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For all of the red tape cutting and transparency that Singapore offers in its tax system, it takes tax compliance very seriously. Driven largely by a desire to cut out corruption and create an even playing field, penalties for tax evasion are harsh and should not be taken lightly.
Thankfully, with the proper framework in place, it is quite a straightforward process to avoid committing tax evasion. With that being said, let’s go over the basics of what not to do, and what to do when it comes to meeting your tax responsibilities in Singapore.
What Does Tax Evasion Mean in Singapore?
Much like in most countries, the criminal act of tax evasion in Singapore is generally defined as purposefully using unlawful methods to avoid meeting one’s full tax obligations required by law.
These unlawful methods include but are not limited to:
- Under-reporting or not reporting income
- Misrepresentation of tax reporting
- Transferring profits without proper reason
- Over-claiming of expenses
To prove the act of tax evasion, the Inland Revenue Authority of Singapore (IRAS) must have evidence that the intention of these actions is to avoid tax responsibilities.
If it is found that an individual did not intend to pay less tax, that is considered negligence rather than avoidance.
Tax Evasion Versus Tax Avoidance in Singapore — What is the Difference?
While tax evasion and tax avoidance intend to reduce the tax one pays, the two concepts are quite different — tax evasion is illegal, while tax avoidance is legal.
Tax evasion involves engaging in illegal methods to lower one’s liability to pay Singapore taxes, such as by intentionally misrepresenting facts on a Singapore tax return.
On the other hand, tax avoidance is all about using legal methods to lower your Singapore tax bill by employing legitimate methods such as claiming deductions and exemptions that you are entitled to (while staying within the Singapore Income Tax Act).
What Are the Penalties for Not Paying Tax in Singapore?
As mentioned, Singapore takes tax avoidance very seriously, and so the penalties are appropriately severe.
Companies and individuals found guilty of tax avoidance in Singapore may be subject to these consequences, depending on the evidence showing the intention to evade taxes:
|With Intention to Evade Taxes||Without Intention to Evade Taxes|
|Penalty of up to 400% of the undercharged tax||Penalty of up to 200% of the amount of tax undercharged|
|Fine of up to S$50,000||Fine of up to S$5,000|
|Imprisonment of up to 5 years||Imprisonment of up to 3 years|
For severe fraudulent tax evasion in Singapore, guilty offenders may face these consequences:
- Penalty of up to 4 times the undercharged tax
- Fine of up to S$50,000
- Imprisonment of up to 7 years
How Companies Can Avoid Committing Tax Evasion in Singapore
The Singapore taxation system is designed to be fair and transparent, so companies who do not wish to face tax evasion penalties need only follow the Singapore tax rules.
To ensure Singapore follows through on its promises of transparency, they have made it compulsory for all Singapore businesses to keep adequate transaction records.
These records can be used in the event of an IRAS audit to prove transactions and Singapore business activities. These records must be kept for 5 years from the end of the Singapore accounting year in which that transaction or activity took place.
Beyond proper record keeping, we advise companies to make the following procedures standard practice within their operations:
- Train your employees to recognise illegal or suspicious tax-related activity.
- Create a culture where staff are encouraged to report any acts of suspicious tax-related activity
- Conduct checks of financial records regularly to avoid criminal activity going unnoticed
- Create documents to demonstrate the company has taken action to create a culture of discouraging tax evasion
- Educate your staff to fully understand the penalties for tax evasion
- Perform risk assessments of each client or partner you work with to avoid unintentionally being entangled with illegal tax activity
What’s Next for Avoiding Tax Problems in Singapore?
Singapore has a reputation as one of the strictest tax jurisdictions in Asia and is also ranked highly on the list of countries that are tough on crime.
Therefore, it’s vital for Singapore businesses to be aware of the Singapore tax rules and Singapore taxation laws, to avoid harsh penalties or even jail time.
As ominous as all that sounds, tax compliance in Singapore is actually very straightforward — if you have the right framework.
If you would like some advice on how you can create a framework for simple tax compliance in Singapore, please contact us. Rikvin has a team of taxation experts who are ready to help. Contact us today to save yourself time and money!
FAQs on Tax Evasion in Singapore
- Tax avoidance is allowed in Singapore; hence, it is legal.
- While tax avoidance is legal in Singapore, tax evasion or fraud is a criminal offence in Singapore, which is punishable under the law.
- You can mitigate your risk of committing tax evasion by keeping accurate records of all your business financials for the previous 5 years, while conducting regular internal audits, training staff to recognise signs of tax evasion, and creating an internal culture of reporting any suspicious activity. You can also engage a tax expert to help you remain compliant.
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