Tax Savings in Singapore

[VAD@SGXPT]

I did my annual salary computation and looks like my payable tax would be around SGD 33K for 2023-24 (on a total taxable income of 265K for the year)

For context, we are an expat family with 1 person on an EP, and 2 on DP (including a 3-year-old). All I have is a voluntary charitable contribution of SGD 250 per year directly dedicated by my employer.

With just about a month left before FY is closed, are there any recommendations on how I can maximize savings and minimize tax?

[smoulder]

Look up SRS in the archives. There are a few threads here which should get you started.

[malcontent]

For expats, SRS is not a complete no-brainer, even for someone in the 19.5% tax bracket. Assuming you don’t take up PR and withdraw after 10 years without penalty… if you have left Singapore by then, you’ll pay 50% of the non-resident rate or the resident rate, whichever is higher. Consider too, that SRS is restricted to local investments, which can involve higher fees that compound and eat up those tax savings (versus investing outside SRS). In the end, you might not save enough to bother with.

Then again, some people who don’t have good savings discipline prefer these types of accounts to keep themselves from spending it, so it’s not all dollars and sense.

[smoulder]

For expats, SRS is not a complete no-brainer, even for someone in the 19.5% tax bracket. Assuming you don’t take up PR and withdraw after 10 years without penalty… if you have left Singapore by then, you’ll pay 50% of the non-resident rate or the resident rate, whichever is higher. Consider too, that SRS is restricted to local investments, which can involve higher fees that compound and eat up those tax savings (versus investing outside SRS). In the end, you might not save enough to bother with.

Then again, some people who don’t have good savings discipline prefer these types of accounts to keep themselves from spending it, so it’s not all dollars and sense.

You can buy SPY using SRS money. The one that is listed in SGX as S27. That's not a bad investment to buy and hold. Expense ratio of 0.09% - not too shabby I'd say. There are other considerations too before someone jumps onto the SRS bandwagon. Like you mentioned - he'll get to withdraw after 10 years.

As for PR - looks like an average Indian family so the chance is pretty low.

[malcontent]

For expats, SRS is not a complete no-brainer, even for someone in the 19.5% tax bracket. Assuming you don’t take up PR and withdraw after 10 years without penalty… if you have left Singapore by then, you’ll pay 50% of the non-resident rate or the resident rate, whichever is higher. Consider too, that SRS is restricted to local investments, which can involve higher fees that compound and eat up those tax savings (versus investing outside SRS). In the end, you might not save enough to bother with.

Then again, some people who don’t have good savings discipline prefer these types of accounts to keep themselves from spending it, so it’s not all dollars and sense.

You can buy SPY using SRS money. The one that is listed in SGX as S27. That's not a bad investment to buy and hold. Expense ratio of 0.09% - not too shabby I'd say. There are other considerations too before someone jumps onto the SRS bandwagon. Like you mentioned - he'll get to withdraw after 10 years.

As for PR - looks like an average Indian family so the chance is pretty low.

Yes, SPY (SGX traded S27) is one of the most cost effective investment vehicles available for SRS. London traded CSPX is the best non-SRS alternative to S27, with a 0.07% expense ratio. Saving two basis points isn’t worth worrying about — but the dividend tax on CSPX is fully half (15% instead of 30%) because it is domiciled in Ireland. With the current dividend yield of around 1.5%, that’s a 0.225% annual drag with S27 vs CSPX.

For someone investing for only 10 years who saves 19.5% in tax on the way in and pays 7.5% tax on the way out, they’ll still be ahead with S27, but won’t realize the full 12% (assumed) tax arbitrage. There are far worse investment options (e.g., unit trusts) that when compared to non-SRS alternatives, can wipe out the entire 12% tax savings, even over a short 10 year period.