Contributed By ONG SIM HO LLC
Singapore adopts a territorial basis in taxing income. As a general rule, income of a Singapore source is subject to Singapore tax. Income of a foreign source is subject to Singapore tax when received or deemed to be received in Singapore. To encourage individuals to remit their foreign incomes for management and investment in Singapore, there is a blanket exemption from tax of all foreign-sourced income received in Singapore by individuals. The qualification is that the individual must not have received the foreign-sourced income in Singapore through partnerships in Singapore. In addition, tax exemptions are available for Singapore tax resident companies for foreign-sourced dividends, branch profits and service income, where the prescribed conditions are met. To address potential juridical double taxation, Singapore has concluded a comprehensive network of Agreements for the Avoidance of Double Taxation, based on the OECD Model Convention, with more than 60 countries.
While an individual’s liability to income tax is not dependent on his resident status, the concept of residency remains important as different tax rates apply for tax residents and non-residents, and certain tax reliefs are only available to Singapore tax residents. Singapore adopts a quantitative and qualitative test in determining whether an individual is Singapore tax resident. An individual will be considered to be resident in Singapore for a particular year of assessment if, in the year preceding the year of assessment he resides in Singapore, except for such temporary absences 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. For Singapore tax residents, the personal tax rates are progressive, with the highest personal income tax rate at 22% from year of assessment 2017 onwards. For non-resident individuals, employment income is taxed at a flat rate of 15% or at the progressive resident tax rates, whichever is higher. For all other income, including director’s fees and consultation fees, the tax rates (except certain reduced final withholding tax rates) have been raised from 20% to 22% from year of assessment 2017 onwards. This is to maintain parity between the tax rates of non-resident individuals and the top marginal tax rate of resident individuals.
To attract talented people to relocate to Singapore, the Not Ordinarily Resident (NOR) Taxpayer Scheme extends favourable tax treatment to qualifying individuals who are required to travel regularly for work, subject to prescribed conditions being met. The favourable tax treatment includes time apportionment of employment income such that the individual pays income tax on only a portion of his employment income sourced in Singapore.
There is no capital gains tax, inheritance tax, or gift tax in Singapore. Estate duty has also been abolished since 15 February 2008. Other taxes that may be applicable to an individual are goods and services tax, property tax and stamp duty. Generally, stamp duty is payable on an instrument of transfer relating to a transfer of immoveable properties and shares in a Singapore incorporated company, which share register is kept in Singapore. In the case of share transfer, stamp duty is payable on the instrument of transfer at an ad valorem rate of 0.2%, computed on the higher of the consideration of the transfer or the net asset value of the shares.
The income of a trust is taxed only once, either in the hands of the trustee or the beneficiary. There are three factors that determine whether the income of the trust is taxable in the hands of the trustee or the beneficiary: (i) whether the trustee carries on any trade or business; (ii) whether the beneficiaries are “entitled to” trust income; and (iii) the residency of the beneficiaries of the trust. Where a trustee derives trade or business income, tax transparency will not be accorded such that the trustee is subject to a final tax on income derived by the trust. Where the trustee derives other income other than trade or business income, tax transparency will only be accorded where the beneficiary is entitled to the income and the beneficiary is a Singapore tax resident.
There are two main tax exemption schemes applicable to family trust structures: the “locally administered trust” regime and the “foreign trust” regime. When a trust qualifies either as a locally administered trust or a foreign trust, specified income from designated investments of the trust and qualifying holding companies established for the purposes of the trust will be tax exempt. There are also tax exemptions on specified income from designated investments of funds managed by a Singapore-based fund manager if the fund is a qualifying fund.
The principal statutes governing Singapore trusts are the Trustees Act and the Trust Companies Act. The former governs trustees in general while the latter governs the licensing and regulation of trust companies in Singapore and for matters connected therewith. Generally, any person who carries on any trust business or holds himself out as carrying on any trust business in or from Singapore is to hold a trust business license. A private trust company may be exempted from holding a trust business license provided that it engages a licensed trust company to carry out trust administration services for the purposes of conducting the necessary checks to comply with any written direction issued on the prevention of money laundering or countering the financing of terrorism. A private trust company may be considered where settlors desire a greater degree of control over the management of the trust or where professional licensed trustees have reservations on taking on certain types of trust assets.
Singapore also has in place various tax incentives to advance philanthropy in Singapore. In particular, with effect from year of assessment 2008, all charities registered in Singapore and those exempt from registration enjoy automatic tax exemption.
