The short answer is no.
Although I am not a tax expert, I have invested in local and foreign stocks long enough to know something about dividend tax as an individual.
I believe most of Singapore’s tax system are inherited from the British. As an ex-colony of the British empire, it is easier for our government to inherit the law and make changes along the way than to start everything from scratch.
I can’t help to draw this conclusion because of the uncanny similarity in which ex-British colonies approach dividend taxation – Hong Kong, Singapore, Malaysia and Myanmar have no dividend tax like the UK.
Singapore practises the one-tier corporate tax system. This means that as long as the company pays its corporate tax, the subsequent distribution of dividends to individuals would not be taxed anymore.
Is there dividend tax in REITs?
No. There is no dividend tax for investors and REITs itself. REITs do not have to pay corporate tax if they fulfil the criterion of distributing at least 90% of taxable income each year.
Likewise for investors who receive the dividends. They do not need to pay dividend tax too. Hence, REITs’ dividend yield tends to be higher than normal stocks – while a stock may distribute about 3% dividend yield, a REIT can easily double the yield to 6%. This is a godsend for asset-rich-cash-poor investors as they can derive a higher cash flow by investing in REITs.
Is there a dividend tax in foreign stocks?
Unfortunately, there is no straight up answer. It is dependent on where the company is domiciled. For example, you are subjected to a 30% dividend tax on US stocks even if you are investing as a foreigner. You can refer to this list to find out the dividend tax for foreign companies.
It is important to note that you don’t need to report dividend taxes to foreign governments or pay dividend taxes out of your pocket. These are withholding taxes. This means that the company would withhold part of the dividends for tax purposes before paying you the remainder. The company would subsequently pay the taxes on your behalf.
Dividend yields tend to be higher in countries without dividend tax
Below is the a chart of average dividend yield by country in 2019. Countries such as UK, Singapore, Hong Kong, and Malaysia have no dividend tax and have dividend yields above the global average. With close to 4% dividend yield and a strong currency, Singapore is one of the best places to do dividend investing!
Be rich and pay no tax on your dividend income
I find that Singapore is one of the most tax-friendly countries in the world – there are no capital gain tax and dividend tax for the individuals. Income tax rates also tend to be lower than many countries.
Assuming an employee earns an income of S$120,000 a year, his income tax would be S$7,950 if he doesn’t enjoy any tax subsidy.
Compare this to a rich person who doesn’t work but derive his living expenses entirely from his investments in stocks and bonds – investing S$3,000,000 at 4% yield would generate S$120,000. The best thing is he doesn’t need to pay tax on this passive income and he can spend his time to do whatever he desires!
It seems unfair but that’s the perk of being rich in Singapore – the tax rules are favourable. The other common taxes would be property tax, road tax, and GST. But these are taxes anyone would have to pay if they own properties, cars and buy products and services, regardless of their wealth.
Hence, be rich and invest your money wisely. Take full advantage of the zero dividend tax rates in Singapore!