Tax loopholes in SG that allow the cunning to CHEAT on personal income taxes.

Singapore Tax loopholes (income, GST) that the rich dance circles around

Singapore Tax loopholes (income, GST) that the rich dance circles around

- Regarding personal income taxes:
"Singapore follows a progressive tax rate starting at 0% and ending at 20% above S$320,000": ['Singapore Personal Income Tax Guide' (link)].

- Regarding Corporate taxes:
'Corporate Tax Rates'

• Zero tax for new Singapore companies on the first 100K annual profits for the first 3 years
• All resident companies to enjoy approx. 9% corporate tax rate for profits up to 300K
• Overall company tax rate is a flat 17%
• [Source: 'Singapore Corporate Taxes' (link)]

According to 'Singapore Company Registration Guide' [guidemeSG]: "Most companies in Singapore are registered as private limited liability companies (commonly known as private limited companies). .... According to Singapore Companies Act, any person (foreign or local) above the age of 18 can register a Singapore company."

Thus a tax consultant Mr X usually earn SGD680k p.a. can very easily reduce his income tax burden (YA2010) of $114.7k (tax table [IRAS]) to ZERO by providing his services under the auspices of unlimited 'shell' companies: A, B, C and so on to exploit the corporate tax benefits aforementioned listed, namely: "Zero tax for new Singapore companies on the first 100K annual profits for the first 3 years".
This by simply earning a max personal income of only $20k p.a. (zero income tax on first $20k: (tax table [IRAS])) and then dividing all subsequent earnings over as many companies as it takes to exploit the first $100k profit zero tax scheme. In accordance to Mr X purposes, all his shell companies pay full dividends on all profits made to its share holder- none other than Mr X himself.
"Singapore currently adopts a one-tier corporate tax system. Under the one-tier corporate tax system, tax paid by a company on its chargeable income is the final tax. All dividends paid by a company are exempt from tax in the hands of the shareholders. ": (One-tier corporate tax system [IRAS])

In accordance with Mr X's exploitation of SG taxation loopholes, he incorporates as many companies as is necessary to benefit from the "Zero tax for new Singapore companies on the first 100K annual profits..."

As Mr X has paid himself through his 'consultancy' companies' revenues- an annual salary of $20k p.a. only; Mr X would then have, for the purposes of his legal tax evasion scheme, the need to operate under the auspices of 6 or more companies, each earning an annual profit of $100k.

Has the corporate tax system been subject to flagrant misuse by the rich and sneaky in 'legally' evading personal income taxes- definitely.

As for evidence of corporate cheats pillage of government revenue through illicit GST reimbursement applications, see: 'GST cheat gets jail, $1m fine' [ST, 4June2010]

Suggestion:
If SG really wants a vibrant economy, then reduce personal income taxes by encouraging companies not to skimp on employee salaries by raising the corporate tax rate (17%) above the max personal income tax rate (20%)- put $ in the pockets of employees and allow them to invest/ spend this money as they deem fit/ better still, in investment as SME/ corporate shareholders.
Corporate income tax rates should NOT be LOWER than the highest rate of personal income taxes and NEITHER should there be any discounts on corporate income taxes. If corporate taxes need be lowered, then please lower personal income taxes first, just having a flashy headline grabbing corporate tax rate is just cheap advertising a cover-up the socio-economic rot festering beneath.

Always remember that corporates are NOT Humans, as such, conferring corporates MORE tax benefits then we confer humans is certainly placing the cart before the horse if not the opening of a Pandora's box of human evil.

The preferential tax regime of corporates over individuals is certainly syndromic of the Singapore government's worship of the mammon god, a worship that is doomed to destruction of the Singapore economy if not society.


"Those who would give up Essential Liberty to purchase a little temporary Safety, deserve neither Liberty nor Safety."-- Benjamin Franklin

Definitions:
- 'Mammon': "Mammon is a term, derived from the Christian Bible, used to describe material wealth or greed, most often personified as a deity". [Wikipedia: Mammon]
- 'Legal personality': [wiki]: "Legal personality (also artificial personality, juridical personalty, and juristic personality) is the characteristic of a non-human entity regarded by law to have the status of a person. A legal person (Latin: persona ficta), (also artificial person, juridical person, juristic person, and body corporate, also commonly called a vehicle) has a legal name and has rights, protections, privileges, responsibilities, and liabilities under law, just as natural persons (humans) do. The concept of legal personality is perhaps one of the most fundamental legal fictions. It is pertinent to the philosophy of law, as well as corporations law (the law of business associations)."

