Israel – Singapore Tax Treaty

Business activity in Singapore

Singapore has a robust economy, with leading industries in the manufacturing of electronics, chemicals, biomedical sciences, logistics and transport engineering. With Singapore’s pro-business environment and political stability, the country’s finances have endured stable growth over the past decade. Other major industries that are large sectors of the economy include medical technology, aerospace engineering, and clean energy. Overall, Singapore is home to many businesses and is a major financial hub in the Asia Pacific region.

Singapore has high government revenue with a consistent positive surplus. Singapore has a competitive tax regime that is attractive to businesses and individuals because there are many favorable policies pertaining to living and doing business in Singapore. The country provides numerous tax incentives, has a relatively low corporate tax rate and high personal tax bracket, and doesn’t impose tax on capital gain.

Bilateral agreements between Singapore and Israel

Agreement between the Government of the State of Israel and the Government of the Republic of Singapore for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income

This is an updated agreement from the taxation treaty of 1971, used between Singapore and Israel until 2005. The terms of this agreement, which was signed on May 19, 2005, continues to remain as the prevention of double taxation on income earned by residence of both countries. Additionally, this new agreement aims to promote the cross-flow of trade, investment, financial activities, and the exchange of technical knowledge between Singapore and Israel. There has also been a reduction in interest income withholding tax from 15% to 7%.

Applicability of the MLI

Singapore and Israel have signed the MLI, which means that there is an automatic exchange of information between the two countries. Singapore and Israel signed the MLI in 2017. Israel and Singapore both ratified it in 2019.

The MLI will prevail over the tax agreement, so what is stipulated in the MLI is decisive. Therefore, if the countries want to set a different policy, they will have to set it in the treaty between them and make reservations from the corresponding clauses in the MLI.

Residency for tax purposes in Singapore

Residence of an individual:

An individual is considered a resident in Singapore who’s eligible for tax if they’re physically present in the country for more than 183 days of a year or were engaged in employment during the preceding calendar year. Additionally, you’re eligible for taxation if you’re a foreigner who remains or works in Singapore continuously for a period encompassing three consecutive calendar years.

If there are only minor, temporary absences from the country, then the above circumstances will provide that you are a “resident in Singapore”, as stated in Section 2(1) of the Singapore Income Tax Act 1947 (“ITA”).

Residency of a company:

To determine tax residency for a business in Singapore, it hinges on the location of its central management and control. Typically, this refers to the place where the company’s directors are situated. If the business was physically located in Singapore in the preceding year, it is deemed a tax resident for that specific Year of Assessment.

The tax system in Singapore

The Singapore Tax Authority is called: “The Inland Revenue Authority of Singapore” (IRAS)

Income taxation:

• Residents: 2 – 24%
• Non-residents: 22%

Taxation of companies and branches: 17%

VAT: 8%

Capital gains tax: N/A

Withholding Tax:

Inheritance tax and estate tax in Singapore

Inheritance tax is the tax that an individual pays based off of the total market value of the assets in which they inherited. This includes both small (jewelry, cars, stock shares, etc.) and large property (homes, bank accounts, etc.).

For Singapore, this tax was abolished in February 2008, so individuals no longer need to pay taxes on inheritance no matter what size the asset is.

Relocation

Singapore is a thriving city with lots of business opportunities and is known as an electronic/technology hub. On top of the strong economy, Singapore also has a universal healthcare system for both the citizens and permanent residents of the country, and it has very clean and safe neighborhoods for families. All of these aspects, on top of the incredible scenery and multicultural exposures, makes Singapore a popular destination for relocation within the Asia Pacific Region.

Despite the relatively high cost of living in Singapore, the country’s tax system is considered lenient, with very low taxes. For instance, income tax ranges from 0% to 24% for residents and is 22% for foreigners. The standard tax rate for goods and services is only 8%, and notably, there is no capital gains or inheritance tax at all. Singapore’s tax system makes it an extremely attractive destination for investments and for foreigners in general.

Real Estate Taxation in Singapore

Singapore has progressive property tax rates, meaning that the more expensive the property, the more expensive the taxes will be. Every property has an Annual value (AV), and it’s based on the market of similar properties. Under Singapore’s property tax structure, properties with AVs below £6,268 ($8,000), will pay no property tax, and properties up to £46,224 ($59,000) may pay no property tax, or lower effective property tax. The AV prices change every year though, meaning the amount of taxes you pay each year may also change.

