Singapore Tax loopholes that the rich run circles around.
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Singapore Tax loopholes (income, GST) that the rich dance circles around
- Regarding personal income taxes:
"Singapore follows a progressive tax rate starting at 0% and ending at 20% above S$320,000": ['Singapore Personal Income Tax Guide' (link)].
- Regarding Corporate taxes:
'Corporate Tax Rates'- Zero tax for new Singapore companies on the first 100K annual profits for the first 3 years
- All resident companies to enjoy approx. 9% corporate tax rate for profits up to 300K
- Overall company tax rate is a flat 17%
- [Source: 'Singapore Corporate Taxes' (link)]
According to 'Singapore Company Registration Guide' [guidemeSG]: "Most companies in Singapore are registered as private limited liability companies (commonly known as private limited companies). .... According to Singapore Companies Act, any person (foreign or local) above the age of 18 can register a Singapore company."
Thus a tax consultant Mr X usually earn SGD680k p.a. can very easily reduce his income tax burden (YA2010) of $114.7k (tax table [IRAS]) to ZERO by providing his services under the auspices of unlimited 'shell' companies: A, B, C and so on to exploit the corporate tax benefits aforementioned listed, namely: "Zero tax for new Singapore companies on the first 100K annual profits for the first 3 years".
This by simply earning a max personal income of only $20k p.a. (zero income tax on first $20k: (tax table [IRAS])) and then dividing all subsequent earnings over as many companies as it takes to exploit the first $100k profit zero tax scheme. In accordance to Mr X purposes, all his shell companies pay full dividends on all profits made to its share holder- none other than Mr X himself.
"Singapore currently adopts a one-tier corporate tax system. Under the one-tier corporate tax system, tax paid by a company on its chargeable income is the final tax. All dividends paid by a company are exempt from tax in the hands of the shareholders. ": (One-tier corporate tax system [IRAS])
In accordance with Mr X's exploitation of SG taxation loopholes, he incorporates as many companies as is necessary to benefit from the "Zero tax for new Singapore companies on the first 100K annual profits..."
As Mr X has paid himself through his 'consultancy' companies' revenues- an annual salary of $20k p.a. only; Mr X would then have, for the purposes of his legal tax evasion scheme, the need to operate under the auspices of 6 or more companies, each earning an annual profit of $100k.
Has the corporate tax system been subject to flagrant misuse by the rich and sneaky in 'legally' evading personal income taxes- definitely.
As for evidence of corporate cheats pillage of government revenue through illicit GST reimbursement applications, see: 'GST cheat gets jail, $1m fine' [ST, 4June2010]
Suggestion:
If SG really wants a vibrant economy, then reduce personal income taxes by encouraging companies not to skimp on employee salaries by raising the corporate tax rate (17%) above the max personal income tax rate (20%)- put $ in the pockets of employees and allow them to invest/ spend this money as they deem fit/ better still, in investment as SME/ corporate shareholders.
Corporate income tax rates should NOT be LOWER than the highest rate of personal income taxes and NEITHER should there be any discounts on corporate income taxes. If corporate taxes need be lowered, then please lower personal income taxes first, just having a flashy headline grabbing corporate tax rate is just cheap advertising a cover-up the socio-economic rot festering beneath.
Always remember that corporates are NOT Humans, as such, conferring corporates MORE tax benefits then we confer humans is certainly placing the cart before the horse if not the opening of a Pandora's box of human evil.
The preferential tax regime of corporates over individuals is certainly syndromic of the Singapore government's worship of the mammon god, a worship that is doomed to destruction of the Singapore economy if not society.
"Those who would give up Essential Liberty to purchase a little temporary Safety, deserve neither Liberty nor Safety."-- Benjamin Franklin
Definitions:
- 'Mammon': "Mammon is a term, derived from the Christian Bible, used to describe material wealth or greed, most often personified as a deity". [Wikipedia: Mammon]
- 'Legal personality': [wiki]: "Legal personality (also artificial personality, juridical personalty, and juristic personality) is the characteristic of a non-human entity regarded by law to have the status of a person. A legal person (Latin: persona ficta), (also artificial person, juridical person, juristic person, and body corporate, also commonly called a vehicle) has a legal name and has rights, protections, privileges, responsibilities, and liabilities under law, just as natural persons (humans) do. The concept of legal personality is perhaps one of the most fundamental legal fictions. It is pertinent to the philosophy of law, as well as corporations law (the law of business associations)."
References:
- 'Freedom for Sale': "Don’t risk real freedom for short-term material gain.. Our civil liberties are in jeopardy and we are to blame. We have reduced democracy to the right to make and spend money... (in return for) a temporary blanket of security and what turned out to be an illusory prosperity" [The Times, 7Sept2009]
- 'Countries with the Biggest Gaps Between Rich and Poor', (by Bruce Einhorn): "No. 2 Singapore-.. Ratio of income or expenditure, share of top 10% to lowest 10%: 17.7". [BW,16Oct2009]
- 'GST cheat gets jail, $1m fine': "OVER a period of 31/2 years, the managing director of a cleaning firm inflated the Good and Services Tax (GST) he paid and under-declared the GST he collected - all to deceive the taxman into refunding him nearly $330,000 in tax rebates" [ST, 4June2010] -
Wow!
Very technical.
You just took taxation 101?
Golden rule is, you can do anything you want, but just don't get caught.
Abuse of Tax Exemption Scheme for New Companies
IRAS has observed a number of cases where shell companies have been used to take advantage of the tax exemption scheme for new start-ups and not for genuine commercial reasons.
These shell companies do not carry out any activities or significant activities and have no employee or few employees. Their accounts usually show relatively few transactions and low capitalisation (usually at $2).
The abuse of the tax exemption scheme generally takes the following forms:
a. Allocating the income of an existing profitable going concern to a few shell companies so that the chargeable income of each shell company is within the threshold for tax exemption; or
b. Charging fees/ expenses to an existing profitable going concern by shell companies without any bona fide commercial reasons. The shell companies claim the tax exemption on the income they receive from the profitable going concern, while the latter claims tax deduction on the fees/expenses paid to the shell companies.
The effect of these forms of arrangement is an overall net reduction of tax for the profitable going concern and the shell companies.
Tax evasion/fraud is a criminal offence punishable under the law and the Court imposes severe penalties for such offences. Businesses or individuals who engage in abusive tax arrangements such as setting up shell companies to take advantage of the tax exemption scheme for new start-ups, or individuals who assist others with abusive tax arrangements should disclose such abuse immediately. IRAS will treat such disclosure as a mitigating factor when considering the penal charges.
Those who wish to make a voluntary disclosure should contact:Corporate Tax Division
Inland Revenue Authority of Singapore
55 Newton Rd, Revenue House
Singapore 307987http://www.iras.gov.sg/irasHome/page03a.aspx?id=8010#Abuse_of_Tax_Exemption_Scheme_for_New_Companies