When is it taxable
When a person is deemed to be trading in properties, the gains from the sale of property in Singapore is income and it is taxable. As to whether a person is deemed to be carrying on a trade, it depends on the circumstances of that individual.
To determine if a person is trading in properties, IRAS applies a set of guidelines known as the "badges of trade". There are criteria under the badges of trade and IRAS considers all facts of each case to determine whether the gains are taxable.
Examples of the criteria are as follows:
• Frequency of transactions (buying and selling of properties)
• Reasons for acquiring and selling of property
• Financial means to hold the property for long term
• Holding period
Brief History of Taxation in Singapore
Debated since before World War I, income tax had been introduced briefly during World War I and II to raise revenue for the war effort. But the tax was unpopular, and with many opposing the need for it, income tax stayed off the agenda.
The end of World War II highlighted the need for new infrastructure and fresh sources of revenue, giving renewed impetus to the introduction of income tax.
In 1947 Income Tax was introduced in Singapore under the British colonial government. In 1948 the Income Tax Act was imposed. The Act was based on the Model Colonial Territories Income Tax Ordinance 1922, which was devised for British colonies at that time. Therefore, Singapore’s tax laws share common historical roots with those of Malaysia, Australia, New Zealand and South Africa.
With Independence in 1965, Singapore promoted a policy of rapid industrialisation and building an export oriented industrial base, to stimulate growth and employment. Hence in the 1960s labour-intensive industries were encouraged by tax incentives. The Economic Expansion Incentives Act was introduced in 1967. Companies which managed to grow their exports enjoyed as much as a 90% tax exemption on the increased export income. Interest paid on foreign loans granted to a local industrial company was tax exempt.
In the 1970s growth of the service sector was high on the government’s agenda. Tax policy played its part in the financial sector with the exemption of interest on Asian dollar bonds from 1973. Shipping was also actively promoted. Income from the operation and charter of Singapore ships drew tax exemptions. Tax measures to support urban redevelopment were also introduced. Different property taxes were also phased out. Tax policies in the 1970s were also influenced by social needs. Contributions to the Central Provident Fund were tax deductible and other tax relief measures were introduced.
As Singapore became more developed, it became a more expensive place for businesses in the 1980s. Measures to revamp the economy, with the aim of making it more competitive was introduced. Changes to government policies, incentives and taxes were considered. The late 1980s marked a significant shift towards lowering both corporate and individual taxes. In 1987 corporate tax rates were lowered from 40% to 33%.
This period witnessed major changes in tax policies. There was a shift towards lower direct taxes and the focus was on indirect taxes. The trend towards indirect taxation resulted in the introduction of the Goods and Services Tax (GST) in 1994. It is a tax on domestic consumption and applies to all goods and services supplied in Singapore except for financial services and residential properties. It was in this period that the trend of lowering corporate and individual tax rates accelerated.
2000 and beyond
This has been the phase of innovation and entrepreneurship. A number of measures were, and are being introduced to attract foreign talent and investment. Tax rates were further lowered and currently capped at 18% (17% from 2010) for companies and 20% for individuals. This period witnessed the introduction of group relief and the one-tier corporate tax system.