References:
- 'Freedom for Sale': "Don’t risk real freedom for short-term material gain.. Our civil liberties are in jeopardy and we are to blame. We have reduced democracy to the right to make and spend money... (in return for) a temporary blanket of security and what turned out to be an illusory prosperity" [The Times, 7Sept2009]
- 'Countries with the Biggest Gaps Between Rich and Poor', (by Bruce Einhorn): "No. 2 Singapore-.. Ratio of income or expenditure, share of top 10% to lowest 10%: 17.7". [BW,16Oct2009]
- 'GST cheat gets jail, $1m fine': "OVER a period of 31/2 years, the managing director of a cleaning firm inflated the Good and Services Tax (GST) he paid and under-declared the GST he collected - all to deceive the taxman into refunding him nearly $330,000 in tax rebates" [ST, 4June2010]

The rich ones will bother trying to cheat on taxes this is common everywhere in every countries.

While theoretically you are right, your example is so flawed that I find it laughable and impossible to achieve. What those who really can do something to cut their taxes normally use their company to fund their lifestyle instead.

It's nothing secret. Why do you think some MNCs have Asia Pte Ltd, and Singapore Pte Ltd all located in the same country?

It isn't something specifically bad actually. Because this means those companies (legitimate ones), due to the tax 'loophole', would prefer to move their regional or global operations to Singapore (of course, tax isn't the sole reason for their considerations). And that can mean more jobs lor.

President Barack Obama said:

The rich ones will bother trying to cheat on taxes this is common everywhere in every countries.

Click to expand...

I called that Tax Planning!

you called that cheating. I called that creative.

cherry6 said:

Tax loopholes in SG that allow the cunning to CHEAT SUBSTANTIALLY on personal income taxes- (73.9% or more saved).

Regarding personal income taxes:
"Singapore follows a progressive tax rate starting at 0% and ending at 20% above S$320,000": ['Singapore Personal Income Tax Guide' (link)].

Regarding Corporate taxes:
'Corporate Tax Rates'

• Zero tax for new Singapore companies on the first 100K annual profits for the first 3 years
• All resident companies to enjoy approx. 9% corporate tax rate for profits up to 300K
• Overall company tax rate is a flat 17%
• [Source: 'Singapore Corporate Taxes' (link)]

According to 'Singapore Company Registration Guide' [guidemeSG]: "Most companies in Singapore are registered as private limited liability companies (commonly known as private limited companies). .... According to Singapore Companies Act, any person (foreign or local) above the age of 18 can register a Singapore company."

Thus a professional consultant Mr X usually earn SGD680k p.a. can very easily reduce his income tax burden (YA2010) of $114.7k (tax table [IRAS]) by providing his services equally under the auspices of say 3 'shell' companies: A, B and C- that he solely/ severally own- each company earning $200k annual profit after deducting Mr X salary of $80k from employment in all 3 companies (total revenue= $680k amongst the 3 shell co.s)
Income tax Mr X pays on $80k personal income: $4300 (tax table [IRAS])
Keeping the age of each company under 3 yrs and so enjoying zero tax for the $100k profits, the remaining $100k per company is taxed at 4.5% of 10k + 9% of 90k = $8.55k.
Total corporate tax payable PA for 3 'shell companies': $8.55k X 3= $25.65k pa.
As Mr X is the chief and only share holder of Co. A, B and C which pay out full dividends from profit annually, Mr X takes home $680k - $4.3k - $25.65k = $650.05k p.a..
Through the use of 3 'sham' / shell companies, Mr X has thus saved $114.7k - 4.3k - 25.65k = $84.75k in personal income taxes. (a 73.89% income tax discount)

Can the corporate tax system be misused by the rich and sneaky in 'legally' evading personal income taxes- indeed.