The tax rates for owner-occupied residential property will always be lower than those of non-owner-occupied residential property, not including residential land.

Transfer of funds from Israel to Singapore

According to section 170(a) of the Israeli income tax ordinance, any transfer of payment to a non-Israeli resident is subject to 25% of withholding tax. The tax authority can allow, under certain circumstances, to reduces or dismiss the withholding tax. Our firm handles withholding tax matters with the Israeli Tax Authority.

Due to the fact that both countries have a tax treaty with each other, one can submit a declaration form (2513/2 form – Statement regarding a payment to a foreign resident that is exempt from withholding tax), and under certain circumstances, there is a possibility to transfer the payment without the withholding tax and the approval of the Tax Authority.

In providing advice regarding the transfer of money abroad, in addition to the issue of withholding tax, our office handles the requirements of the foreign banks, such as an accountant’s approval regarding the payment of taxes and examines additional actions required in light of the uniform standard of CRS between the countries – automatic exchange of information between countries which is carried out first through the banks and then between the tax authorities of each two countries.

The banks raise many difficulties and charge high fees for converting shekels into other currencies, so it is important to consult before transferring the funds – Contact us.

For more information on money transfers abroad, click here.

Types of business entities in Singapore

As a thriving country of businesses and corporations, Singapore has several different types of business entities that owners may choose from. The selection of the appropriate entity depends on factors such as the desired tax structure, the desired reputation with suppliers and clients, and the specific opportunities sought by the company. Different types of entities are well-suited for different business needs and objectives.

The following are the main business entity types in Singapore:

1. Private limited company (LLC): This is a type of business structure where the ownership is held by fewer than 50 people, and it is not open to the general public. In Singapore, the majority of privately incorporated businesses are registered as LLCs, and it’s the most advanced and flexible type of business form here. Shareholders of these types of companies may consist of individuals, corporate entities, or both.
2. Public limited country: This type of business entity has the option to offer shares to the general public, and must have a minimum of 50 shareholders. A public limited company has strict rules and regulations due to its ability to raise funds from the public, and its typically listed on stock exchanges, providing a platform for trading their shares. Overall, it’s an entity meant for large businesses.
3. Public Company limited by guarantee: This type of business entity is meant for non-profit purposes. In Singapore, a non-profit organization (NPO) is an organization that supports and engages in activities of both public or private interest, and doesn’t make any monetary profit.

Incentive laws in Singapore

Singapore has many different tax incentives that people may take advantage of. Applicants who apply to such incentives must satisfy strict requirements and are expected to make large economic activities in Singapore. Some other factors that will be considered are if Singapore is a base form for implementing regional growth strategies, such as: introduction and anchoring of leading-edge skills, technology, and activities in Singapore; contributions to the growth of R&D and innovation capabilities.

Other tax incentives includes:

• Pioneer tax incentive (PC) – Its purpose is to encourage companies to develop new capabilities and to undertake new or expanded economic activities in Singapore.
• Development and Expansion Incentive (DEI)
• Investment allowance
• Incentives for internationalization – Their aim is to encourage companies to become international and to engage in global activities.
• Enterprise Innovation Scheme (EIS) – Its purpose is to encourage businesses to engage in research and development activities, innovation, and capability development. This program was announced by the Singapore government and the Minister of Finance, and under this program, existing tax benefits will be enhanced, and new tax benefits will be introduced. In addition, eligible businesses can choose to convert up to 100,000 dollars of their total recognized tax expenses for the relevant tax year into cash at a conversion rate of 20%.

When a company is considered as a tax residence, they may endure special benefits. Some of these benefits include:

• Exemption or reduction in tax imposed on specified foreign income that is derived in a jurisdiction that has an Avoidance of Double Taxation Agreement (DTA) with Singapore
• Tax exemption om specified foreign income such as foreign-sourced dividends, foreign branch profits, and foreign-sourced service income under Section 13(8) of the Income Tax Act 1947
• Foreign tax credit for the taxes paid in the foreign jurisdiction against the Singapore tax payable on the same income
• Tax exemption for new start-up companies

Singapore Double Tax Treaties