Iras catches 279 high-income earners using sham schemes to avoid tax

The Inland Revenue Authority of Singapore (IRAS) has caught 279 high-income earners to date for using sham arrangements, including setting up private companies to receive their income, to avoid paying more tax, according to a report by The Straits Times.

Of this group, IRAS probed 124 cases between 2021 and 2025 and recovered S$49 million in additional tax. All but one of these cases involved taxpayers extracting profits as tax-exempt dividends or interest-free shareholder loans.

Tax avoidance differs from tax evasion, which is a crime involving the hiding or falsifying of income. Channelling funds through legal but artificial arrangements is not itself an offence, but it can trigger additional taxes and surcharges if the transactions serve no real purpose beyond reducing tax.

Such cases were highlighted recently when the High Court dismissed a bid by three doctors to challenge IRAS's decision to levy additional taxes on their total incomes.

Some high-income earners believed they could avoid the top personal tax rate of 24 per cent, which applies to incomes exceeding S$1 million, by channelling most of their earnings through companies, since corporate profits are taxed at just 17 per cent in Singapore.

After-tax profits can be declared as dividends to shareholders, who do not pay personal income tax on them. These private companies often paid even lower effective tax rates, benefiting from concessions designed to encourage business growth and entrepreneurship.

Rather than using such profits to expand operations or hire staff, IRAS found that some high-income earners used the corporate structure solely to channel tax-exempt dividends and non-genuine shareholders' loans to themselves.

To address this, IRAS relied on Section 33 of the Income Tax Act, which allows it to disregard or vary contrived arrangements and reclaim taxes that should have been paid.

In the recent case, the three doctors challenged IRAS's decision to reassess dividends and shareholders' loans paid to themselves from 2013 to 2018 through various private companies. The court upheld IRAS's move to strike down the arrangements, finding that the companies were mainly used as a conduit to reduce tax.

One doctor, for instance, claimed to earn only S$5,000 to S$6,000 a month from his companies, yet received dividends and shareholders' loans totalling more than S$12 million over the six-year period. IRAS can now treat these payments as part of his personal income for tax purposes.

In a statement to The Straits Times, IRAS said it takes a firm stance on artificial or contrived arrangements set up to avoid tax. "Self-employed professionals, like all taxpayers, are expected to ensure that their tax affairs reflect the commercial and economic reality of their arrangements," it said.

From the 2023 year of assessment, taxpayers caught using contrived schemes face a 50 per cent surcharge on the additional tax owed, a penalty similar to that imposed on property investors who use sham agreements to avoid additional buyer's stamp duty. This means a taxpayer owing S$200,000 in additional tax would face a further S$100,000 surcharge, totalling S$300,000 payable to IRAS.

Many of those caught said they had relied on advice from accountants or lawyers. IRAS said taxpayers remain responsible for their own tax affairs and should exercise caution when engaging tax agents.

"Tax agents are expected to provide advice that is consistent with Singapore's tax laws. For errant tax agents, IRAS may refer matters of professional misconduct to the relevant professional bodies empowered to take disciplinary action," it added.