Know About the Personal Income Tax Planning in Singapore


Some companies and individuals are paying high taxes due to their inability to plan and prepare their taxes effectively. We have decided to help a lot of people discover how they can legally save their personal income taxes every year. As you read on, you will see some things you can do to save your personal income tax.

1. For Directors and Shareholders

The company profit is open to a tax rate that is higher than every other kind of taxes that apply to businesses. As a shareholder or company director, you can reduce the taxable profit in your company through the methods below.

Director’s Salary

Kindly note that CPF contributions will be made on your salary every month if you are a Singapore permanent resident or a Singapore citizen. The employee’s portion of the CPF contributions will relieve your personal tax return.

Director’s Fee

In the same year that a director gains entitlement to the director’s fees, the fee will become assessable. The assessment of the fee doesn’t consider the exact time the payments are accrued and the time the director receives the payment. Generally, three types of director’s fee exist:

  • Director’s fee that corresponds to the employment contract. Any director entitled to this fee can recognize it in the same year.
  • Director’s fee that got approval in arrears. Usually, A director gains entitlement to the director’s fees on the date that the fee receives vote and approval at the Extraordinary General Meeting or Annual General Meeting of the company.
  • Director’s fee that got approval in advance. A director who hasn’t rendered the necessary services for a particular accounting year doesn’t have entitlement to the director’s fees on the exact date of the Extraordinary General Meeting or Annual General Meeting of the company.
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The director’s salary and director’s fee are deductible expenses in the company. This implies that the company will pay a lesser income tax if the director receives more director’s fees and director’s salaries from the company. Learn more tricks to save on business tax here.

Dividends

Dividends that shareholders receive from a Singapore Company are not taxable according to the one-tier corporate tax system. In essence, the dividends are paid from the profit of the company after tax.

At this stage, you might want to ask whether you should pay yourself the director’s fee, director’s salary, or dividend.

Let your company’s profit determine what you pay yourself. In Singapore, businesses pay a flat rate of 17 percent as corporate tax. For new companies, they are not required to pay tax on the first S$100,000 income they make for the first three consecutive assessment years. They will also enjoy a 50 percent exemption on the next S$200,000 income they make. Starting from the fourth year of assessment, new companies will be required to pay about 50 percent tax on the first S$300,000 income they make.

Therefore, the tax rate that becomes effective for a company for the first S$300,000 income during the first 3 assessment years is only 5.66%. Starting from the fourth assessment year, the tax rate for the first S$300,000 is approximately 8.36%.

Unlike the company tax rate, the personal tax rate increases progressively. Tax resident individuals are taxed at an approximate tax rate of 4.18% for the first S$80,000 personal income. Personal income higher than S$80,000 are taxed from 11.5% onwards.

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In essence, the amount you pay yourself should be subject to company’s profit.

2. Maximization of Tax Deductions

You can reduce your taxable income with tax deductions. Before you will be taxed, your total deductions are always subtracted from your taxable income. Ensure you maximize every tax relief available to you. It will save you from excessive taxes. Here are some tax deductions that resident individuals can make use of:

Employment Expenses

All the expenses that you incur wholly and exclusively while generating your employment income are called employment expenses. You are free to deduct these expenses from your employment income inasmuch as they are allowable expenses.

These are the conditions that make expenses to be allowable:

  • You incurred the expenses in the course of carrying out your official duties
  • The expense isn’t private or capital in nature
  • Your employer hasn’t reimbursed the expense

Course Fees Relief

You have the right to claim a maximum relief of S$5,500 on the course fees that you paid in the previous year for:

  • Any seminar, conference, or course that led to an approved professional, academic, or vocation qualification after you have attended.
  • Any seminar, conference, or course you went for that is relevant to your present employment, trade, profession, or vocation.
  • Any seminar, conference, or course you went for that is relevant to your new employment, trade, profession, or vocation.

CPF Cash Top-Up Relief

All Singaporeans and PRs can enjoy this relief. You can claim this tax relief to top up your CPF Special/Retirement Account. You can also claim it for the account of your family members for their basic retirement needs. The maximum amounts you can claim for CPF Cash Top-up relief are S$7,000 for self and S$7,000 for family members.

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Supplementary Retirement Scheme (SRS) Relief

All Singapore tax residents can enjoy this relief. The maximum SRS contributions for any foreigner and Singaporean/Singapore permanent resident are S$29,750 and  S$12,750 respectively.

3. Keep Documents and Records

Ensure you keep all the records of your tax returns for at least 5 years. If some bills are likely to fade over time, you should make a photocopy and keep them.

The tax authority IRAS can demand for some supporting documents on some rare occasions. Estimates and improper records won’t be accepted, which is why you need to keep all original records.

Author Bio :

Wynn Zhou is the director of Novage Singapore and the business consultant for Timcole. Timcole can assist you with effective tax planning and lawfully maximize deductions and reliefs that you are entitled to. High quality accounting services from Timcole can help you save a lot of money and time. Learn more about Timcole Singapore.