 2013) Member (since 1992) of MSI Global Alliance with 9,500 lawyers and accountants in 300 offices located in 105 countries with combined annual firm revenues of US$1.39 billion. 3

4 FTC do: CORPORATE ADVISORY SERVICES Corporate Restructing including Amalgamations, Return of Share Capital, Issuing Preference Shares, etc. Advise on company structures and incorporation, liquidation, and routine company secretarial services. TAX ADVISORY SERVICES include Tax Appeals and Tax Rulings, Notices of Objection to Tax Assessments, Transfer Pricing Audits and Documentation, GST tax issues and Property Tax issues. 4

5 BASIS OF TAXATION Territorial basis Employment Income is taxable in Singapore only when Singapore source An income may also be taxed in Singapore if it is deemed to be taxable in Singapore - this applies mainly to unearned income such as royalties, interest, licence fees, etc. 5

6 Tax statutes takes money away from the taxpayers, therefore the courts generally interpret tax statutes strictly such that : A person is not to be taxed unless the words of the statute clearly impose a tax upon him This means no tax can be imposed on anyone without the words in an Act of Parliament clearly imposing the tax. [Russel v Scott (1948) AC 422]. When tax is imposed on you, always check the charging provisions in the tax statute. Where the meaning of a provision imposing tax is ambiguous, the taxpayer must be given the benefit of the doubt. [Wilcox v Smith (1857)] 6

7 There is no equity in taxation There is no room for equitable considerations (fairness or justice) in construing a tax statute a taxpayer is either caught by a taxing provision or he is not. If a person sought to be taxed comes within the letter of the law, he must be taxed, however great the hardship [Cape Brandy Syndicate v IRC (1921) 12 TC]. This makes compliance with the tax laws very technical. If a tax statute provides for 30 days to lodge a Notice of Objection, the taxpayer must make sure the Notice of Objection reaches the IRAS by the deadline. Even if the Comptroller grants an extension, the tax statute may not provide for an extension, so the extension may be invalid! 7

8 Charging provisions under the Income Tax Act for taxing your employment income : Charge of income tax - Section 10(1) (1) Income tax shall, subject to the provisions of this Act, be payable at the rate or rates specified hereinafter for each year of assessment upon the income of any person accruing in or derived from Singapore or received in Singapore from outside Singapore in respect of : (a)gains or profits from any trade, business, profession or vocation.(selfemployed) (b)gains or profits from any employment; (c)... deleted; (d) dividends, interest or discounts; (e) any pension, charge or annuity; (f) rents, royalties, premiums and any other profits arising from property; and (g) any gains or profits of an income nature not falling within any of the preceding paragraphs 8

9 Charging provisions under the Income Tax Act for taxing your employment income : Charge of income tax - Section 10(2) (2) gains or profits from any employment means (a) any wages, salary, leave pay, fee, commission, bonus, gratuity, perquisite or allowance,, paid or granted in respect of the employment whether in money or otherwise; (b) the value of any food, clothing or lodging provided or paid for by the employer; (c) the annual value of any place of residence provided by the employer (d) any sum standing to the account of any individual in any pension or provident fund or society.. 9

10 Charging provisions under the Income Tax Act for taxing your employment income : Employment exercised in Singapore Section 12(4) The gains or profits from any employment exercised in Singapore shall be deemed to be derived from Singapore whether the gains or profits from such employment are received in Singapore or not. 10

11 Charging provisions under the Income Tax Act for taxing your employment income : Income derived by short term visiting employees Section 13(6) There shall be exempt from tax any income accruing in or derived from Singapore in respect of gains or profits from any employment exercised in Singapore for not more than 60 days in the year preceding any year of assessment by a person who is not resident in Singapore in that year of assessment. Employees, not self-employed 11

12 SOURCE OF EMPLOYMENT INCOME Employment exercised in Singapore Section 12(4) The gains or profits from any employment exercised in Singapore shall be deemed to be derived from Singapore whether the gains or profits from such employment are received in Singapore or not. The key words are employment exercised in Singapore - taxable regardless of where the employment contract is signed, where the remuneration is paid and where the employer is located (i.e. an overseas employer). 12

13 SOURCE OF EMPLOYMENT INCOME A foreign company may send his foreign employee to Singapore to render services or for training - the employee has a taxable income from a Singapore source for that period. Double tax treaties usually have provisions to settle these issues. An employee who travels outside Singapore in the course of his duties is still substantially exercising his employment in Singapore and the travel days are taxable as a Singapore source unless he qualifies for NOR tax status. 13

14 ILLUSTRATING TERRITORIAL BASIS OF TAXATION DUAL EMPLOYMENT CONTRACTS Dual employment contracts are a possible arrangement for an employee who exercises his employment in 2 different locations. The 2 locations must have a territorial basis of taxation. Singapore s Income Tax Act has anti-avoidance provisions to block artificial arrangements. 14

