Tax evasion in Singapore: What business owners must know (2025)

Tax evasion might sound like something that only big companies or shady operators worry about, but the truth is, it can affect everyday business owners, too.

In Singapore, where tax laws are strict and well-enforced, knowing the difference between tax evasion and legal tax planning can make or break your business.

So, how do you stay compliant, avoid penalties, and still save money on taxes the legal way?

The smartest move is to understand what tax evasion really means, what the penalties are, and how to plan your taxes properly.

Let’s break it down in our comprehensive guide, written by our tax accounting experts with 10 years helping Singapore companies thrive.

1. What is tax evasion in Singapore?

Tax evasion refers to illegal practices where individuals or businesses deliberately hide income or provide false information to reduce their tax liability.

In its simplest form, tax evasion is cheating on your taxes.

It happens when taxpayers knowingly:

• Underreport income
• Overstate deductions
• Hide assets
• Misrepresent financial affairs
• File false returns

IRAS (Inland Revenue Authority of Singapore) defines tax evasion as "when someone has deliberately provided IRAS with inaccurate or incomplete information about their activities to reduce their tax liability or obtain undue tax credits and refunds."

Tax evasion isn't a simple mistake. It requires intention and deliberate action to hide true financial information from tax authorities.

There are various business examples you can think of when it comes to tax evasion, for example:

1. A company director transferring money to personal accounts but recording them as business expenses
2. A business deliberately maintains two sets of financial records—one showing actual income and another showing reduced income for tax purposes
3. A business claiming expenses for purchases that never occurred
4. A restaurant owner pocketing cash payments without recording them as sales

2. Tax evasion vs Tax avoidance: What is the difference?

First things first:

Tax evasion is illegal. It involves deliberately hiding income or providing false information to reduce tax liability.

Tax avoidance is legal. It involves using legitimate methods within tax law to minimize tax obligations.

Here's a simple breakdown:

You can think of these concepts this way.

Tax evasion means breaking the rules. Tax avoidance means playing by the rules smartly.

And there's a third concept worth knowing: tax planning.

This is the proactive approach of organizing your business affairs to legally minimize tax liability. 

This is how our tax and accounting experts at Global Link Asia Consulting help foreigners and Singapore business owners to not only comply with tax law but also optimize their tax strategies.

3. 4 real cases and hard lessons you must know

Let's look at some actual Singapore cases that show exactly what you NOT to do:

4. Legal tax planning strategies for Singapore businesses

Now for the good stuff—how to legally minimize your tax burden.

Here are the most common methods you can use today to start maximizing your tax savings.

4.1. Take full advantage of tax incentives

Singapore offers various tax incentives to encourage business growth. 

The 2 most popular tax exemption schemes are the SUTE Scheme and PTE Scheme. These 2 schemes are only for companies incorporated in Singapore.

You can read more about these 2 tax exemption policies in our article: Company tax exemptions in Singapore made simple.

4.2. Optimize your business structure

Your business entity type can significantly impact your tax situation:

• Sole proprietorship: Business income is taxed at your personal income tax rates (potentially up to 24%)
• Private limited company: Corporate tax rate is a flat 17% (with exemptions for new companies)

For example, a successful freelance graphic designer incorporated her business when annual profits exceeded $100,000, saving approximately $12,000 in taxes the first year by utilizing corporate tax rates and the partial tax exemption scheme.

4.3. Time your payments strategically

Strategic timing can legitimately defer tax payments:

• Schedule major purchases before your financial year-end
• Delay certain income recognition where legally possible
• Pre-pay deductible expenses

For example,  a technology company accelerated $80,000 in equipment purchases to the current tax year when they are expected to receive exceptional profits from the long-term contract, reducing their immediate tax burden by approximately $13,600.

In addition, you can make donations to approved charitable organizations to enjoy a  250% tax deduction.

4.4. Utilize tax relief for business owners and employees

In addition, you can make use of tax reliefs available for both business owners and employees. This can help reduce the amount of tax you need to pay.

