Residents must submit an income tax return for the income earned each year, except when tax payment procedures have been completed through withholding at source, and must pay the tax owed between February 16 and March 15 of the following year. Persons whose total income does not exceed total deductions and persons who receive salary income subject to withholding tax at source (year-end adjustment) from only one payer not exceeding 20 million yen in that year and who have no other income exceeding 200,000 yen do not, as a rule, need to file a return.
As a rule, non-residents file and pay taxes following the same regulations as residents. However, non-residents leaving Japan without reporting the designation of a tax agent to the director of the taxation office must submit an income tax return and pay the tax owed prior to leaving Japan.
3.7.5 Restoration income surtax
From January 1, 2013, to December 31, 2037, individuals and corporations will be subject to a 2.1% restoration income surtax on the amount of their income tax. In case of tax withholding at source, the 2.1 % restoration income surtax will also be levied on the amount of withholding tax on income and collected together with the income tax. For example, the tax rate for withholding tax on interest paid to a foreign corporation is 20%, to which the restoration income surtax (20% x 2.1%) will be added, resulting in a total 20.42% tax withheld at source.
Note that a restoration income surtax is not levied where the withholding tax rate provided for under domestic law is reduced or eliminated by tax treaty.
3.7.6 Individual inhabitant taxes, individual enterprise tax
"Individual inhabitant taxes" is the collective term for prefectural tax and municipal tax on individual income, and persons having a domicile etc. in Japan as of January 1 each year are subject to these taxes. Individual inhabitant taxes consist of an income-graded component and a flat-rate (fixed amount) component etc. The income-graded component is assessed on income for the preceding year and, except in special cases, taxable income for these taxes is calculated in accordance with the provisions for calculating income for income tax purposes. Individual inhabitant tax returns must be filed by March 15, but persons submitting self-assessed income tax returns do not have to file again for individual inhabitant tax. The standard rates of individual inhabitant taxes for the income-graded component are as shown below.
Individuals are resident for tax purposes if, in the year preceding the assessment year, they reside in Singapore except for such temporary absences from Singapore as may be reasonable and not inconsistent with a claim by such persons to be resident in Singapore. This also includes those who are physically present or who exercise employment other than as a director of a company in Singapore for at least 183 days during the year preceding the assessment year.
A concession is available for foreign employees whose employment period straddles two calendar years. Under this concession, which is commonly known as the “two-year administrative concession”, the individual is considered resident for both years if they stay or work in Singapore for a continuous period of at least 183 days straddling the two years, even if fewer than 183 days were spent in Singapore in each year.
Non-resident individuals employed for not more than 60 days in a calendar year in Singapore are exempt from tax on their employment income derived from Singapore. This exemption does not apply to a director of a company, a public entertainer or a professional in Singapore.
Under the Not Ordinarily Resident (NOR) scheme, a qualifying individual may enjoy tax concessions for five consecutive assessment years, including time apportionment of Singapore employment income, if certain conditions are satisfied.
Employment income - Taxable employment income includes cash remuneration, wages, salary, leave pay, directors’ fees, commissions, bonuses, gratuities, perquisites, gains received from employee share plans and allowances received as compensation for services. Benefits-in-kind derived from employment, including home-leave passage, employer-provided housing, employer-provided automobiles and children’s school fees, are also taxable. Certain types of these benefits receive special tax treatment. Effective from the 2020 assessment year, the prescribed formula to calculate the taxable car benefit in Singapore has been revised to better reflect the actual benefits enjoyed by the employees and to simplify tax compliance.
Under the Not Ordinarily Resident (NOR) scheme, a resident employee whose resident status is not accorded under the two-year or three-year administrative concessions may benefit from certain concessions for five consecutive assessment years provided certain conditions are met. Under a 2019 budget proposal, the last such NOR status will be from the 2020 assessment year to the 2024 assessment year. Individuals who have been accorded the NOR status will continue to enjoy NOR tax concessions until their NOR status expires if they continue to meet the conditions of the concessions.
Self-employment and business income - Self-employment income subject to tax is based on financial accounts prepared under generally accepted accounting principles. Adjustments are made to the profits or losses according to tax law. Business income is aggregated with other types of income to determine taxable income.
Income from a trade, business, profession or vocation paid to a non-resident is taxed at 22%.
Income from professional services paid to a non-resident is taxed at 15%. This is a final withholding tax on the gross amount, unless the non-resident professional elects to be assessed at a rate of 22% on net income.
Losses and excess capital allowances from the carrying on of a trade, business, profession or vocation may be offset against all other chargeable income of the same year. Any unused trade losses and capital allowances can be carried forward indefinitely for offset against future income from all sources, subject to certain conditions.
Relief is also available for the carry back of current year unused capital allowances and trade losses, subject to the satisfaction of certain conditions.
Investment income - Under the one-tier system, dividends paid by Singapore tax-resident companies are exempt from income tax in the hands of shareholders, regardless of whether the dividends are paid out of taxed income or tax-free gains.
Dividends, other than tax-exempt and one-tier dividends, are taxed at the applicable income tax rates.
Singapore-source investment income (that is, income that is not considered to be gains or profits from a trade, business or profession) derived directly by individuals from specified financial instruments, including standard savings, current and fixed deposits, is exempt from tax. Examples of such income include interest from debt securities, annuities and distributions from unit trusts.
Interest (excluding tax-exempt interest from approved banks, finance companies, qualifying debt securities and qualified project debt securities) paid to non-residents is taxed at 15%.
Royalties for the use of, or right to use, movable property and scientific, technical, industrial or commercial knowledge or information paid to non-residents are taxed at 10%.
Net rental income is aggregated with other types of income and taxed at the applicable rates.
Rent or other payments for the use of movable property paid to non-residents is taxable at 15%.
Taxation of employer-provided stock options and share ownership plans - Employer-provided stock options are taxed at the time of exercise, not at the time of grant. Share awards are taxable at the time of award or at the time of vesting, if a vesting period is imposed. The taxable amount is the open market value of the shares at the time of exercise, award or vesting, less the amount paid by the employee, if any.
Stock options and share awards granted during overseas employment are not subject to tax even if the gains derived are remitted into Singapore while the employee is a tax resident, because all foreign-source income received in Singapore (other than through partnerships) by resident individuals is exempt from tax. Stock options and share awards granted on or after 1 January 2003 while the employee is engaged in employment in Singapore are subject to tax, regardless of where the options are exercised or shares are vested. These options and awards are deemed exercised or vested at the time of cessation of employment (including being seconded outside Singapore for an assignment or leaving Singapore for a period more than three months) for a foreign national employee, and tax is due immediately on the deemed gains.
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