In general, laws in Singapore are very stable and any proposed statutory changes, as well as end dates of certain reliefs and exemptions, are made known well in advance. This provides certainty for tax and estate planning as clients can be sure that the tax treatment of their trusts or entities will remain consistent in the years to come.
An area that will continue to drive changes in the landscape of tax and estate planning for high net worth individuals, trusts, foundations and estates in Singapore is confidentiality, given the rapid movement towards greater transparency and global tax cooperation. To date, Singapore has activated a total of 64 Automatic Exchange of Financial Account Information relationships in 2018. These relationships are established under bilateral Competent Authority Agreements for the Common Reporting Standard, or the Multilateral Competent Authority Agreement on Automatic Exchange of Financial Account Information under the Common Reporting Standard, which Singapore is a signatory to. Singapore has also tightened its anti-money laundering and counter-terrorism rules. The Corruption, Drug Trafficking and Other Serious Crimes (Confiscation Of Benefits) Act is the main legislation providing for such rules which, amongst others, require suspicious transaction reports to be filed if a person knows or has reasonable grounds to suspect that any property may be connected to criminal activity. The failure to do so may constitute a criminal offence.
Singapore has a multitude of tax incentives and reliefs that taxpayers can benefit from. Proper tax planning helps to identify appropriate opportunities for tax savings such that the tax an individual, business, or trust bears can be optimised.
An individual’s right to plan his financial or tax affairs is to be considered in light of Section 33 of the Income Tax Act and Section 73B of the Conveyancing and Law of Property Act. Section 33 of the Income Tax Act is a general anti-avoidance provision which gives the Comptroller of Income Tax extensive powers to disregard or vary an arrangement and make such adjustments as he considers appropriate to counteract any tax advantage obtained or obtainable by that person from or under that arrangement, where he is satisfied that the purpose or effect of any arrangement is to alter the incidence of any tax which is payable by or which would otherwise have been payable by any person, to relieve any person from any liability to pay tax or to make a return, or to reduce or avoid any liability imposed or which would otherwise have been imposed on any person. It is also important to consider Section 73B of the Conveyancing and Law of Property Act which provides that every conveyance of property, made with intent to defraud creditors shall be voidable.
The wealth within the addressable planning market remains highly concentrated in family businesses with a long history of entrepreneurial successes in the Asian economies. The Asian-centric culture extends to succession issues principally in three aspects, namely:
In tandem with the increasing international nature of Asian wealth creation, management, reinvestment, and ultimately distribution or consumption, the complexities of succession planning can be largely attributed to aggressive tax and disclosure regimes in beneficiaries’ countries of domiciliation or residence. Challenges largely centre around enforceability, accrual or deemed distribution taxation, and international exchanges of information.
Singapore has no general forced heirship rules.
Generally, the Singapore courts will consider pre-nuptial and post-nuptial agreements as a factor in the exercise of its discretion in division of matrimonial assets. They are subject to the overall scrutiny of the courts and cannot be enforced in and of itself. This is particularly the case for pre-nuptial agreements relating to the maintenance and custody (and care and control) of children. In so far as a pre-nuptial agreement relates to the maintenance of children, the courts would be especially vigilant and would be slow to enforce agreements that may not be in the best interests of the child/children concerned. As for pre-nuptial agreements relating to the custody of children, there would be a presumption that such an agreement is unenforceable unless it is clearly demonstrated by the party relying upon the agreement that that agreement is in the best interests of the child/children concerned. Generally, pre-nuptial financial agreements are given greater weight in the case of short marriages.
Singapore has no regime of community of property. Matrimonial assets under Singapore law are any assets acquired before the marriage by one party or both parties to the marriage: (i) ordinarily used or enjoyed by both parties or one or more of their children while the parties are residing together for shelter or transportation or for household, education, recreational, social or aesthetic purposes; or (ii) which has been substantially improved during the marriage by the other party or by both parties to the marriage; and any other assets of any nature acquired during the marriage by one party or both parties to the marriage. However, it does not include any asset (not being a matrimonial home) that has been acquired by one party at any time by gift or inheritance, which has not been substantially improved during the marriage by the other party or by both parties to the marriage.
Generally, during marriage spouses may transfer matrimonial assets without the consent of the other, but such transfers may come within the scrutiny of the courts and considered in the context of the overall asset division ordered by the courts.
There is generally no tax-relevant cost base adjustment upon such (property) transfer.
Inter-generational transfers of assets are generally not subject to tax (except usual transactional stamp duties) as there are no capital gains or inheritance taxes in Singapore. Accrual of income to beneficiaries, on the other hand, is subject to income tax. Thus, the usual deferral vehicle employs the discretionary trust as the asset-holding structure.
