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SOVEREIGN MAN

Singapore: Cutting taxes… again.

March 29, 2011
Undisclosed location

Sticker shock in grocery store checkout lines and gas pumps around the western world is starting to set in. At this point, you have to be living under a rock to not notice that prices of goods and services around the world are increasing substantially.

Much of the blame for rising prices has rightfully been levied on the uncontrolled expansion of central bank balance sheets– the US Federal Reserve, for example, created more money in the last two years than it had created in the previous 200.  Rejecting reject the possibility that any of this money could impact consumer prices is just intellectually dishonest.

There is another factor, however, that weighs heavily on inflation, and it is seldom discussed in this context: taxes.

Everybody hates paying taxes… but what few people realize is that tax hikes fuel rising prices. When payroll tax rates, import duties, corporate profits tax rates, sales tax rates, etc. increase, it’s always the end consumer at the cash register who gets stuck footing the bill.

This is happening across the world right now, including in the United States. While governments in places like Illinois have made headlines for infamously raising their income tax rates in the middle of the night, local government tax hikes are going largely unnoticed.

At present, 14 cities across California are raising their local sales tax rates, the highest being in Union City and El Cerrito (near San Francisco) to 10.25%. Then there’s Prattville, Alabama, a town of 30,000 near the capital Montgomery, which just raised its local sales tax rate 1% to 9.5%

This has the effect of making everything more expensive– instantly. Now, 1% might not seem like that big of a deal, right? This is how politicians think– do we really care if we pay $50 at the checkout line, or $50.50? Of course not, it doesn’t matter.

It’s not about a single purchase, though, it’s the aggregate of all of our purchases, and its starts to add up.  Not to mention, there’s the slippery slope of thinking “well, if 1% didn’t matter last time, let’s hike tax rates another 1%.”

Over time, the same thing happens when income tax rates rise. When individuals have less disposable income to spend, everything certainly feels more expensive… and when corporate and payroll tax rates increase, those increased costs get passed on to consumers in the form of higher prices.

There are some places in the world, however, that are getting it right. Singapore is one such place. Rather than concerning itself with dropping bombs and establishing military bases in other countries, the government of Singapore is living within its means setting conditions for the continued growth and prosperity of its residents.

This morning, I received a welcome email from one of my prime contacts on the ground in Singapore.  As it turns out, the government there is cutting its tax rates. Again. And my friend, a “who’s who” in the Singapore corporate structure industry, sent along a very helpful guide to show me just how serious Singapore is about growth.

Individual income tax rates, which are already among the lowest in the developed world, are being cut. For example, income in the range of S$80,000 to S$120,000 (S$ is the Singapore dollar… this is roughly $65,000 to $95,000 USD) will now be taxed at a marginal rate of just 11.5%, down from 14% before.

For companies, corporate profits below S$100,000 (roughly $80,000 USD) under the old rate schedule were not taxed. This is still the case… and one of the reasons why Singapore is such an attractive draw to entrepreneurs– because, for a startup, those initial profits are incredibly important.

The next S$200,000 in profits (roughly $160,000 USD) used to be taxed at 8.5%. This has been cut to 6.8% under the new scheme, so the effective tax rate on roughly the first $240,000 USD is only 4.5%. Pretty reasonable.

The next S$194,118 in profits (roughly $154,000 USD) used to be taxed at 17%; this has now dropped to 13.6%… and finally, all profits above S$494,118 (about $392,000 USD) are taxed at 17%.

screen capture Singapore: Cutting taxes... again.

As corporate profit tax schemes go, this is incredibly low.  A company with roughly $400,000 (USD) in profits would have an effective tax rate of just 8%, and a company with $1 million (USD) in profits would pay an effective tax rate of just 13.5%.

Singapore has also made new allowances in how businesses can deduct expenses through the “Product and Innovation Credit (PIC) Scheme.”  The PIC Scheme allows businesses to deduct up to 400% of the actual expense for things like research and development, design, acquisition of intellectual property rights, etc.

While these tax benefits are advantageous for all companies, Singapore lends itself particularly well to entrepreneurs and professionals who generate the preponderance of their income online: it’s a strong, independent, transparent jurisdiction to structure, it’s one of the safest banking jurisdictions in the world, and the government provides generous allowances for royalties and intellectual property.

I’ve been traveling in the US for almost 3-weeks now, and as usual, I’ve been pretty amazed at all the gloom, bad news, and overall economic malaise. I’m here to tell you that there are still plenty of places in the world with significant opportunity, where productive, talented people are treated like valuable assets instead of milk cows.

Singapore is one of those places, and I think it makes a lot of sense to consider relocating there (if you’re a skilled professional, investor or entrepreneur) or looking to structure a foreign business (especially an online company).

