Singapore, as a growing destination for immigrants and investors, is one of Southeast Asia’s fastest-growing real estate markets. As such, it is important for those wanting to take advantage of this fact to keep up to date with the prevailing property tax in the country.
Investing in real estate may be a good investment in a projected rising market, but understanding the technical aspects of property investment and how they relate to the state’s laws is even more critical. For example, in Singapore, the Inland Revenue Authority of Singapore (IRAS) is the government body responsible for administering and enforcing the nation’s property tax.
What is Property Tax?
Property tax is the amount of money imposed as a form of tax on any property. Whether it is an individual or legal entity who owns the property, the relevant property tax must still be paid.
As with all taxes, property tax is needed by the government to help fund education, healthcare, and the provision of various social amenities. Therefore, property tax is a mandatory tax in Singapore and must be paid when due.
Who Needs to Pay Property Tax?
If you own a property in Singapore, you are eligible for and mandated by law to pay a tax. Irrespective of the property being occupied by the owner, rented out, or vacant, it will still attract an annual tax.
However, depending on a property’s type and usage, it’ll be subject to different tax rates. In other words, the tax rate for an owner-occupied residential property will be different from one that the owner does not occupy. Similarly, the rate imposed will differ depending on whether the property is classified as a commercial or industrial property.
Exemptions
Although all property owners are required by law to pay property tax, there are specific categories of properties that are, by Singapore law, exempted from doing so. The exemption depends more on how the property is used rather than the nature of the building itself.
Properties used for any of these purposes are eligible for property tax exemption:
- As a place of worship (temple, monastery, church, mosque, etc.)
- For schooling or education
- For charitable purposes
- To enhance and promote social development
Since the whole point of property tax is to help build the nation, these institutions and properties are eligible for exemptions. This is because they are considered to be already contributing to the population’s mental, spiritual, social, and emotional development.
How is Property Tax Calculated?
To fully understand the workings and calculations of the property tax, there are certain terminologies you may need to familiarise yourself with. An important one is the Annual Value of the property.
Annual Value
The Annual Value (AV) would be the total annual rent of the property if it was rented out. In other words, whether it is owner-occupied or not, the AV is the gross rent the property can attract in a year.
To ensure fairness to all properties and their owners, the AV is not calculated using the actual rent collected for any particular property. Instead, IRAS makes a market estimate of what such a property can attract as rent in a year.
For instance, if the actual rent of a property is S$3,000 monthly, its gross rent at the end of the year should be S$36,000. However, this amount is not what IRAS would take into account when computing the property’s tax rate.
What happens is that if, after extensive market research, the rental rate of a particular property is found to be S$4,000, the AV, as determined by IRAS, will be S$48,000.
To determine the AV, IRAS considers some of these factors:
- The property’s size.
- The property’s physical condition.
- Rent of similar properties in the area.
- The property’s location.
- Other relevant factors that help make an informed decision.
With the AV determined, the applicable tax rate is used to determine the actual amount of property tax for a particular property for that year.
Since the AV is more of an estimate, there are situations when owners may feel the AV accrued to their property is higher than what was realised as rent for that year. In such cases, an objection can be raised within 30 days after the property owner receives a Valuation Notice.
If the objection is not approved, IRAS also allows property owners to make a formal appeal within 30 days of the objection’s rejection. Simply put, the property owner can raise an objection to the actual AV for his property but cannot object to the property tax rate set for that year.
Property Tax Rate
As mentioned earlier, IRAS categorises properties into three major categories — owner-occupied residential property, non-owner occupied residential property, and commercial or industrial property.
To ensure the tax rates are not a burden for property owners, IRAS imposes staggered tax rates for each particular property. This ensures more expensive properties pay more tax rates than cheaper ones.
For instance, a property under the owner-occupied category with an AV of SD$30,000 will have its first SD$8,000 charged at 0%, while its next SD$22,000 will be charged at 4%.
Owner-occupied Residential Property
This type of property is one for which the property owner lives in the property. Examples are condominiums, HDB flats, private residences, etc. As long as the property owner lives in the building, it qualifies to come under this category.
The property tax rate for this category is such that it increases as the AV increases. Currently, the tax rate ranges from 4% to 16%, depending on the total AV of the property.
From January 2023, properties with an AV of higher than S$200,000 will be subject to a property tax rate of 23%, but it is only applicable after the first SD$100,000 is subtracted.
Non-owner Occupied Residential Property
These properties, where the owners are not in residence but receive rent, are charged differently and have different tax rates. The property can be either private or public housing.
Unlike in owner-occupied properties, rates are charged from the first deductions. Property tax rates start from 10% and can go as high as 20% of the AV of the property.
Commercial or Industrial Property
As the name suggests, they are properties used for commercial or industrial purposes like registered offices, warehouses and factories. Accordingly, IRAS imposes a fixed property tax rate of 10% of the AV of the property.
Penalties for Non-compliance
All property tax payment is due every year on the 31st of January in Singapore. This is 30 days from when you receive your property tax bill.
Failure to make full payment by the due date attracts a 5% penalty fee on the unpaid taxes. However, IRAS does offer an opportunity for property owners in default to make an appeal for this penalty to be waived.
A waiver for the 5% penalty fee can be issued when the entire tax payment is made immediately, or IRAS considers the property owner a first-time offender within the period of two years.