Out-Law Guide 11 min. read
04 Aug 2023, 1:15 pm
Understanding employment law, tax obligations and the regulatory framework, as well as what protections are available for intellectual property, is important for any multinational company planning to expand into new jurisdictions.
This is the third in a three-part series of guides providing basic information on the legal framework for foreign investment and operations in Singapore:
Part 1 – Overview;
Part 2 – Establishing a business in Singapore;
Part 3 – Practical considerations.
Under Singapore law, the employer-employee relationship is regulated by a mixture of statutory law and common law.
In particular, the Employment Act 1968 of Singapore (EA) is the main piece of employment legislation that regulates employer-employee relations in Singapore. Under the EA, employers are required to provide their employees with certain minimum statutory entitlements in relation to certain aspects of the employment relationship, such as salary payments and leave entitlements.
The EA applies generally to persons who have entered into or work under a contract of service. The exceptions to this are seafarers, domestic workers, and statutory board employees or civil servants.
Generally, employers are free to negotiate the employer-employee relationship by way of contract. In the case of employees who fall under the ambit of the EA, their employment contracts must comply with certain prescribed requirements under the EA.
Other statutes dealing with aspects of employment include, but are not limited to, the:
For areas not specifically governed by statute, the common law generally applies.
Generally, foreigners who wish to work in Singapore would be required to apply for a work pass with the Ministry of Manpower (MOM). Singapore citizens and Singapore permanent residents are not required to obtain such work passes and may freely work for any organisations in Singapore.
However, there are certain restrictions on the number of foreigners that a company may employ, depending on the ratio of foreigners to locals in the company, the class of worker, nationality of worker or even the industry in which he is employed.
The most common types of work passes available to a foreigner intending to work in Singapore are:
The EntrePass is another form of work pass in Singapore. These are intended for serial entrepreneurs, high-calibre innovators or experienced investors that want to operate a business in Singapore that is venture-backed or owns innovative technologies. Application is open to all nationalities. Foreigners who wish to apply for an EntrePass must:
In Singapore, tax is imposed on income “accruing in or derived from Singapore or received in Singapore from outside Singapore”. Essentially, this means that there are two bases of taxation in Singapore – the territorial basis and the remittance basis.
Under the territorial basis, income is liable to tax if the source of income is in Singapore, while under the remittance basis, income having a source outside Singapore will be liable to Singapore tax only if such income is received in Singapore, unless such income is specifically exempt from tax.
In respect of tax treatment, for instance, with regards to the applicable tax rates, the exemption of income, the availability of reliefs and foreign tax credits, these may differ between a Singapore tax resident and a non-Singapore tax resident.
Companies incorporated in Singapore and foreign corporations which have registered branches in Singapore are liable for tax at the prevailing rate of 17% of the chargeable income accruing, derived or received in Singapore unless their businesses qualify for and are granted tax relief for a period under the Economic Expansion Incentives (Relief from Income Tax) Act 1967 of Singapore or enjoy concessionary tax benefits by virtue of the aforesaid Act or the provisions of the Income Tax Act 1947 of Singapore.
There are different types of taxes which may be payable on business operations in Singapore.
Unless otherwise exempted, income tax is generally payable on gains or profits from, for example, the carrying on of a trade, business, profession or vocation, employment, investments, etc.
Income derived in Singapore by non-Singapore residents is also subject to tax in Singapore and may be collected by imposing an obligation to withhold on the payer in Singapore.
Goods and services tax (GST), a broad-based consumption tax which is similar to value-added tax, is a tax that is imposed on any supply of goods or services made in Singapore if it is a taxable supply made by a taxable person – i.e., a person who is or is required to be registered under the GST Act 1993 of Singapore – in the course or furtherance of a business carried on by such person.
It is compulsory for businesses to register for GST when their turnover is more than S$1 million at the end of the calendar year, or is expected to exceed S$1 million in the next 12 months. Businesses that do not exceed S$1 million in turnover may register for GST voluntarily.
The prevailing rate for GST is 8%, which is further set to increase to 9% on 1 January 2024. Although GST is levied on nearly all supplies of goods and services in Singapore and the importation of goods and services, these are standard-rated supplies – i.e., chargeable at the current rate of 8%. GST is chargeable at 0% for the export of goods and the provision of prescribed international services. The input tax directly attributable to zero-rated supplies may be claimed.
The sale and lease of residential properties and the provision of most financial services are exempt supplies. GST is not chargeable on exempt supplies. Generally, input tax incurred in the making of exempt supplies is not claimable.
Stamp duty is a tax levied on executed documents relating to properties or interest in properties and shares or interest in shares.
Stamp duty is payable only on documents described in the First Schedule to the Stamp Duties Act 1929 of Singapore, which include a lease, sale and purchase, gift or mortgage of property. A document may be subject to ad valorem or fixed or nominal duty.