Tomorrow, I’ll be releasing interview I just conducted with a friend of mine who is a very successful online entrepreneur.  He is another Atlas 400 member, and a phenomenal teacher about what he does.

I hope that, between the valuable insights he provides in the interview about building a new online business, and what we’ve discussed about places like Singapore, it may give you some ideas for a different direction.

Our goal is simple: To help you achieve personal liberty and financial prosperity no matter what happens.

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This historical pattern has formed and is already underway in many parts of the world, including the United States.

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About the author: Simon Black is an international investor, entrepreneur, permanent traveler, free man, and founder of Sovereign Man. His free daily e-letter and crash course is about using the experiences from his life and travels to help you achieve more freedom.

Comments on this entry are closed.

  • http://pulse.yahoo.com/_67XSSSZNWK5M4J5VZ7JNDFOGGI Tom C

    “When payroll tax rates, import duties, corporate profits tax rates, sales tax rates, etc. increase, it’s always the end consumer at the cash register who gets stuck footing the bill.”

    Have to disagree with you on this one. When sales taxes rise, it’s usually the store that’s going to eat it most of it, not the consumer. For instance, if the sales tax rate rises 1% the cost of a $100 product goes to $101. If the store could have charged $101 for this product they already would be selling it for that much. This is the same reason airlines can’t just pass along the higher fuel charges to the passenger. If they could charge that much for the seat before the oil price increase, it would already be in place. Hence, that’s why they try to hide the fuel tax surcharge until after you’ve gone through most of the steps to purchase your ticket.

    Also, that’s why the PPI increases are higher than the CPI increases, businesses are eating most of the higher cost, shrinking their margins. So businesses react by laying off employees, cutting their hours, pay cuts, etc. As such, the consumer gets hurt here not so much by rising prices but increased unemployment and stable or falling wages vs CPI.

    • Zetaprime

      “Hence, that’s why they try to hide the fuel tax surcharge until after you’ve gone through most of the steps to purchase your ticket.”

      Then they have effectively passed the additional tax onto the customer, right?

      Businesses also react by reducing the content, but retaining the size of the container, or by using ingredients and components that are cheaper but inferior in quality.

      Your point is taken. It’s just that I believe tax increases hurt both businesses and consumers to a roughly similar degree in the long term.

  • Gex

    Those tax rates are pretty much unresistable. Except for one thing, I’m afraid of getting canned for some minor violation like forgetting I had legal in America porn on my computer, or criticizing the lack of free speech ‘without thinking about it.’ Are those unreasonable worries? I ask because I honestly don’t know.

  • Carlos

    Simon,

    Thanks for pointing out the benefits of Singapore Simon. Very interesting information.

    I just have one beef if you will with what you said…

    You state…”Rather than concerning itself with dropping bombs and establishing military bases in other countries,…”

    That’s a cheap shot Simon along the line’s of U.S. bashing that was seen in the comments section of one of your other posts.

    That implies that the U.S., or any other government for that matter, that concerns itself with dropping bombs and establishing military bases as part of it’s overall policy in response to the things happening in our world…that they are somehow wrong or not with it. Which is just ridiculous.

    Would you have no government anywhere concern itself with dropping bombs or establishing military bases in strategic parts of the world? Do you really honestly believe such a thing would be anything but incredibly foolhardy?

    I mean it would be nice if we could all eliminate war and weapons of destruction and bombs and tanks and all that other nasty business but…that’s just not realistic. Unless you have somehow figured out how to disarm the bad guys, whoever they may be, then countries must concern themselves with how best to drop bombs when the need arises and establishing forward bases of operation for military action.

    Carlos

    • Gex

      re: Unless you have somehow figured out how to disarm the bad guys, whoever they may be, then countries must concern themselves with how best to drop bombs when the need arises and establishing forward bases of operation for military action.

      Your OK with a Chinese missile and troop base in Cuba then right? Because they perceive the US as a potential enemy. BTW-that’s not a joke at all, that could very well happen within 15 years.

  • John

    Simon, when the NYT is talking about food inflation than it must be worse than we thought…

    http://www.nytimes.com/2011/03/29/business/29shrink.html?src=busln

  • Kevin

    This is very attractive indeed. How will this impact US citizens (I live in Canada) on what they pay themselves as salaries from a Singapore Corporation?

  • Keving

    If someone was considering looking for work in Singapore or starting a business there where would be the best places to start?

  • http://www.bzemic.com/impossibleInstinct/ steve ward

    wow then they wonder why America is not moving

  • http://www.laurie-the-traveler.com/ AnnunakiGoddess

    “The US Federal Reserve, for example, created more money in the last two years than it had created in the previous 200.”

    The Fed has not been around 200 years, perhaps you meant the last 100 years.