The irrevocable discretionary trust is generally used for tax and estate planning purposes. Foundations, in the civil law sense, are not recognised in Singapore. An entity in Singapore that is known as a "foundation" will either be a charitable company limited by guarantee or a charitable trust. Family offices are frequently structured with a discretionary trust as a central feature.
Given the English common law jurisprudence on which Singapore trust law is based, trusts are robustly recognised and respected. Over the years, the Singapore courts have consistently recognised trust relationships and applied established common law principles to their creation, validity, enforcement and remedies for breaches, as well as trustee’s duties.
There have been no relevant changes in Singapore.
Singapore taxation is not based on citizenship, thus no direct tax consequences arise from a citizen serving as a fiduciary or being a beneficiary of a foreign trust.
Planners continue to push the envelope in the area of Settlor Reserved Powers. Conventionally, the focus has been to provide these powers within the terms of the trust deed. Recent innovation, on the other hand, focuses on multi-trusts structural interaction to provide for virtual reservation.
Generally, dual fiduciary/donor-beneficiary capacity is eschewed in most cases as it is contraindicated for tax or asset protection objectives.
Irrevocable discretionary trust structures remain the gold standard prescription in most cases. Family office and private trust company as an overarching platform for the discretionary trust is gaining traction. Planners should strongly discourage the conflation of wealth succession and business succession to avoid family conflict.
There is no transfer tax (in the nature of inheritance tax) in Singapore. In the former abolished estate duty regime, a discount is given to reflect the lack of marketability and control of non-traded shares in private companies. Stamp duty on share transfer is based on the Net Book Value of the subject entities and no discount is given for lack of marketability and control.
See 3.6 Tax Consequences of a Beneficiary Serving as a Fiduciary, above, on the use of the discretionary trusts.
Reported wealth disputes involving overtly planned trusts have not surfaced in Singapore. The reported family disputes usually involve the issue of whether a person held assets as constructive trustee, or the validity of wills.
The remedies available to the aggrieved party in wealth disputes typically lie in equity, such as an account of profits, injunctive reliefs (eg, the Mareva injunction), tracing, and damages for losses. The equitable basis for damages is the breach of fiduciary duties or breach of trust.
Corporate fiduciaries are prevalent in Singapore. All trustees are subject to the same legal standard of duties. Licensed fiduciaries would have additional compliance and regulatory obligations.
It is not possible to pierce the veil in the absence of a sham trust or fraud on the part of the fiduciaries. Trustees who breached a trust without fraud or dishonesty or negligence may seek an application to the High Court for indemnity against personal liability.
The Trustees Act prescribes a statutory duty of care for trustees when exercising powers of investment or when carrying out any duties imposed on the trustee in relation to the investment of trust funds. Generally, a trustee is expected to exercise such care and skill as is reasonable in the circumstances, having regard in particular to any special knowledge or experience that he has or holds himself out as having, and if he acts as trustee in the course of a business or profession, any special knowledge or experience that may reasonably be expected of a person acting in the course of that kind of business or profession. The standard investment criteria that a trustee is required to have regard to are the suitability of the investment and the need for diversification of investments of the trust, in so far as is appropriate to the circumstances of the trust. In practice, most private wealth trusts would provide wider powers of investment outside the act's constraints.
See 6.3 Regulation of a Fiduciary's Investment of Assets, above.
Unless otherwise restricted, trusts and similar entities may hold active businesses. There are no specific rules or limitation governing such businesses activities unless the fiduciaries are under their own regulatory constraints such as financial institutions.
Protection is accorded under two sources. First, the trust instruments usually provide for wide indemnity excepting only gross neglect or dishonesty. Second, the Trustees Act allows trustees who breach a trust without fraud or dishonesty or negligence to seek an application to the High Court for indemnity against personal liability.
The basic eligibility criterion for obtaining citizenship in Singapore is having been a Permanent Resident (“PR”) for a minimum amount of time – ie, at least two years for adults and at least one year for students. In addition to PR status, the Immigration & Checkpoint Authority (“ICA”) will also consider factors such as the applicant's economic contributions, residency period (including physical residence in Singapore), ability to integrate into the society and commitment to sink roots in the country in accepting or rejecting a citizenship application. Dual citizenship is not allowed in Singapore and successful applicants must renounce their foreign citizenship before attaining Singapore citizenship.
To be eligible to apply for PR status, one must be:
The aforementioned factors considered by the ICA in accepting or rejecting a citizenship application will also apply to a PR application.