15 ILLUSTRATING TERRITORIAL BASIS OF TAXATION DUAL EMPLOYMENT CONTRACTS The dual employment contracts must : Provide valid commercial reasons for one person exercising 2 employments; Set out in detail the 2 different commercial activities; Set out in detail the 2 different work duties without any overlapping of job functions; Clearly delineate the geographical territories to be covered by the duties. The services outside Singapore must be for the benefit of the non-singapore employer; the services performed in Singapore must be for the benefit of the Singapore employer. The remuneration for the employment in each location must be reflective of the time spent, the duties performed and the benefits to each employer. The salary expenses, travel and other costs of the non-singapore employment must not be charged back, directly or indirectly, to the Singapore employer. 15

16 EXEMPTION FROM INCOME TAX Exemptions for individuals All foreign-sourced income remitted or deemed remitted into Singapore by resident individuals (on or after ) exempt from tax if the Comptroller is satisfied the tax exemption would be beneficial to the taxpayer. All foreign-sourced income remitted or deemed remitted into Singapore by non-residents. Interest received (on or after ) by any individual (resident or non-resident) from deposits with approved banks or finance companies in Singapore. Any dividends (paid on or after ) by any company tax resident in Singapore. 16

17 EXEMPTION FROM INCOME TAX Also (a) any income from any life insurance policy; (b) any subsidy, allowance or benefit provided to an employee for the employee s child to attend a licensed childcare centre; (c) contributions at statutory rates to CPF or approved pension or provident fund; (d) contributions to approved mandatory overseas contribution scheme; (e) contributions to nonmandatory overseas contribution scheme, subject to NOR cap. Conditions Apply. 17

18 SUPPLEMENTARY RETIREMENT SCHEME ( SRS ) Reduces current year tax payable contributions up to SRS cap amount (2011 S$12,750 for citizens & PRs; S$29,750 for foreigners). Limits on tax deduction apply to NORs. Employers can make SRS contributions for employees tax deductible for employers SRS funds can be used for investment products Withdrawals taxable in year of withdrawal tax deferral* Only 50% of the sum withdrawn are taxable tax benefit Tax benefits for withdrawals only if withdrawals are made after statutory retirement age (or at least 10 years from year of contribution for a foreigner leaving Singapore). * At tax rate in year of withdrawal 18

19 TAX ADMINISTRATION Tax year runs 1 January to 31 December Assess and tax in following year (Year of Assessment) Income earned in 2012 taxed in 2013 No pay as you earned (PAYE) Finalised normally July to Nov Installments allowed 19

20 RESIDENT Employment income taxed at average tax rate of 10.37% for taxable income of S$200,000 Personal Reliefs NON RESIDENT Employment income taxed at HIGHER OF 15% OR RESIDENT RATE No Personal Reliefs 20

21 Some Definitions : resident in Singapore (a) in relation to an individual, means a person who, in the year preceding the year of assessment, resides in Singapore except for such temporary absences therefrom as may be reasonable and not inconsistent with a claim by such person to be resident in Singapore, and includes a person who is physically present or who exercises an employment (other than as a director of a company) in Singapore for 183 days or more during the year preceding the year of assessment Quantitative Test ** Qualitative Test For the purposes of this Act, where an individual is present in Singapore for any part of a day his presence on that day shall be counted as one day. In this Act, for the avoidance of doubt, a reference to the spouse of a person means a spouse who is of the opposite sex to that person. 21

22 TAX RESIDENT VS NON-RESIDENT WHO ARE TAX RESIDENT? Singaporean; Singapore Permanent Resident; A foreigner who has stayed or worked in Singapore for 183 days or more in the year preceding the Year of Assessment 22

23 TAX RESIDENT VS NON-RESIDENT WHO ARE NON-RESIDENT? You are considered a non-resident for a particular Year of Assessment if you are a foreigner who stayed or worked in Singapore for less than 183 days in the previous year 23

24 2-YEAR ADMINISTRATIVE CONCESSION If you are here for at least 183 days straddling two years, you will be regarded as a tax resident for the two years if you stay or work in Singapore for a continuous period of at least 183 days. 24

25 2-YEAR ADMINISTRATIVE CONCESSION Example: You have stayed or worked in Singapore from 3 Nov 2010 to 7 May 2011 (186 days). You will be taxed as a resident for the YA 2011 and YA 2012 YEAR OF ASSESSMENT PERIOD OF STAY (INCLUSIVE OF WORK) IN SINGAPORE NOV 2010 TO 31 DEC 2010 (59 DAYS) JAN 2011 TO 7 MAY 2011 (127 DAYS) RESIDENT STATUS RESIDENT RESIDENT 25