Suggestion:
Corporate income tax rates (17%) should NOT be LOWER than the highest rate of personal income taxes (20%) and NEITHER should there be any discounts on corporate income taxes.
If SG wants a vibrant economy, then reduce personal income taxes- put $ in the pockets of employees and allow them to invest this money as individual share holders involved in the operation of SMEs and corporates.

Always remember that corporates are NOT Humans, as such, we should not confer corporates MORE benefits then we confer humans.

Worship of the corporates is syndromic of the worship of the mammon god.

"Those who would give up Essential Liberty to purchase a little temporary Safety, deserve neither Liberty nor Safety."-- Benjamin Franklin

References:
- 'Mammon': "Mammon is a term, derived from the Christian Bible, used to describe material wealth or greed, most often personified as a deity." [Wikipedia: Mammon]

- 'Freedom for Sale': "Don’t risk real freedom for short-term material gain.. Our civil liberties are in jeopardy and we are to blame. We have reduced democracy to the right to make and spend money... (in return for) a temporary blanket of security and what turned out to be an illusory prosperity" [The Times, 7Sept2009]

Click to expand...

Yes. It's a loophole. But just don't get caught by IRAS running a shell company. You'll definitely get fined HEAVILY, and maybe even JAILED.

I know. I got some rich multi-millionaire relatives doing this. In the end, they were caught by IRAS and heavily fined (3x unpaid taxes + penalties) and jailed. Good luck using this loophole.

... the rich are continuously granted ample loopholes towards tax evasion practices.

blacklotus said:

Yes. It's a loophole. But just don't get caught by IRAS running a shell company. You'll definitely get fined HEAVILY, and maybe even JAILED.

I know. I got some rich multi-millionaire relatives doing this. In the end, they were caught by IRAS and heavily fined (3x unpaid taxes + penalties) and jailed. Good luck using this loophole.

Click to expand...

1) Tks for archiving my old version/copy, its since been edited for simplicity.

2) Pt is, how would it be illegal for such shell co.s. to be operated if, as I've mentioned, everything is actually above board: the accounting and paperwork intact. Its a loophole that the SG government seems to allow though it might for now be slightly imprudent to suggest that there are partisan political persuasions for such glaring personal income taxation loopholes.

Its a shame that in a country with the worlds 2nd widest wealth divide, the rich are continuously granted ample loopholes towards tax evasion practices.

- 'Countries with the Biggest Gaps Between Rich and Poor', (by Bruce Einhorn): "No. 2 Singapore-.. Ratio of income or expenditure, share of top 10% to lowest 10%: 17.7". [BW,16Oct2009]

- 'GST cheat gets jail, $1m fine': "OVER a period of 31/2 years, the managing director of a cleaning firm inflated the Good and Services Tax (GST) he paid and under-declared the GST he collected - all to deceive the taxman into refunding him nearly $330,000 in tax rebates" [ST, 4June2010]

Inix: "What those who really can do something to cut their taxes normally use their company to .."

Inix said:

While theoretically you are right, your example is so flawed that I find it laughable and impossible to achieve. What those who really can do something to cut their taxes normally use their company to fund their lifestyle instead.

Click to expand...

Why impossible to achieve when its TOTALLY LEGAL since:
"According to Singapore Companies Act, any person (foreign or local) above the age of 18 can register a Singapore company.": 'Singapore Company Registration Guide' [guidemeSG].

Yes, U can fund purchases viz co. account to evade income taxes- yes, I'd agree that there are some who do it. But if its for some ridiculous items- e.g. if U r a business consultant and what's billed is:

• NTUC family grocery weekly purchases, TV and refrigerator, home renovations, a car not listed as a company vehicle,
• Credit card bills for obviously holiday resort locations (foreign) for family holidays (wife n kids).
• Private visits to bars/ spars/ other shady businesses,
• Mistress credit card bills, bills from casino, etc etc.

I'd guess one would have a very hard time justifying to IRAS that those were company business costs rather then pte employee benefits taxable as income tax; which is why shell companies allow U to do ALL this MONKEY BUSINESS totally legally n tax free.