Documents are required to be stamped and duty paid within 14 days from the date of execution if the document was signed in Singapore, or within 30 days of its receipt in Singapore if the document was signed overseas.
A branch of a foreign company is subject to income tax and would be taxed in the same way as a company on its gains or profits from, for example, its trade or business activities. A branch may remit its after-tax profits to its head office without such after-tax profit being subject to further tax obligations.
A branch of a foreign company in Singapore is normally not considered to be a tax resident of Singapore. This means that certain tax benefits are not available to branches. These tax benefits include tax benefits provided under any Avoidance of Double Taxation Agreements which Singapore has concluded with other jurisdictions. They also include tax exemption on foreign-sourced dividends, foreign branch profits and foreign-sourced service income under Section 13(8) of the Income Tax Act 1947 of Singapore, as well as tax exemption for new start-up companies.
Under Singapore law, withholding tax is applicable when a person in Singapore makes certain types of payments to a non-Singapore resident.
When the person in Singapore becomes liable to pay a non-Singapore resident, the person making payment would be required to withhold a certain amount of the payment at the prevailing applicable withholding tax rates. The amount withheld from the payment must then be paid to the Comptroller of income tax within the prescribed periods. The payments from which withholding tax is deductible include:
Rates of withholding range from 0% to 22% depending on the type of income derived in Singapore, and the form and resident status of the recipient – i.e., whether derived by a company or an individual, etc.
The payments from which Singapore tax may be deducted may also be subject to provisions in tax treaties concluded by Singapore with other jurisdictions which are in force.
There are two types of tax incentives given to companies in Singapore – the partial tax exemption scheme and the start-up tax exemption scheme.
The partial tax exemption scheme was introduced to help maintain Singapore’s competitiveness by alleviating the tax burden of less profitable businesses in Singapore. The partial tax exemption applies to the first S$200,000 of normal chargeable income where a 75% tax exemption is allowed on the first S$10,000 of normal chargeable income and a further 50% tax exemption is allowed on the next S$190,000 of normal chargeable income.
The start-up tax exemption was introduced to help newly-incorporated qualifying companies to grow and establish themselves in Singapore. The start-up tax exemption scheme applies to qualifying companies only for their first three consecutive year of assessment.
The start-up tax exemption scheme allows a 75% tax exemption on the first S$100,000 of normal chargeable income and a further 50% tax exemption on the next S$100,000 of normal chargeable income, but it does not apply to investment holding companies and companies which undertake property development for sale, for investment, or for both investment and sale.
Normal chargeable income refers to income which are to be taxed at the prevailing corporate income tax rate of 17%.
Singapore’s intellectual property (IP) law is mostly provided for in four main pieces of IP legislation:
The four primary regulators in Singapore are the Monetary Authority of Singapore (MAS), the Inland Revenue Authority of Singapore (IRAS), the Accounting and Corporate Regulatory Authority (ACRA), and the Singapore Exchange (SGX).
The MAS is the sole regulator in Singapore having regulatory oversight of the financial services industry across various sectors. The MAS is also the central bank of Singapore.
The Singaporean financial services industry encompasses various sub-sectors: banks; finance companies; insurance; securities, futures and fund management; financial advisers; money brokers; money-changing and remittance businesses; business trusts; trust companies; and payment and settlement systems.
The MAS performs six distinct oversight functions to achieve its objectives:
The IRAS is the government’s main tax administrator. It is a statutory board under the Ministry of Finance of Singapore. It collects taxes that account for about 70% of the government’s operating revenue, supporting Singapore’s economic and social programmes to achieve quality growth and an inclusive society.
The IRAS acts as an agent of the government and provides service in the administration of taxes and enterprise disbursements. IRAS also advises the government and represents Singapore internationally on matters relating to taxation.
ACRA is the national regulator of business entities, public accountants, and corporate service providers in Singapore.
Part of its role is to achieve synergies between the way corporate compliance is monitored through disclosure requirements and the way public accountants perform statutory audit. ACRA also has the responsibility for:
The SGX is the only stock exchange in Singapore. It performs regulatory functions with respect to listings, issuer regulation, member supervision and market surveillance.
The SGX is regarded as Asia’s leading and trusted securities and derivatives market infrastructure, operating equity, fixed income, currency and commodity markets to the highest regulatory standards. It also operates a multi-asset sustainability platform, SGX FIRST (Future in Reshaping Sustainability Together).
As Asia’s most international, multi-asset exchange, SGX provides listing, trading, clearing, settlement, depository and data services. Approximately about 40% of listed companies and over 80% of listed bonds originate outside of Singapore.
SGX is the world’s most liquid international market for the benchmark equity indices of China, India, Japan and ASEAN. Headquartered in AAA-rated Singapore, SGX is globally recognised for its risk management and clearing capabilities.
SGX is committed to facilitating economic growth in a sustainable manner. With climate action a major priority, SGX aims to be a leading sustainable and transition financing and trading hub offering trusted, quality, end-to-end products and solutions.