• CPF contributions: Tax relief for mandatory and voluntary contributions
• Approved donations: 250% tax deduction
• Course fees relief: For work-related education
• NSman relief: For National Service-related activities

5. What are the consequences of committing a tax evasion offence?

In Singapore, tax evasion is considered a serious offense under the Income Tax Act and can result in both civil penalties and criminal prosecution.

Section 96 of the Income Tax Act specifically addresses "willful evasion" with penalties that can reach up to 400% of the tax undercharged, along with jail terms to years.

For example, if you evaded $10,000 in taxes, you could be forced to pay the original $10,000 plus a penalty of up to $40,000 (400%), for a total of $50,000, and up to 7 years of imprisonment for serious cases.

Remember that: The difference between an honest mistake and tax evasion comes down to intent. Errors can happen, but deliberately misleading tax authorities crosses the line into illegal territory.

Beyond these direct penalties, there are hidden costs that a convicted business owner has to endure :

1. Legal fees for defense
2. Time and resources diverted from your business
3. Damaged banking relationships
4. Loss of business opportunities
5. Increased scrutiny on future tax filings

6. What to do if you discover errors on your tax returns?

In case you made a tax mistake in the past? Don’t panic—come forward.

IRAS understands that honest mistakes happen. Many taxpayers may commit errors out of negligence or a lack of understanding, not with the intent to evade.

That’s why the IRAS Voluntary Disclosure Programme (VDP) exists. 

If you voluntarily disclose past errors or omissions before they’re discovered, you may qualify for reduced penalties or even a full waiver in some cases. 

• Disclose early
• Be transparent
• Get back on the right side of compliance

It’s never too late to do the right thing—and it could save you a lot.

You can click on this link on the IRAS Voluntary disclosure of errors to learn more about how to make a voluntary disclosure.

In addition, you can use the IRAS self-review checklist for your Singapore business to guide yourself in identifying potential areas with reporting errors.

7. Bonus: How did IRAS discover tax evasion with your support?

Here's something every business owner should know:

IRAS isn't just waiting for you to make mistakes. They're actively looking for them.

Their detection methods include:

• Data analytics: IRAS uses advanced algorithms to identify unusual patterns in tax returns
• Third-party information: Banks, other businesses, and government agencies share data
• Whistleblower reports: Individuals report to IRAS using the reporting template, Reporting Tax Evasion
• Lifestyle-business mismatch: Living luxuriously while reporting minimal business income raises red flags
• Random audits: Some businesses are selected for a comprehensive review with no specific trigger

Don’t leave your tax position to chance.
We recommend you work with experienced tax professionals or do it yourself first to review your filings and ensure full compliance before IRAS does it for you.

8. How can we help you do proper tax planning?

Tax evasion in Singapore carries severe penalties, and it’s simply not worth the risk.

But with proper planning, you can legally minimize your tax burden while staying fully compliant.

The most successful Singapore businesses don’t see tax compliance as just a legal obligation—they treat it as a smart part of business strategy.

Remember that

1.  Understand the difference: Tax evasion is illegal. Tax avoidance through smart planning is not.
2. Maintain strong internal controls and keep thorough documentation.
3. Leverage legitimate tax incentives and reliefs.
4. Engage tax professionals for complex issues or cross-border matters.
5. If errors occur, voluntarily disclose them before IRAS finds out.

By following these principles, you’ll protect your business and optimize your tax position the right way.

Book a free consultation with our experts at Global Link Asia Consulting today if you haven’t already.

If you are thinking about expanding overseas with Singapore to be your company headquarters, we can help you:

• Register a company in Singapore;
• Open a corporate bank account in Singapore with a 99% success rate;
• Choose the right company types for tax optimization in Singapore;
• Apply for Singapore business licenses;
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• Support to open, authenticate, and manage Stripe Paypal Business in Singapore, Hong Kong, and the U.S;
• Handle all your tax accounting needs, timely annual filings, auditing, and more.

9. FAQs about tax evasion in Singapore

We offer a comprehensive range of accounting and tax services for Singaporean companies. Our services include:

• Tax Consulting including corporate income tax, GST tax, contractor tax, and more.
• Monthly/Annual Tax Accounting services in accordance with Singapore accounting standards (SFRS).
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• Corporate Income Tax Return Preparation
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