Does Singapore’s Tax Policy Reflect The Digital Economy?

There are plenty of reasons why Singapore is considered a tax haven for corporate organizations. This is the prime reason the nation consistently received accolades and laurels for being a center of international trade and finance. The country offers relatively low tax rates to companies living and doing business in Singapore, and capital gains are exempted from tax deductions. There is a standard rate of tax to be imposed on business entities, but IRAS (Inland Revenue Authority Of Singapore) introduces tax incentives from time to time which may alter the tax rate.

The way the internet has globally transformed the way businesses operate demands a tax system that caters to the digitized economy model. The internet is contributing effectively to the growth and sustainability of the nation’s socio-economic development and has impacted business operations in the following ways:

  • It helps to trade physical products and deliver them through conventional means.
  • It provides many services online, such as financing, advertising, etc.
  • It facilitates the market of digitized products like software, music, information channels, etc.

For regulating the tax on individuals and business entities, the tax identification number singapore is assigned to business organizations. Besides these minor changes, corporations have implemented significant reforms due to the digital revolution over the past few decades. Let’s see how IRAS has implemented these changes in the various aspects of taxation according to the country’s domestic law.

Income tax deductions:

One specific factor to be considered is that there is no particular provision for tax deductions according to a law that deals specifically with eCommerce businesses. However, the existing rules are applied to the overall income derived from these platforms to determine the tax liability. IRAS has issued an e-Tax guide to underline some guiding principles for digital tax deductions of businesses. According to IRAS e-Tax guidelines, the following business models are covered.

  • The goods are physical or digitized.
  • The location where it got manufactured.
  • Does the company have a branch existing in another country?
  • Where is the website of the company hosted?

The taxation policy of Singapore aligns with the latest global trends as it has a highly open economy with a small domestic market.

IRAS introduced a special regime to implement tax on the digital economy called Overseas Vendor Registration Regime (OVRR). It deals with the taxation of digital and non-digital services imported to Singapore and is used to apply to businesses in the following ways.

B2C model (Business to customer): OVRR is targeted towards the businesses that operate overseas and supply digital services to the citizens of Singapore over the internet. The nature of the services rendered is automatic, with minimal human intervention. The OVRR also considers whether these services are delivered to Singaporeans or not.

B2B model: Instead of OVRR, the reverse charge mechanism is applied in this model for taxing digital and non-digital imported services. It also applies to all imported services in general.

Introducing these new tax measures was an excellent move by the government of Singapore amidst the rise of strong global adaptation, and it will contribute to revenue growth.