Certain conditions must be met to qualify for Singapore’s tax residency. Individuals and entities who meet these criteria are eligible for certain benefits that come with being a tax resident of the country. While Singapore’s tax policies cover both foreigners and citizens, being a tax resident allows you to benefit from lower tax rates and reliefs.
However, only some are granted the privilege of being a Singapore tax resident. Only individuals and corporations who meet the conditions outlined by the Inland Revenue Authority of Singapore (IRAS) are granted tax residency status.
Fulfilling those requirements is easy, and as a foreign or resident individual or corporation in Singapore, you have a good chance of obtaining tax residency. The conditions and procedures for it are discussed in the following sections.
What Makes Someone A Singapore Tax Resident or Non-Tax Resident?
As previously stated, tax residency in Singapore is not limited to citizens. Foreigners can obtain tax residency, but only if they meet certain criteria. The good news is that IRAS will readily recognise you as a tax resident if you meet some simple conditions. For example, if you are a Singapore Citizen (SC) or Singapore Permanent Resident (SPR) and will only travel out of the country temporarily, the Singapore government will consider you a tax resident. That is, if your stay in the country is significantly longer than your stay outside of it, you will always be considered a tax resident.
You are also qualified as a tax resident of Singapore for a specific year if, as a foreigner, you spend at least 183 days in the calendar year preceding the year in question. However, this type of tax residency does not apply to company directors and consultants.
To put things in context, individuals are granted tax residency status if they meet the IRAS’ ‘Qualitative test’ and ‘Quantitative test’ criteria.
Quantitative Test for Tax Residents
The quantitative test determines whether foreign workers in Singapore are eligible for tax residency and the benefits that come with it. Foreign entertainers, company directors, and consultants are the obvious exceptions when it comes to this test.
There are three qualification options for this test, and one must meet at least one of these conditions to qualify for tax residency. They are as follows:
- You must have spent at least 183 days living and working in the country throughout the previous year. This means that if you want to be recognised as a tax resident for the current year, say 2022; you must have at least 183 days of stay in Singapore in the previous year (2021).
- You must have lived or worked in Singapore for three years in a row. This is because Singapore’s three-year administrative concession allows foreigners to be granted tax residency for three years even if they cannot complete a 183-day stay in the country during the first and third years.
- The third option, the two-year administrative concession, gives foreigners access to tax residency if they work in Singapore for two years and have been fully present for a minimum of 183 days.
Qualitative Test for Tax Residents
Unlike the other, the Qualitative Test for Tax Residents examines both Singapore Citizens (SC) and Singapore Permanent Residents (SPR) for tax residency.
In this context, Singapore Permanent Residents are only foreigners who have been granted PR status as a result of investing in Singapore, studying in Singapore, holding a Singapore Employment Pass or an S Pass, being an aged parent of a Singapore Citizen, or marrying a Singapore Citizen.
If you are a permanent resident of Singapore as defined in this context and live here permanently, you will be granted tax residency status. However, your trips outside the country must be temporary and justifiable to IRAS to keep this status.
If the above conditions have not been met and a tax residency status has not been granted, an individual, whether foreign or domestic, is considered a non-tax resident.
What Makes a Company Eligible for Tax Residency?
Your corporation is only considered for tax residency if it is registered in Singapore as a company, society, fellowship, corporation, or fraternity. Aside from that, there are some other requirements, which are as listed below:
- To be eligible for tax residency, your company must neither be a sole proprietorship nor a partnership. Taxes are deducted from the owner’s income in the case of a sole proprietorship. Similarly, taxes are levied on individual partners’ shares of the overall partnership proceeds.
- Before being considered for tax residency, IRAS requires that your company be directly domiciled and controlled in Singapore. Being controlled in Singapore implies that all significant decisions regarding company practices and policies must be made in Singapore. IRAS will confirm this by considering factors such as the location of your company’s annual general meetings.
- It should be noted that companies’ tax residency status in Singapore may change from year to year. That is, a company may be tax resident in one year but not the next since tax residency in Singapore is typically granted year by year.
Individual and Corporate Tax Residency Advantages
Individuals who are certified as Singapore tax residents benefit from reduced tax rates. Expect a tax rate of 0% on the first S$20,000 income, 2% on the next S$10,000, and so on. A tax resident is also eligible for tax relief initiatives and can file for deductions. On the other hand, those who are not tax residents of the country pay higher tax rates ranging from 15% to 22%. Non-resident employees are charged 15% or the corresponding tax resident amount, whichever is greater. Pension, rental income, and director’s remuneration are taxed at an even higher rate of 22%.
Knowing whether an individual or corporation is a tax resident of Singapore helps determine whether such an entity should pay tax and the amount of tax to be paid. Also, because taxes in Singapore can be quite high, there are provisions for tax breaks that are available only to tax residents. This demonstrates the significance of tax residency. The content thoroughly explains the requirements and benefits of Singapore tax residency for both yourself and your company.
Managing your tax can be a task if you are unsure of your tax residency status. To help you with the process and ensure you meet all the statutory requirements, it’s best to engage a tax consultant, especially for your company. Let the experts handle your taxation for you while you work on more important tasks to grow your business.