I. Single-tier income tax system
Since January 1, 2003, Singapore has adopted a single-tier corporate income tax system, which means there is no double-taxation for stakeholders. Tax paid by a company on its chargeable income is the final tax and all dividends paid by a company to its shareholders are exempt from further taxation.
There is no tax on capital gains in Singapore. Examples of capitals gains include gains on sale of fixed assets, gains on foreign exchange on capital transactions, etc.
II. Corporate income tax rates and general tax exemptions
1. Headline Tax Rate
Singapore’s headline corporate tax rate is a flat 17%. In order to make Singapore as an attractive investment destination, income tax rates in Singapore have been going down consistently as seen below.
Headline income tax rate in Singapore as in many other jurisdictions does not necessarily provide an accurate indication of effective corporate tax rate. The effective rate is normally lower than the headline tax rate due to applicable tax exemptions and tax incentives, depreciation rules, etc.
2. General Tax Incentives
Listed below are general tax exemptions/incentives currently available to Singapore resident companies. Once these tax exemptions are applied to the taxable income, the effective income tax rate for small-to-midsize Singapore companies is reduced significantly.
0% tax on S$100K taxable income
The corporate income tax rate is 0% on the first S$100,000 taxable income for each of the first three tax filing years for a newly incorporated company that meets the following conditions:
- be incorporated in Singapore
- - be tax resident in Singapore
- - has no more than 20 shareholders of which at least one is an individual shareholder holding at least 10% of shares.
- 8.5% tax on taxable income of upto S$300K
- All Singapore resident companies are eligible for partial tax exemption which effectively translates to about 8.5% tax rate on taxable income of upto S$300,000 per annum. The taxable income above S$300,000 will be charged at the normal headline corporate tax rate of 17%.
3. Effective Corporate Tax Rate
The above general tax incentives mean very attractive tax rates for small-to-midsize companies. For example, a typical Singapore resident company with S$2,000,000 annual taxable income will be taxed as below:
First Three Years of Income Tax Filings
|TAXABLE INCOME (S$)||TAX RATE|
|0 – 100,000
|100,001 – 300,000
|300,001 – 2,000,000
After First Three Years of Income Tax Filings
|TAXABLE INCOME (S$)||TAX RATE|
|0 – 300,000
|300,001 – 2,000,000
4. One-off Corporate Income Tax (CIT) Rebate for YA 2016 & YA 2017
According to the Singapore Budget 2015, every Singapore company will be eligible for a corporate income tax rebate. Singapore companies can claim a one-time 30% corporate income tax rebate on corporate income tax payable for YA 2016 & YA 2017, subject to a cap of S$20,000.
Income tax filing due date
Income tax filing due date for Singapore companies starting year 2009 is November 30.
The company has to file a complete set of returns including Form C, audited/unaudited accounts, and tax computation. The Form C is a declaration form for a company to declare its income whereas tax computation is a statement showing the adjustments to the net profit/loss as per the accounts of a company to arrive at the amount of income that is chargeable to tax.
Income tax basis period
In Singapore, corporate income is assessed on a preceding year basis. This means that the basis period for any Year of Assessment (YA) generally refers to the financial year ending (FYE) in the year preceding the YA. For example, in year 2008 you will be filing corporate tax return for your company’s financial year that ended anytime between January 1, 2007 to December 31, 2007. Your company’s accounts are prepared up to the FYE each year.
III. Withholding tax
Singapore has implemented a withholding tax law (on certain types of income) to ensure the collection of tax payable to non-residents on income generated in Singapore. The tax withholding does not apply to Singapore resident companies or individuals. Under the law, when a payment of a specified nature is made to a non-resident company or individual, a percentage of the payment has to be withheld and paid to Income Tax Authorities. The amount withheld is called the withholding tax.
IV. Tax residence of company
A company is considered as resident in Singapore if the control and management of the business is exercised in Singapore. Although the term “control and management” is not defined explicitly by authorities, a generally accepted consensus is that it refers to the policy level decision making at the level of Board of Directors and not the day-to-day decision making and operations.
In general, a company is considered non-resident in Singapore if the directors manage and control the business and hold board meetings from outside Singapore. This is true even if, for example, the lower level operations are taking place in Singapore. A company’s residence may change from one year of assessment to the next depending on the circumstances. A Singapore branch of a foreign company is generally not treated as a Singapore tax resident since the control and management is vested with an overseas parent company.
The basis of taxation for a resident company and non-resident company is generally the same with the exception of certain benefits that are available to resident companies. These include:
A Singapore resident company is eligible for income tax exemption scheme available for new start-up companies.
A Singapore resident company can enjoy income tax exemption on foreign-sourced dividends, foreign branch profits, and foreign-sourced service income under section 13(8) of the Income Tax Act.
A Singapore resident company is entitled to benefits conferred under the Avoidance of Double Taxation Agreements (DTA) that Singapore has concluded with treaty countries.
V. Net income vs taxable income
A company’s income means gains or profits from any trade or business income from investment such as dividends, interest and rental royalties, premiums and any other profits from property other gains of an income nature.
As per Income Tax Act of Singapore, corporate tax is imposed on the income that is A) accruing in or derived from Singapore; B) received in Singapore from outside Singapore.
Part A is the income that has a source in Singapore. Part B is the income with a source outside Singapore and received in Singapore. For Part B however, there are certain qualified exemptions commonly known as Exemptions On Foreign Sourced Income.
A company’s net profit/loss alone does not provide an accurate picture of the taxable income. For instance, some of the expenses incurred by your company may not be deductible for tax purposes or some of the income received may not be taxable or it may be taxed separately as a non-trade source income.
Certain company income may be exempted from tax under the provisions of the Singapore Income Tax Act. Examples include general tax exemptions available to all companies, exempt income for certain industries such as shipping income derived by a shipping company, foreign-sourced dividends, branch profits & service income received by a resident company that satisfies the qualifying conditions, exemptions on qualified foreign sourced income, etc.
Singapore tax treaties
A tax treaty between two countries is generally an agreement that specifies how the income earned will be taxed by the authorities of each country when a company is involved in doing business in both countries. The main benefit and objective of a income tax treaty is to help businesses avoid double taxation of their income.
Singapore has concluded tax treaties with more 50 countries and the list continues to grow. The treaties reflect Singapore’s continual efforts to help businesses in relieving double taxation and to encourage and facilitate the trade and investment opportunities across-borders.
Starting 2008, Singapore has gone a step further in providing unilateral tax credits to Singapore companies. According to the new policy, all Singapore companies that earned income from countries that don’t have double tax agreement with Singapore, will be allowed a tax credit on their foreign-sourced income from those countries.
For any question about Singapore Taxation:
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