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Principles of Taxation Seminar 1

 Jurisdiction

• Need to establish nexus between

o  The state and the person whose income is to be taxed and/or Nexus established if the person is the resident of the country based on tax laws of the

countryo  The state and the income to be taxed

Nexus established if source of income is located within the geographical boundaries of the

country Source of income – The originating cause of the income receipt AKA the activity that

gives rise to the income

• Source and residence are used in combination to dene the income tax jurisdiction

• 2 common jurisdictional models

o  Territorial tax system – nly tax income sourced within the state !narrow"

Resident Non-residentWithin the state

(Domestic-

sourced

 Taxed Taxed

!utside the state("orei#n-sourced

Not taxed Not taxed

o #orldwide tax system !wide"

Resident Non-residentWithin the state

(Domestic-

sourced

 Taxed Taxed

!utside the state("orei#n-sourced

 Taxed Not taxed

$ase

 Tax base $ %ncome

&'undamental issue

 %ncome vs capital gains%ncome tax liability $ Tax base x %ncome tax rate

%llocation

(ost income tax system assess income and collect tax on an annual &asis

 

 Tax year may be dened di)erently in di)erent states

Person

%ndividuals* partnerships* companies* trusts* etc+ di)er in their le#al and economics

characteristics

 

&'undamental issue  'dentit of person to be taxed and timin# of tax imposition

)ross-$order *in+a#es

,ouble taxation

• ,ouble taxation is avoided when either the state of source of income or the state of residence of

the person pro,ide relief  from double taxation• %f there is a tax treat between the 2 states* tax relief will be given according to the tax treaty

• -rovision in tax treaty pre,ails over the provision in the country.s tax laws

TaTa'oreign

income

(alaysia/ingapore

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Tax expenditures %% tax preferences / incenti,es

-romote economic* social or other objectives in the following ways1

o xclusions from income tax base

o Abatement against the income tax liability

o -ostponement or deferral of income tax liability

Tax administration

• 3ow do we go about collecting tax from tax payers4

• Administrative procedures re5uired to1

o /tructure the tax imposition and collection process

o ,ene the rights and obligations of the tax payers and the tax authority

............................................................................................................

Section 1(1 )har#in# Section

%ncome tax shall* subject to the provisions of this Act* be payable at the rate or rates specied hereinafter

for each year of assessment upon the income of any person accruing in or derived from /ingapore orreceived in /ingapore from outside /ingapore in respect of 6!a" gains or prots from any trade* business* profession or vocation* for whatever period of time such

trade* business* profession or vocation may have been carried on or exercised7!b" gains or prots from any employment7!c" 8deleted 9!d" dividends* interest or discounts7!e" any pension* charge or annuity7!f" rents* royalties* premiums and any other prots arising from property7 and!g" any gains or prots of an income nature not falling within any of the preceding paragraphs+

 Jurisdiction%ncome :accruing in or derived in /ingapore;

o

&xemption of tax for '/% received in /> &refer to /em?&1

• 'or individuals – /@?!A"

by a resident individual onBafter @+@+2CCD !except through a partnership"7 or by a non=resident individual

&partnership outside scope of A02?C@

• 'or companies – /@?!E" to !@@"

)ertain '/% received in /> are tax=exempt for resident companies* subject to certain

conditions • 'or non-resident compan that does not carry on a business in /> – Does not ha,e a

source of trade or &usiness in />$ase

• #hat is to be taxed4 'ncome !excludes capital gains"

• 0apital gains are not taxed in /ingapore

&%ncome

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that is in the nature of circulatin# capital  that* may be described as the fruit  is an income generation process – income is a product of capital

• 0apital1