26 3-YEAR ADMINISTRATIVE CONCESSION If you stay or work in Singapore continuously for three consecutive years, you will be regarded as a tax resident for all the three years even though the number of days you are in Singapore is less than 183 days in the first and third year. 26

27 3-YEAR ADMINISTRATIVE CONCESSION Example: You have stayed or worked in Singapore from 3 Nov 2009 to 7 May You will be taxed as a resident for the YA 2010 and YA YEAR OF ASSESSMENT PERIOD OF STAY (INCLUSIVE OF WORK) IN SINGAPORE MAY 2009 TO 31 DEC 2009 (59 DAYS) JAN 2010 TO 31 DEC 2010 (365 DAYS) JAN 2011 TO 7 MAY 2011 (127 DAYS) RESIDENT STATUS RESIDENT RESIDENT RESIDENT 27

28 TAX RATES FOR RESIDENT INDIVIDUALS 28

29 TYPICAL TAX COMPUTATION Employment xxx,xxx Benefits-in-kind xx,xxx xxx,xxx Less: Personal relief and other reliefs (xx,xxx) Less: Donations (x,xxx) Taxable income xxx,xxx

30 PERSONAL RELIEFS AND OTHER RELIEFS *Earned income relief - $1,000, depending on age group *Spouse relief - $2,000 *Qualifying child relief - $4,000 *Life insurance relief - $5,000 *conditions apply 30

31 COMMON TAXABLE BENEFITS-IN-KIND HOUSING AND FURNITURE & FITTINGS AIR TICKETS FOR HOME LEAVE CAR PROVIDED CHILDREN S SCHOOL FEES TAX PAID BY EMPLOYER PER DIEM ALLOWANCE IN EXCESS OF IRAS ACCEPTABLE RATES Tax concessions apply for some taxable benefits 31

32 TAX CONCESSION NOT ORDINARILY RESIDENT SCHEME (NOR) ON APPLICATION AND SUBJECT TO APPROVAL Time apportionment of Singapore employment income will not be taxed on the portion of your Singapore employment income that corresponds to the number of days you have spent outside Singapore for business reasons, as a resident Singapore employee. 32

33 TAX CONCESSION NOT ORDINARILY RESIDENT SCHEME (NOR) Tax exemption of employer's contribution to nonmandatory overseas pension fund or social security scheme 33

34 NOR QUALIFYING CRITERIA you must be a non Singapore tax resident (NR) in the past 3 years of assessment (YA); and in that YA in which you first qualify for the NOR status, you must be a Singapore tax resident (R). 34

35 FOR EXAMPLE : IN GERMANY YEAR ARRIVED 35

36 NOR QUALIFYING CRITERIA You must have spent at least 90 days outside Singapore for business reasons; and Your total Singapore employment income must be at least $160,000. If the tax on the apportioned income is less than 10% of your total employment income, you will still be subject to a tax of 10% of your total employment income. 36

37 TAX COMPUTATION (RESIDENT) (in SGD) Employment 250,000 Benefits-in-kind 80, Assessable income 330,000 Personal Relief (7,000) Taxable income 323, Tax on First 320,000 42,350 Bal 20% TAX PAYABLE 42,

38 TAX COMPUTATION (RESIDENT) (in SGD) WITH NOR CONCESSION Assessable income 330,000 No. of days outside Singapore for business purposes = 90 Apportioned assessable income = 248,630 [(365 90) / 365 x 330,000] Tax payable on Apportioned Employment income : First 200,000 20,750 Bal 15% 7, , Effective tax rate on Apportioned Employment income : 8.5% [28,045 / 330,000] SUBJECT TO 10% FLOOR RATE 38

39 TAX COMPUTATION (RESIDENT) (in SGD) WITH NOR CONCESSION Regrossed Assessable 10% floor rate (10% of 330,000) First 200,000 20,750 Bal 18% 12, , Regrossed assessable income $268,055 (200,000 plus 68,055) Less: Personal relief (7,000) , Tax on first 200,000 20,750 Bal 18% 10, , TAX SAVINGS OF S$11,210! 39

40 CONTACT US! Anytime for Any Queries Nah Ee Ling DID : Ext 18 Ten Dan Ling tlcpftc@accountlaw-tax.com.sg DID : Ext 11 Jerrick Zhou tlcpftc@accountlaw-tax.com.sg DID : Ext 15 40

41 DISCLAIMER Information is not advice. The information provided in this presentation should not be acted upon without professional advice. As this is an Executive Summary, important conditions and other details may be or are omitted. We accept no liability for persons who act on this publication without consulting us or their professional advisers. 41