In the Millionaires’ Club? Here's how to Optimise Your Tax Efficiency

Singapore has among the lowest personal income tax regimes in the world, but those on the wealthier end of the spectrum can still face hefty taxes. Here’s what you can do to achieve better tax efficiency.

An enduring reason for Singapore’s popularity among the wealthy is its favourable income tax regime; our country has one of the lowest personal tax rates in the world.

Yet – perhaps in accordance with global trends – things are changing.

From Year of Assessment 2024 onwards, the maximum income tax rate will be increased to 23% for income more than S$500,000 to S$1 million; and 24% for income more than S$1 million. The current maximum income tax rate is 22%.

Singapore’s progressive tax system already means that those with higher incomes are taxed more. According to the Ministry of Finance, the top 10% of individuals who pay Personal Income Tax contribute about 80% of PIT collected. With the upcoming tax rate increase, this ratio is expected to remain skewed.

Given the latest developments, here are some latest tips to optimise tax efficiency (i.e., pay less taxes – legally!) for those in the millionaires’ club.

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Maximise your tax relief

In Singapore, various tax relief schemes are offered, and together grant up to S$80,000 in personal tax relief per year of assessment. You can find out which ones you qualify for with this handy Relief Checker (or just ask your accountant).

The Inland Revenue Authority of Singapore (IRAS) explained that the tax relief cap was introduced in 2018 to stop a small subset of taxpayers from unduly benefitting from the various tax relief schemes offered.

In any case, maximising your tax relief is the first place to start in optimising your taxes, but you (or your accountant) probably already knew that.

So we’ll assume that your accountant has already maxed out the tax relief available to you, and move on to other ways to reduce how much tax you have to pay.

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Donation reduce your assessable income

The donations you make can help you save on taxes. How this works is that for every dollar you donate, you can claim 2.5 times in value as a tax deduction.

This deduction is applied to your statutory income, which lowers your assessable income and reduces the taxes you have to pay.

Here’s an example to illustrate tax deductible donations in action.

Hence, by making a donation of S$10,000, your income is taxed at S$175,000 for the year, instead of S$200,000.

Now to be counted as tax deductible, donations have to satisfy the following criteria:

• Donation made to Community Chest or any approved Institution of a Public Charter
• Donation made must not have a refund or exclusivity clause attached, nor provide commercial value to the donor

You may refer to the IRAS website on tax-deductible donations for the full details, but generally, donations to any recognised charitable cause should qualify (you can always ask first).

Additionally, there are several forms of donations that may be considered eligible, including:

• Cash donation
• Shares donation
• Artefact donation
• Donations under Public Art Tax Incentive Scheme
• Land and building donations
• Naming donations

Note that you don’t always have to make a cash donation, you can donate other assets of value you own, and have them count as tax deductions. This opens up several creative ways to further reduce your tax obligations, provided you have the right assets.

Furthermore, if the amount of tax deductions from eligible donations exceed your income, you are allowed to carry forward the unutilised deductions for up to five years.

Related to this topic: All You Need To Know About Income Tax In Singapore

Donate to overseas causes via family office

A new scheme that was briefly mentioned in this year’s Budget, the Philanthropy Tax Donation Scheme for Family Offices will offer another way for high net worth families to claim tax deductions.

This will offer 100% tax deduction on donations made overseas through qualifying local intermediaries. Deductions are capped at 40% of the donor’s statutory income.

To be eligible, donors with family offices must have a fund under the Monetary Authority of Singapore’s Section 13O or 13U schemes, and meet eligibility conditions, such as incremental business spending of S$200,000.

Industry watchers welcome this initiative as it will help recognise philanthropic efforts made towards causes overseas, while also advancing Singapore’s status as a philanthropic hub.

Full details on this new tax scheme will be released at the end of June.  

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Use dividends as income

Singapore does not tax most forms of dividends received from investments. Hence, if you increase the portion of your income that comes from dividends, you can effectively lower your tax rate.

Here are some examples of non-taxable dividends:

• Dividends paid out from Singapore-registered companies listed on the SGX
• Dividends from share buybacks through Special Trading Counters
• Dividends from private resident companies
• Dividends from real estate investment trusts (except derived through a partnership in Singapore, or from the carrying on of a trade, business or profession in REITs)
• Singapore dividends from unit trusts
• Foreign dividends received in Singapore

The idea here is to build up your dividends from investing to replace your regular income, which lowers your tax obligations.

Of course, this is easier said than done, and will require knowledge, patience and skill to successfully pull off.

It may well be that you find working for the income you want to be much easier, even if you have to pay higher taxes.

But, if you do manage to have most of your higher-than-normal income come from non-taxable sources, that’s just a big juicy cherry on top of an already very nice cake, isn’t it?

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