How to Legally Reduce Income Tax in Singapore?
Singapore is certainly one of the best places to do business because you can find a wide range of tax incentives in Singapore for different types of businesses and individuals. Yet, many people tend to ignore the numerous ways they can reduce their personal income tax in Singapore.
The purpose of this post is to guide you about these legal and reliable ways to reduce income tax and ensure you are enjoying the benefits of all Singapore tax incentives.
How the Singapore Tax System Works
Singapore’s income tax system is highly progressive. In other words, the more income you earn, the more tax you will have to pay.
However, there are certain legal remedies available that can help you in minimizing the income tax by claiming tax relief. Accounting firms in Singapore help companies as well as individuals identify these relevant tax incentives and get benefits from them.
Following are the top 6 strategies to reduce income tax in Singapore:
1. Top up CPF
Having a retirement plan is essential to lead a healthy and comfortable life. If you are used to stashing money in a savings account for your retirement, then you should consider discontinuing this practice.
Instead, top off your CPF Special Account because every dollar that you spend in voluntary CPF top-ups, you will be eligible for dollar-to-dollar tax relief in income tax. By reducing your chargeable income, there is a very high chance that you will fall into a lower tax bracket, therefore, saving a greater amount of money in taxes.
2. Donation
If you are making a donation to a firm registered with the Singapore government for charity and working for the welfare of the local community, then you will be eligible for tax incentives. However, you should keep in mind that not all of the registered charities are approved IPCs.
Hence, organizations should focus on making donations to IPC-certified charities to ensure the transaction is not taxed. For donations by individuals, transactions are not taxed even if donations are made to non-IPC.
3. Educational Courses
If you are a working individual but want to keep improving yourself, you should consider registering for an educational course or training program at an approved institute. IRAS provides tax relief on common charges like the examination fee, course fee, and tuition fee. As per the Course Fee Relief, you can get up to $5500 tax relief per year.
Such educational courses can be of many different types, including a short diploma, a full-fledged vocational course, or a Master’s program. These tax incentives are important for people who are looking for ways to continually upgrade their skills without suffering from too much financial pressure.
4. Rental Expenses
If you have rented a property and you are generating income from it, you can claim the costs that you incurred while renting it out. Such charges include interest on the mortgage, fire insurance, repair, and maintenance charges that you might have to pay with your own money.
Similarly, if some furniture has been replaced or paintwork has been done, you should consider applying for tax relief.
Generally, it can be difficult for an inexperienced individual to determine which type of rental expense the tax incentive can be obtained. In such a situation, a professional accounting and audit firm in Singapore will be able to help you out.
5. Supplementary Retirement Scheme
The Supplementary Retirement Scheme (SRS) is a highly popular part of the Singapore government’s plans to fulfil the retirement needs of the citizens. If you contribute to the SRS accounts, you will be eligible for dollar-for-dollar tax relief.
Generally, an individual with a taxable income of $60,000 can save around $1085 on the contribution of $15,500. This kind of tactic is very important in saving a significant amount of money on income taxes and also securing your future.
6. Business Expenses
There are many different types of expenses associated with a business. Whether you are running a small-scale business or a large startup, there is a very high chance that you can get some significant tax incentives to reduce your income tax.
In a Nutshell
These are some of the most prominent tax incentives available in Singapore. To make sure that you can get these incentives, you should always keep the receipts and supporting documents that you will submit to the IRAS. Accounting and audit firms can also help you get maximum tax incentives and minimize income tax.
For more information, feel free to get in touch with us.