  • http://twitter.com/filip_rabuzin Filip Rabuzin

    Simon, coming from Australia I have no doubt that Singapore is a wonderful place to do business and personally i would have no problem planting a financial flag there. However as has been brought up countless times before in relation to your posts on Singapore I wish that when “selling” this particular jurisdiction to your readers you would address the social issues that I’m sure are clouding a lot of peoples minds when bringing up the big S.

    What is the reality on the ground regarding laws that pertain to freedom of speech and freedom of expression? How much privacy can one expect to have (or in reality get away with)? What if your business deals in something that all of a sudden the government decides is undesirable (for lack of a better term)?

    Answer these questions and I will listen to everything great you have to say about the place, otherwise, I have to admit it’s all going into one ear and out the other pretty quickly.

  • Tyler R Davis

    Singapore’s social policies are too crazy for me to ever consider living there, but I will consider banking/incorporating/investing there.

    It’s weird that one of the most totalitarian governments there is out there (as far as social policies go) is also one of the last few strongholds of the free-market.

  • Average Joe Singapore

    True, Singapore has low headline tax rates. But dig just a little deeper (or try actually living here) and you will find the reality is not as fantastic. A case in point: current vehicle “COE” prices. And, given that the discussion is about inflation, again the reality of skyrocketing car prices and apartment rents means that real inflation (that is to say year on year price increases for things that people need – eg car, house) is absurd. Hence the need for tax cuts. Singapore also imports a huge proportion of its food and all of its crude oil. It is certainly no haven from inflation, by any stretch of the imagination.

  • Drtylerdurden

    I have heard Singapore, although touted very well here as far at taxes and business incentives are concerned, is quite anal with their petty little laws. As well one of my friend lived there for a while and likened it to a Police State. Does anyone else know about how happy one can be actually living in Singapore? Social life, city, people, dating, friends, culture, etc?

    One other thing worries me about that area as well. It is so close to Mainland China; in a global crisis or world war, what would be the chances that the Chinese would NOT invade Singapore? Definitely something to think about.
    Tyler Durden, MD

    • Airdee

      Hi Tyler,

      You must be kidding, China invading Singapore? What do we have that they need so desperately? The valuable resources here are the people and the infrastructure. The damage caused to both in a military invasion would surely deter an aggressor. If China invades for the land, I guess they’ll have to be prepared to live here shoulder to shoulder.

  • Drtylerdurton

    Some more info on Singapore. Aparently, it is an aparent happy Disney world with low taxes and high propsperity. However, there “ain’t no sinners anywhere,” they’ve linched them all.

    See this article on Singapore from WIRED magazine in 1993.

    http://www.wired.com/wired/archive/1.04/gibson.html

    Old enough to remember that late 70’s, early 80’s song, “Turning Japenese?”
    “……..no wine no sex no life no women…..and certainly no hookers!” All work and no play, and a sentence of living in perpetual Bible school, kinda eats up the prosperity and low tax thing.
    Tyler Durden, MD

    • Staermo

      You’ve obviously never been to Singapore (or Japan for that matter). And certainly not the “interesting” parts if you believe the lyrics of that song are a god description of reality!

      • NOXY1

        Yup, Dr Tyler Durton, please get outside more, Singapore is freer than where u r from, I suppose US, bar none I know, have lived there, currently in UAE,will return to Singapore in a flash…get off the TV!!

  • Poiter

    Other political and social differences aside, have consideration for the climate. Bear in mind, you are perched just north of the equator where the year round average daytime temp is in the region of 32C, virtually no observable seasonal change, year-round monsoonal rainfalls and frequently registering 100% humidity. Even a 0% income tax rate couldn’t entice me to endure that!

    • Staermo

      You don’t need to be PHYSICALLY present there. That’s the whole point of the “MULTIPLE FLAGS” approach. Be tax resident. Have a business based there. Whatever. But, spend your time in the South of France or wherever you like the weather. THAT’s the Sovereign Man philosophy.

  • James Hensonn

    They are just equalising the company tax rate much closer to the personal income tax scale. Small businesses would take all the profit in salary & benefits in order to pay lower personal tax rates as opposed to 20% or thereabouts company tax. Duh….

  • Rob

    Hi Simon, I’d love to hear more about setting up an online company based out of Singapore, especially when the company is geared towards another nation, in my case, I’m trying to set up an online company aimed at Colombia.