So what I've just described gives U cash in hand- totally legally (as dividends) without worry of IRAS questioning you in any way since by their policy, this evasion of >$114k tax (as described) is TOTALLY LEGIT!

I dunno, but the loophole is a crying shame and ought be closed ASAP.

cherry6 said:

Why impossible to achieve when its TOTALLY LEGAL since:
"According to Singapore Companies Act, any person (foreign or local) above the age of 18 can register a Singapore company.": 'Singapore Company Registration Guide' [guidemeSG].

Yes, U can fund purchases viz co. account to evade income taxes and yes, I'd agree that there are some who do it. But what I've just described gives U cash in hand- legally at that: any political premise for so?

I dunno, but the loophole is a glaring one and should be closed ASAP.

Click to expand...

This is not a loop hole but a policy decision. Anyone can make use of this known feature of our tax code.

I believe there are more who use shell company to fund lifestyle than those who use shell company to pay them dividend...

sunzoner said:

This is not a loop hole but a policy decision. Anyone can make use of this known feature of our tax code.

I believe there are more who use shell company to fund lifestyle than those who use shell company to pay them dividend...

Click to expand...

Yup. That's how my relatives got caught. Their lifestyle were too opulent. Can we say million dollar weekend (red plate) sports cars for the whole family and kids...family cars are just a cheapish top end BMW 7 series, a Merc 600SL and a Bentley. Their house has a service lift in it...4 stories, or is it 5 (is an attic considered a floor?)

Apparently, some business competitor/associate/enemy/friend with green eyes reported them to IRAS...

people have always avoided paying the taxman since there were taxes...

does not matter where. does the IRAS's apparent "inability" to catch them all make it useless?

if so, then vote someone else in (like the SDP) they will solve that problem. The rich will pay every single cent due dutifully because a "proper" party is in power....

cherry6 said:

Why impossible to achieve when its TOTALLY LEGAL since:
"According to Singapore Companies Act, any person (foreign or local) above the age of 18 can register a Singapore company.": 'Singapore Company Registration Guide' [guidemeSG].

Yes, U can fund purchases viz co. account to evade income taxes and yes, I'd agree that there are some who do it. But what I've just described gives U cash in hand- legally at that: any political premise for so?

I dunno, but the loophole is a glaring one and should be closed ASAP.

Click to expand...

You are barking on the wrong tree. Your example is completely flawed. In your case, you're talking about a business consultant who earns $600+K. Undoubtedly, he can start 3 companies, but he needs to find clients who will allow him to bill his $600K worth of services to any of his 3 shell companies that he so determine.

Have you ever heared of AVL? Approved Vendor List? Do you even know how the real markets work? Furthermore, the tax credits last for 3 years. Which means, technically his shell companies can only last for 3 years. If he is going to make $600K a year on consulting, his company is going to need to last more than 3 years, or his customers are going to get really worried.

Not only so, there are far better ways to actually fund your lifestyle with 1 company than to go through the hassle of doing with 3. Which is why I'm saying while what you're saying is technically true, is basically nonsense. People who earn $600K will have too much to lose by doing what you are doing.

What many choose to do, is to heap as much personal expenses on the company, claim as much GST as possible, and see how they can choose to declare less profit to pay less tax.

.. pushing the envelope of economic gain to the detriment of society at large

sunzoner said:

Re: 'Tax loopholes in SG that allow the cunning to CHEAT on personal income taxes.'
This is not a loop hole but a policy decision. Anyone can make use of this known feature of our tax code.

I believe there are more who use shell company to fund lifestyle than those who use shell company to pay them dividend...

Click to expand...

Sorry, but my edited reply explains why it isn't safe to use shell co. to fund your pte lifestyle. IRAS can demand justification, n if U r unable to justify, then that's personal income tax evasion, a punishable crime.
- -

This isn't the first time the concept of a corporation (aka 'company') has been manipulated by dishonourable folk to the detriment of sociaty, see: Walkovszky v. Carlton: "Walkovszky v. Carlton, 223 N.E.2d 6 (NY 1966)[1], is a leading decision on the conditions under which Courts may pierce the corporate veil. A cab company had shielded themselves from liability by incorporating each cab as its own corporation. The New York Court of Appeals refused to pierce the veil on account of undercapitalization alone".
- By listing each taxi as a corporation and the taxi owner a only/ main share holder of 10 such corporations, Mr Carlton tried to evade personal liability claiming 'share holder immunity'- an the US judge seems to have upheld Mr Carlton's devious scheme as righteous entrepreneurial activity, with sad implications for society.