There are no expeditious means to obtaining citizenship, but an investor who is interested in starting up a business or investing in Singapore may apply to be a PR under the Global Investor Programme (GIP) for themselves and their immediate family. Generally, they can choose to either: (i) invest at least SGD2.5 million in a new business entity or in the expansion of an existing business (in certain sectors); or (ii) invest at least SGD2.5 million in a GIP-approved fund. The eligibility criteria for a GIP application are a substantial business track record and a successful entrepreneurial background.
Singapore has a Special Needs Saving Scheme (“SNSS”) to enable parents to set aside savings in their Central Provident Fund (CPF) account, a mandatory social security savings scheme, for the long term care of children with special needs. Under the SNSS, parents may nominate their loved ones with special needs to receive a regular stream of fixed pay-outs upon the parent’s demise.
The appointment of a guardian, conservator or similar party does not require court proceedings, but such appointees are generally responsible to the courts to act in the best interest of the minor.
In Singapore, a child born out of wedlock – ie, where his or her biological parents were not validly married – is considered illegitimate. An illegitimate child is not included under the definition of “child” under the Intestate Succession Act and is thus not entitled to any share of his or her natural father’s inheritance under the intestacy regime. Under the Legitimacy Act, the illegitimate child will only be entitled to a share of his or her natural mother’s inheritance, where she does not leave any surviving legitimate issue . The legitimacy of a child would not affect his or her rights to inherit assets under a will.
Where a child, illegitimate or otherwise, is adopted via a court-granted Adoption Order, the status of the child is that of a legitimate child of his or her adoptive parent(s). Adopted children are included under the definition of “child” under the Intestate Succession Act. This means that an adopted child will be entitled to his or her adoptive parent’s estate as if the adopted person were the child of the adopter born in lawful wedlock.
Singapore does not recognise same-sex marriage. Under the Women’s Charter, a marriage solemnised in Singapore or elsewhere between persons who, at the date of the marriage, are not respectively male and female shall be void. As the intestacy regime would not recognise a same-sex partner, wills must be drafted to ensure that the deceased partner’s estate would be distributed in accordance to his or her desires. In addition, CPF nominations should be made to ensure that the surviving partner is entitled to the deceased partner’s CPF monies.
Singapore does not recognise domestic or civil partners.
To encourage charitable giving, there is a 250% tax deduction for qualifying donations made, up until 31 December 2021. Qualifying donations include those made to an approved Institution of a Public Character (IPC) and qualifying Grantmaking Philanthropic Organisations. All donations of immoveable properties and shares to approved IPCs will also be remitted from stamp duty. Where the tax deduction for the donation is more than the income for the year, the donor is allowed to carry forward the unutilised deductions for a maximum of five years.
In addition, as explained above, with effect from year of assessment 2008, all charities registered in Singapore and those exempt from registration enjoy automatic tax exemption. For properties which are used for exclusively charitable purposes, property tax may be exempted in full or partially upon application and review by the Comptroller of Property Tax.
The three most common legal structures in Singapore for charitable planning are public companies limited by guarantee (CLG), charitable trusts and societies. The structures differ in terms of ease of setting up, documentation required, and liability of the members.
Of the three, only the CLG has separate legal entity such that the liability of members is limited to the amount they had undertaken to contribute to the assets of the company. In addition, registered charities enjoy automatic income tax exemptions. However, the CLG also has more onerous requirements in setting up – it must have a registered office within Singapore, hold Annual General Meetings, and adhere to statutory reporting requirements.
In selecting a charitable trust structure, the settlor has the ability to spell out the specific charitable intention in the trust deed. Furthermore the administrative requirements are less onerous. However, the trustees must bear all legal liabilities as a trust is not a separate legal entity.
Like a CLG, societies are able to apply for charity status to enjoy tax exemptions. This is coupled with the lesser administrative requirements that a society must adhere to – there are no statutorily required qualifications for office-bearers, nor is there a need for a registered business address. However, a society also has no separate legal personality and its members may be made personally liable for any liability incurred by the society.
There are a number of schemes that the Singapore government has put in place to help individuals prepare financially for retirement. For example, there is the Central Provident Fund (CPF), a mandatory social security savings scheme for citizens and permanent residents. Under the scheme, employees and employers make monthly contributions which go into separate accounts meant for various purposes, including housing, insurance, investment and education, and retirement. The scheme provides CPF members with a monthly income to support a basic standard of living during retirement. There are also national insurance schemes providing financial protection for hospitalisation/outpatient treatments or long-term care for severe disability. Subsidies/cash payouts are also available in certain circumstances.
In Singapore, there is no specific law on digital assets. Privacy as a primary right is not generally enforceable.