A tax loophole that opened up with a 2015 announcement and which was made possible from last year, is now set to be closed - and for good reason. In 2015, the Government announced that from the year of assessment 2017, the highest personal income tax rate would go up from 20 to 22 per cent. Corporate tax is 17 per cent. This means that an individual with annual chargeable income of $500,000 can save about $27,000 in taxes if he forms a company and declares that amount as corporate, not personal, income. Companies may also qualify for the start-up tax exemption scheme, saving up to $34,000 a year for three years.
The 5 percentage point arbitrage opportunity explains the recent Inland Revenue Authority of Singapore's (Iras) action to review the tax returns of high-earning professionals. The Straits Times reported last week that Iras' investigation resulted in about $10 million recovered, for taxes going back four years - $3.6 million clawed back from more than 20 doctors and dentists, and $6 million from about 60 lawyers, tutors, renovation contractors and commission agents.
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