Based on the Singapore government's preferential tax treatment of corporations over real human individuals, I think that the SG government by pushing the envelope of economic gain is threading the slippery slope of harm to society at large.

Inix said:

You are barking on the wrong tree. Your example is completely flawed. In your case, you're talking about a business consultant who earns $600+K. Undoubtedly, he can start 3 companies, but he needs to find clients who will allow him to bill his $600K worth of services to any of his 3 shell companies that he so determine.
Have you ever heared of AVL? Approved Vendor List? Do you even know how the real markets work? Furthermore, the tax credits last for 3 years. Which means, technically his shell companies can only last for 3 years. If he is going to make $600K a year on consulting, his company is going to need to last more than 3 years, or his customers are going to get really worried.
Not only so, there are far better ways to actually fund your lifestyle with 1 company than to go through the hassle of doing with 3. Which is why I'm saying while what you're saying is technically true, is basically nonsense. People who earn $600K will have too much to lose by doing what you are doing.
What many choose to do, is to heap as much personal expenses on the company, claim as much GST as possible, and see how they can choose to declare less profit to pay less tax.

Click to expand...

Again, thanks for archiving my older version, its since been enhanced for clarity.

Regarding the funding of your lifestyle with 1 company, I've highlighted the dangers of doing so and blacklotus seems to have followed up with a personal example of the woes that betide those investigated [20Feb, 10.17pm].

Ditto those who seek GST refunds on private purchases through their respective companies.

About AVL, I dun think such things can function in a porous economy like ours- it sure won't work for deals done abroad- SG cannot legislate approved vendor services for deals signed internationally.

If he has reputation enough (perhaps amongst other shady companies), no one would bother when his company was incorporated. These shell companies are of course created to evade income tax 'legitimately', and as the SG govt so permits, they are created and then replaced like the underwear of an incontinent child.

Such is perhaps the perspective of Singapore's leaders business mindset: just headline grabbing corporate tax rates; never mind the rot beneath, never mind the tax loopholes unfilled.
As long as the people don't complain for now, they will continue perpetuating the lie that they are a first class govt worthy of all CEO salaries. It is a lie that preludes the downfall of society, a lie future generations will curse and regret.

Ref:

- 'Countries with the Biggest Gaps Between Rich and Poor', (by Bruce Einhorn): "No. 2 Singapore-.. Ratio of income or expenditure, share of top 10% to lowest 10%: 17.7". [BW,16Oct2009]

-

cherry6 said:

Again, thanks for archiving my older version, its since been enhanced for clarity.

Regarding the funding of your lifestyle with 1 company, I've highlighted the dangers of doing so and blacklotus seems to have followed up with a personal example of the woes that betide those investigated [20Feb, 10.17pm].

Ditto those who seek GST refunds on private purchases through their respective companies.

About AVL, I dun think such things can function in a porous economy like ours- it sure won't work for deals done abroad- SG cannot legislate approved vendor services for deals signed internationally.

If he has reputation enough (perhaps amongst other shady companies), no one would bother when his company was incorporated. These shell companies are of course created to evade income tax 'legitimately', and as the SG govt so permits, they are created and then replaced like the underwear of an incontinent child.

Such is perhaps the perspective of Singapore's leaders business mindset: just headline grabbing corporate tax rates; never mind the rot beneath, never mind the tax loopholes unfilled.
As long as the people don't complain for now, they will continue perpetuating the lie that they are a first class govt worthy of all CEO salaries. It is a lie that preludes the downfall of society, a lie future generations will curse and regret.

Ref:

- 'Countries with the Biggest Gaps Between Rich and Poor', (by Bruce Einhorn): "No. 2 Singapore-.. Ratio of income or expenditure, share of top 10% to lowest 10%: 17.7". [BW,16Oct2009]

-

Click to expand...

