Understanding Personal Tax in Singapore: What you need to know

As Singapore continues to establish itself as a bustling business hub for multinational corporations and individuals, the importance of tax compliance has become increasingly significant. Whether you are a salaried employee or a self-employed person, understanding personal income tax is essential as it can help you avoid costly penalties and maximise your tax reliefs and deductions.

Who needs to file personal tax?

All individuals earning, deriving or receiving income in Singapore are required to pay income tax every year if they meet the applicable criteria as given below:

• Tax Residents: Singaporean citizens, permanent residents and foreigners who have stayed in Singapore for at least 183 days in a year.
  
  
• Income threshold: Individuals must file and pay tax if their annual income exceeds $22,000 before deductions.
  
  
• Self-employed individuals: Sole proprietors and partners must file and pay tax if they have a net profit of more than $6,000.

Salaried employees: Visit the IRAS website to determine if your employer is on the Auto-Inclusion Scheme (AIS). If your employer is under AIS, your income details will be automatically submitted to IRAS and pre-filled in your tax return. If you qualify for the No-Filing Service (NFS) scheme, you will be notified by IRAS and may not need to file a tax return. Companies that are not on the AIS are required to provide employees with a hard copy of the IR8A form.

Self-employed individuals: When you work for more than one payer concurrently, you must determine your status using “factors in determining status” as prescribed by IRAS for each job and the engagement you undertake. In other words, you can be an employee and a self-employed person at the same time. As a self-employed individual, you must declare other sources of income in your tax return. Sole-proprietors and partners registered with ACRA must prepare a statement of accounts that includes Profit and Loss Accounts and Balance Sheets. You may have to prepare a 4-line statement when filing your income tax return:

• Revenue
  
  
• Gross profit
  
  
• Allowable business expenses
  
  
• Adjusted profit

All income and commission earned must be reported as trade income under “Trade, Business, Profession or Vocation” in Form B1. Business records of transactions, including invoices, receipts, accounting records, bank statements, and other transaction records, must be maintained for at least five years and be readily available upon IRAS’ request.

 Individuals must submit their tax return online through the IRAS website by e-filing. You can e-file via myTaxPortal using your Singpass or Singpass Foreign user Account (SFA). The deadline to e-file is 18 April.

Common tax filing pitfalls 

Filing taxes can be a complex process, and many individuals struggle to understand their tax obligations, especially if they have various income sources such as freelance work, rental income, or investments. Common mistakes include inaccurate reporting of income, submitting incorrect documentation, and failing to claim eligible tax reliefs and deductions. Many taxpayers miss out on available reliefs, which can significantly reduce their taxable income. For self-employed individuals, properly reporting business income and expenses can be challenging, often resulting in errors or missed opportunities for deductions.

Penalties for non-compliance

Under the Income Tax Act 1947, taxpayers may face the following consequences for filing an incorrect return.

• Issue a Notice of Assessment (NOA).
  
  
• Impose late payment penalties: A 5% late payment penalty will be imposed on the unpaid tax if full payment is not received by the due date of the NOA. If the tax remains unpaid 60 days after the imposition of the 5% penalty, an additional 1% per month may be imposed for every month that the tax remains unpaid.
  
  
• Appoint agents like your bank, employer, tenant, or lawyer, to recover the overdue tax.
  
  
• Issue a Travel Restriction Order (TRO) to stop you from leaving Singapore.
  
  
• Take legal action.

If you fail to file your tax returns for two or more years:

You may receive a notice to attend court. Upon conviction, for each offence, you could face:

• A penalty of twice the amount of tax assessed.
  
  
• A fine of up to $5,000.
  
  
• Failure to pay the penalty or fine may result in imprisonment for up to six months.

How to maximise tax savings in Singapore?

Taxpayers in Singapore can reduce their taxable income by utilising a wide range of tax reliefs and deductions, capped at $80,000 per year. These incentives are designed to reduce your taxable income and help maximise your tax savings.

Learn more about the tax reliefs you may be eligible for here.

If you work for a foreign employer and are required to travel overseas for work, you may be eligible for time apportionment of your employment income under the Area Representative Scheme. For foreign employees, the avoidance of double taxation treaties may provide protection from being taxed twice, both in Singapore and your country of residence.

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