    Thanks,

    Rob

  • http://twitter.com/Asiaconsultant siamequity.com

    Or they could be lowering the rate because it will attract investment into Singapore and the ASEAN trade block. I have a broker friend from Hong Kong and he explained that Singapore is getting ready to take a influx of capital. It is not only the Tax rates they are adjusting, but they are refining their entire banking system and working with other ASEAN partners on the refinement of their system. A lot of people that do business in this part of the world see the changes and trust me they are significant.In Thailand for example where I do business, if you go to a local branch banking is much the same as it always has been. If you go to the main branch of many of these banks you see a significantly different way of doing business similar to what you find in a bank in the US.I have said this before on this site and I will say it again. You want to know what is going on in the world of economics. Just follow where Hillary Clinton is going. In 2004 the only reason the US knew where Thailand was is because of the Tsunami. Now Hillary Clinton is showing up to ASEAN meetings. What changed?Another telling sign is that Cigna, AIG and others are increasing their investments in all operations in ASEAN countries; citibank is reducing the size of their Hong Kong office and increasing the size of their Singapore and Bangkok offices. The Bangkok office is already done. I can go on and on, but you get the picture.Singapore is just putting their house in order to get ready for what is to come. In 5 years you will not be talking about the Heng Seng, you will be talking about the Singapore Stock Exchange and the SET.If you want to make money, just be in that market before the big money comes.

  • HK Expat Guy

    2010 IPO stats: HK $47b; Shenzen $40b; Shanghai $50b; Singapore $5b. 5 years ?? I think it will be a little longer than that.

  • jsimon75

    Ahhh, the heaven (haven) that Singapore is…a fend for yourself depend on your family state. There is NO social net…is that what you wish for? It’s all good until you have a sick relative or lose a job or wish to retire…

    • HK Expat Guy

      I second that. PR is for 5 years and relatively easily renewable. BUT, it’s only all good whilst you are contributing to the country. Get old or your local spouse passes away and you well may find yourself unwelcome.

    • Staermo

      Not that I am a huge Singapore fan, or trying to “SELL” the place, by any means, but…

      Don’t you think maybe ALL THE MONEY YOU SAVE IN TAX over the years in a place like Singapore might leave you with enough to help pay for your own well-being and that of your family in whatever emergency or circumstances that come up…rather than sending it to the government and having them spend 75% of it “administering” themselves, before inefficiently doling out the remaining 25% for sub-standard services and programs?

      What’s so bad with taking some responsibility for yourself, taking the money you save in tax and plan for healthcare, retirement, etc.

      Why do you need the governement to provide a “safety net”.

      They do a TERRIBLE job of it.

      And actually, do a little research and you’ll find out there is a social net in Singapore.

      Public healthcare. Tick. Affordable and good quality, too.
      Public housing. Tick.
      Retirement savings program. Tick.

      http://en.wikipedia.org/wiki/Public_housing_in_Singapore

  • A REAL SINGAPOREAN

    If you talk about direct (income) tax yes Singapore is extremely low. However please consider this.

    USD to Singapore Dollar (SGD$) conversion 1:1.26

    Housing
    ———
    A 80 sqm 99 year leased PUBLIC HOUSING (HDB) costs SGD$300-400k
    A private condo costs SGD$700k onwards
    A house with a backyard starts around SGD$1.5mil

    Car
    ———-
    The cheapest china car (cherry QQ) costs SGD$61,988
    A Toyota Camry costs SGD$129,988
    A BMW Z4 costs SGD$200k++
    A Ferrari 458 Italia SGD$920,000
    REF: http://www.sgcarmart.com/

    Do note that the cars has a entitlement of 10 years of which you have to renew the entitlement (COE) at SGD$40k+ (currently) or scrap the car.

    We (yes i’m borned in Singapore) pay road toll using a electronic system affectionately cursed as ERP ranging from SGD$0.50~$4 per toll booth (aka ERP gantry) you will pay roughly $10~$20/day

    Insurance will vary between SGD$900 ~ $5000 depending on vehicle. Road tax varies between $400~$3000

    Good and Service Tax
    ———————
    On top of all that, there’s a “cover-all” tax similar to VAT (london) called GST (Goods and Services Tax) of 7%

    Also there’s a mandatory 20% cut into your salary, forced into a savings account called CPF for retirement purposes.

    The average “Singaporean” earns SGD$2,500/mth as stated by the government recently. Degree Grads earn SGD$2,800 as starting pay. The upper-middle class family earns between $4-$8k SGD. Lower class earns about $1k.

    If you put all the above into perspective a typical middle class working adult in Singapore has the highest debt ratio (everyone here takes a 30year loan to pay for housing), pays GST (7%) on everything and has 20% of their salary removed by the government (CPF). Low income tax is just a disguise. Some professor here estimates that the average family pays about 33-35% of their income to taxes.

    • Never44

      Thank you for the info. Obviously you know what you’re talking about and don’t paoint a naive rosy picture.

  • Britcanada

    Nice article Simon, tax rates are great in Singapore in many ways, but having personally been to singapore a month ago and discussing this issue with singaporean born friends, I can tell you that you are missing one VERY IMPORTANT FACT that locals there deal with = contributions to their equivalent of Social Security are very steep, around double what a self-employed american would pay. And thats money you dont have control over, regardless of the success of the national pension fund.

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