I suggest you actually research or have a look at whats going on outside in the world before embarrassing yourself here. Capital gains overseas by individuals are not taxable. Since you're talking about client's who don't care about AVL or other stuff, they should be SMBs in the regions. Considering the Ang Mohs are very strict about this.

If he has large amounts of businesses there, he would do better to setup companies there, do up books that will report small / no profits there, and transfer all the money back to Singapore as capital gain to avoid taxes on both ends.

Inix: "I suggest you actually research or have a look at whats going on outside in the world ..."

Inix said:

Re: Singapore Tax loopholes (income, GST) that open the Pandora's box of human evil.
I suggest you actually research or have a look at whats going on outside in the world before embarrassing yourself here. Capital gains overseas by individuals are not taxable. Since you're talking about client's who don't care about AVL or other stuff, they should be SMBs in the regions. Considering the Ang Mohs are very strict about this.

If he has large amounts of businesses there, he would do better to setup companies there, do up books that will report small / no profits there, and transfer all the money back to Singapore as capital gain to avoid taxes on both ends.

Click to expand...

Psst, you have misread my response as I have NOT touched upon the issue of capital gains from business mainly derived elsewhere (i.e. in another country).

My example involving a business deal being signed in another country was merely and example used to refute your assertion that compliance with an 'Approved Vendor List' (as appointed by the government of Singapore) would apply- obviously not be the case as the SG govt is unable (and cannot logically) micro manage such business matters to this extent but should accept the expenses claimed for in so far as they are bona-fide.
Such expenses claimable for the signing of such trade deals in say China include airfare, accommodation, some entertainment etc expended in the course of conducting a legitimate business transaction.

As such, I shall refrain from commenting about capital gains from business conducted abroad as the example I've used pertains to business considered conducted mainly/ wholly in Singapore- with the only exception being that of the contract was signed abroad- say in China.

Adding to this discussion the issue of Capital gains derived from business mainly conducted abroad only serves as distraction from the issue and you are best advised to refrain from doing so.

This discussion pertains to the Singapore tax loophole of allowing zero personal income tax liabilities through the ('mis')use shell companies and the legitimate abuse of their associated generous corporate tax exemptions. A gaping loophole that at current, the Government of Singapore, in its blind pursuit of wealth through the celebration of such 'persona ficta(s)' has embarrassed itself with. Having elevated corporate rights and privileges to a stature in excess of what real human beings are accorded, the Singapore government now has the problem of individuals misusing such 'persona ficta(s)' for their own selfish gain.

IMHO, the SG govt's blind worship of the mammon god is one to the detriment of both Singapore society in particular as well as the world at large.

Definition(s):
- 'Legal personality': [wiki]: "Legal personality (also artificial personality, juridical personalty, and juristic personality) is the characteristic of a non-human entity regarded by law to have the status of a person. A legal person (Latin: persona ficta), (also artificial person, juridical person, juristic person, and body corporate, also commonly called a vehicle) has a legal name and has rights, protections, privileges, responsibilities, and liabilities under law, just as natural persons (humans) do. The concept of legal personality is perhaps one of the most fundamental legal fictions. It is pertinent to the philosophy of law, as well as corporations law (the law of business associations)."
- 'Mammon': "Mammon is a term, derived from the Christian Bible, used to describe material wealth or greed, most often personified as a deity." [Wikipedia: Mammon]

cherry6 said:

IMHO, the SG govt's blind worship of the mammon god is one to the detriment of both Singapore society in particular as well as the world at large.

Click to expand...

I find your constant references to abrahamic fairytales rather annoying. Instead of flaunting semi-poetic religious references & verses, perhaps it might be best if you work on keeping your posts articulated and to the point.

This isn't the first time I have commented on your posting style.

he got philosophy, religion and justice all included in his posts... what is there not to like?

cancer81 said:

he got philosophy, religion and justice all included in his posts... what is there not to like?

Click to expand...

Not only that, technically the "loophole" cherry6 brought up isn't a real loophole since there are penalties in place (enforced by law and liable to lawsuits) should such frauds be detected and/or reported.