Sources of Singapore Tax Law

INTRODUCTION

SOURCES OF SINGAPORE TAX LAW

(A) Two formal sources of Singapore Tax Law:

(1) Statute Law 

In Singapore, the principal statute governing tax law is the Income Tax Act 1985.

The Income Tax Act is supplemented by the Economic Expansion Incentives (Relief from Income Tax) Act. Singapore like many other developing countries is heavily dependent on foreign capital inflows.

To encourage these inflows they provide comprehensive programs of incentives based primarily on considerations such as  total investment involved, technical input, export potential, employment opportunities and general conduciveness to the development of industrial and financial activity.

The central purpose in providing the various concessions and incentives is to broaden the industrial and financial base of Singapore. In Singapore there is greater emphasis towards encouraging industries which have a high technology content which are preferred because they are capital intensive and not labour intensive.

It is the primary object of the Government to make Singapore a regional center for advanced technology, services and finances. Incentives for economic development in Singapore and Malaysia are mainly in the form of corporate income tax incentives. These tax incentives usually

take the form of either:

• “tax holidays” for approved enterprises whereby for a period of time no tax or reduced tax is imposed on income earned; or
• capital-expenditure based incentives to industries requiring a low initial investment where profitability in the early year is low.

Tax relief or capital expenditure is credited to a tax-free account out of which tax-free dividends may be paid to shareholders.

In addition to the incentives contained in the Economic Incentives Act,

there are various types of tax incentives provided in the Income Tax Act.

These  include:

• certain exemptions from tax, for example, for remittances into Singapore by non-residents and for short-term employment visits by non-residents;
• reduced rates of tax, for example for composers and authors, art and antique dealers, oil trading industry;
• industrial building and capital allowances;
• accelerated capital allowances on know how and patents used by industrial enterprises and 100% write off for computers, robots and automation equipment;
• double deductions, for example for export promotion expenses, R&D expenditure and scientific research;
• incentives for operational headquarters;
• incentives for venture capital companies (high risk and new technology projects).  

Subsidiary legislation

Subsidiary legislation is made pursuant to provisions of the Income Tax Act and often sets out the details of schemes and arrangements authorised under these provisions. For example, the Income Tax (Concessionary Rate of Tax for Approved Headquarters Company) Regulations passed by the

Minister of Finance, exercising powers conferred by sec. 43A of the Act that offer a special rate of tax for approved headquarters companies.

The most commonly encountered subsidiary legislation in income tax law are the Double Tax Agreements that Singapore has negotiated with other countries, particularly capital exporting countries. The primary consideration of double tax agreements is to promote the elimination of double taxation of income. Furthermore double tax agreements often provide tax incentives particularly between developing countries and developed countries. Such agreements attempt to encourage the inflow of capital into the developing country thereby:

• encouraging the  growth of trading activities in the developing country, as well as,
• create an income flow into the developed country whose residents are protected by tax incentives provided by the developing country  and often by tax sparing credits provided by the

developed country to its residents.

 (2) Case Law

Case law is the accumulated decisions of the courts where the courts have expressed their opinions upon the interpretation of the Statutes. The British Parliament did not become very active in developing legislation until the 19th century. By that time the common law had been very active in

developing many areas of law in the absence of legislation, for example, contract law, tort law and

criminal law.

Although the sole source of tax law is the statutes, relevant local and overseas court decisions play a significant role in the interpretation and application of local statutes. Because the ITA was based on the Model Colonial Territories Income Tax Ordinance 1922 which was devised for British colonies, common traits exist to this day in the tax legislations of Singapore, Malaysia, Australia, New Zealand and South Africa, etc.

As a result, Singapore courts often refer to judicial decisions of these other countries, where they interpret provisions of their own Acts which are similar to provisions of the Singapore Income Tax Act. Commonwealth cases are of persuasive authority and will be followed if there is no contrary section in the Income Tax Act, and provided that the words used in the Income Tax Act are the same. Accordingly, there are many similarities in the key criteria that determine assessability under the tax Acts of Singapore, UK, Malaysia and Australia. The important distinctions between income receipts and capital receipts and between revenue expenditure and

capital expenditure are determined by similar criteria in all these jurisdictions.

(B)        Informal source of law

The Inland Revenue Authority of Singapore provide rulings on the interpretation of provisions of the ITA and the tax effects of certain transactions. Applications can be made for rulings. The IRAS also provides Interpretation and Practice Notes which outline the IRAS’s interpretation of certain provisions of the tax law as well as administrative practices which it adopts when applying the law.