Singapore Corporate Tax – A Simple Guide

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Singapore Corporate Tax – A Simple Guide

Corporate tax in Singapore is the most important aspect of any business that, if managed well, can lead to a happier, more profitable return.

Singapore with its general friendly business environment and lowest tax rates, has become one of the most attractive investments and the economic hub around the globe. In order to keep its share of the GLOBAL INVESTMENT, Singapore offers reduced rates of corporate taxes along with various tax incentives.

The county’s corporate tax system is based on a flat-rate single tier territorial system. Let us take a detailed look into the tax system of Singapore along with tips and tricks on how you take the most advantage of it as no better than a tax consultant to guide you through this process.

Single-Tier Income Tax System

From 2003 onwards, Singapore eliminated double taxation for its stakeholders. This single tier system meant that the following shall be exempt from corporate tax:
a) Dividends paid to the shareholders of a company,
b) Foreign exchange capital transaction gains,
c) Gains on sale of fixed assets.
And yet, many more!

Income Tax Rates

Corporate tax rates in Singapore have been declining with the passage of time with an aim to make the country an attractive investment destination. Singapore now has a Flat 17% as its headline corporate tax rate. This rate was adopted in 2010 and has been stable ever since.

Below is a comparison showing how the country’s rate of tax declined over the period:

1997-2000 2001 2002 2003-2004 2005-2006 2007-2009 2010-2021
26% 25.5% 24.5% 22% 20% 18% 17%

Still, to portray a picture of the accurate tax rate, incentives and exemptions need to be considered.

Tax Exemptions and Incentives

Applying tax incentives and exemptions can significantly reduce the effective income tax rate for any company. Singapore presents numerous such incentives. Following are the general incentives available to resident companies of Singapore:

1. New Start-ups Tax Exemption Scheme – in or after YA 2020 (First three years of tax filing)

TAXABLE INCOME (S$) % INCOME EXEMPTED FROM TAX (S$) EFFECTIVE TAX RATES
0 – 100,000 75% 4.25% (upon fulfillment of below- mentioned conditions)
100,001 – 200,000 50% 8.5%
200,001 – 2,000,000 0% 17%

2. Partial Tax Exemption Scheme – YA 2020 or before (After the first three years)

TAXABLE INCOME (S$) % INCOME EXEMPTED FROM TAX (S$) EFFECTIVE TAX RATES
0 – 10,000 75% 4.25%
10,001 – 200,000 50% 8.5%
200,001 – 2,000,000 0% 17%

3. New Start-ups Tax Exemption Scheme – in or after YA 2019 (First three years of tax filing)

TAXABLE INCOME (S$) % INCOME EXEMPTED FROM TAX (S$) EFFECTIVE TAX RATES
0 – 100,000 100% 0% (upon fulfilment of below-mentioned conditions)
100,001 – 300,000 50% 8.5%
300,001 – 2,000,000 0% 17%

4. Partial Tax Exemption Scheme – YA 2019 or before (After the first three years)

TAXABLE INCOME (S$) % INCOME EXEMPTED FROM TAX (S$) EFFECTIVE TAX RATES
0 – 10,000 75% 4.25%
10,001 – 300,000 50% 8.5%
300,001 – 2,000,000 0% 17%

Conditions for Newly Incorporated Companies to Avail 0% Tax Tate

  • Available for the first three years of the business,
  • The company must be incorporated in Singapore,
  • Must be tax resident in Singapore,
  • S$100,000 or below taxable income,
  • The maximum number of shareholders must be 20,
  • One of the 20 shareholders must be an individual holding 10% of shares.

Income Tax Filing Due Dates

a) Tax is filed for the preceding year. This means that in the year 2017 companies are required to file income tax for the financial year ended anytime between 1st January 2016 to 31st December 2016,
b) The due date to file tax return is 30th November each year,
c) Form C is required to be used by the companies to declare their income, along with a tax computation statement that shows the taxable income after all adjustments to the net profit/loss are made,
d) Yearly audited/unaudited accounts are required to be filled along with the above documents.

Withholding Tax Rules

a) Implemented to ensure tax collection on income generated in Singapore by non-resident individuals or companies,
b) A percentage from a specified nature of payment made to non-resident individuals or companies is deducted, withheld, and paid to the Authorities of Income Tax,
c) Not applied to Singapore resident individuals or companies,

Tax Treaties of Singapore

When a Company conducts business activities in two or more countries, tax treaties are put in place to avoid double taxation. It is an agreement that helps to set rules regarding taxation of income by authorities in each respective country.

To encourage global investment and to enhance cross-border business opportunities, Singapore as at present has concluded tax treaty agreements with over 50 countries. This signifies Singapore’s efforts to relieve the double taxation burden.

A step further ahead to tax treaty has been taken by Singapore, where all Singapore companies starting from 2008 can avail unilateral tax credits. This means that all Singapore companies that conduct business and earn income from countries that are not under any tax treaty agreement with Singapore, can have tax credit on their Foreign Sourced income from those respective countries.

Tax Treatment of Losses

In Singapore, companies are allowed to deduct tax allowable expenses from their income. The corporate tax rules also allow carry forward of losses indefinitely under certain conditions but to be deducted in the first available year of statutory income. Loss deduction follows a ‘preceding year’ basis. Further, the losses can only be utilized if there is no major change in:

  • Shareholding
  • Principal activities

Residence Status of a Company in Singapore

A company is considered a tax resident if its management and control are exercised in Singapore. Management and control primarily mean decision-making on all strategic matters. The location of a company’s Board of Director’s meeting is a key aspect to determine the place of exercise of management and control.

If meetings of the Board are held and management and control are exercised from outside of Singapore, the company shall be considered as a non-resident company. Hence, the place of incorporation of a company is not a decisive measure to assess the tax residency of a company.

A foreign company’s branch in Singapore shall NOT be considered as a Singapore resident company as an overseas parent company is vested with its management and control.

Benefits for Singapore Resident Companies

  • Can avail the income tax exemption scheme for new start-up companies,
  • Can benefit from income tax exemption on foreign branch:

    > dividends,

    > profits,

    > serviced income

  • Entitled to enjoy benefits under the DTAs (Avoidance of Double Taxation Agreements),

Net Income Vs Taxable Income

A company’s income mainly consists of gains and profits from its business activities. Singapore’s Income Tax Act states that any income derived from operations in Singapore and received either in or outside of Singapore is taxable. However, there do exist qualified exemptions on foreign-sourced income.

The net income of a company is different from taxable income due to the following facts:
a) Some expenses deducted may not be allowed as a deduction under tax law,
b) Some expenses not deducted may be allowed as deduction under the tax law,
c) Some income may require to be taxed separately as non-trade source income,
d) Some income may be exempt from taxation such as:

  • shipping income derived by a shipping company,
  • branch profits,
  • foreign-sourced dividends,
  • service income received by resident companies,
  • qualified foreign-sourced income etc.

 

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