Singapore Corporate Tax Guide
A Corporate Tax Guide For Singapore
Provide an environment for your business to thrive in. Singapore’s business friendly corporate tax system is often held up as the gold standard in the commercial world. The country has been hugely successful in attracting lucrative foreign investment using its generous incentives and innovative single-tier system. Understanding the country’s tax system and tax rates can help you to make informed decisions about you business. This corporate tax guide has been provided to give you an overview.
Singapore has a flat corporate taxation rate which applies primarily to income from operations undertaken within its borders and in this way enables many foreign companies to expand their enterprise in the city without in any way jeopardising their existing operations. This system combined with some of the lowest corporate rates in the developed world make our country the ideal place to invest as a foreign business owner.
This corporate tax guide contains a general overview of the rates, systems and incentives which are applicable to Singapore companies and foreign subsidiary branches operating in the city. Our online calculator can also be used to give you a better understanding of what you would be taxed in Singapore and then measure it against the taxation rate in your own country.
The single-tier system
In essence, a single tier income system for companies means that there is no double taxing for stakeholders. The corporate income tax rate applied to the company’s territorial revenue but once the income has been taxed, it is exempt from future taxes like the dividend tax. There is also no tax on capital gains in Singapore.
Corporate taxation rates and general exemptions
Headline tax rate
This is a flat rate of 17% which is designed to make an appealing destination for large foreign companies looking to establish a presence in the Asia Pacific region. However, the headline rate is not necessarily indicative of the effective rate at which your company is taxed. Generally speaking, the rate you pay will be below the headline rate due to a number of factors such as exemptions, incentives and depreciation rules.
There are a number of incentives for companies based in Singapore which can significantly reduce the amount paid. These include:
- 0% taxation rate on first S$100k taxable income. This applies for each one of the first three years that a new company which is incorporated and resident in Singapore files a return. This is designed to alleviate the burden on small to medium sized businesses with no more than 20 shareholders where at least one individual holds a minimum 10% of shares.
- Effective rate of approximately 8.5% on income up to S$300K available to all resident companies. Taxable income above this will be charged at the headline rate.
The effective corporate tax rate
These exemptions and incentives make taxation rates make Singapore a highly desirable destination for small and medium sized companies to establish themselves.
One off Corporate Income Tax (CIT) Rebate for YA 2016 and YA 2017
This is a one-time 30% corporate tax rebate on income tax payable in YA 2016 and 2017. Every Singapore Company will be eligible for this rebate according to the 2015 budget and the rebate will be capped at S$20,000.
Due date for corporate income tax filing
The due date for companies filing income tax in Singapore is November 30. To successfully file a return, the company has to complete all relevant paperwork including Form C (declaration form), audited and unaudited accounts, as well as tax computation (adjustments to net profit or loss to arrive at the chargeable income).
The basis period
Income is assessed on the basis of the preceding year. That means that the basis period of any given year of assessment (YA) is the financial year ending (FYE) in the year preceding the YA. Although companies are free to elect their own parameters of operation, a company’s accounts must be prepared up to the FYE each YA.
To ensure non-residents pay tax on income generated as a result of operations in Singapore, a withholding tax applies. This comes into action whenever a payment of a specified nature is made to non-resident individuals or companies. The percentage of each payment taken is given to the Inland Revenue Authority of Singapore.
Special purpose and industry specific taxation
Under the Singapore Income Tax Act, certain industries may access special purpose concessionary tax rates and corporate income tax incentives.
Company tax residence
A company whose control and management is exercised within the territory of Singapore is considered a resident. The term ‘control and management’ is not clearly defined by authorities but is generally understood to mean policy level decision making by the board of directors rather than operational decision making from management.
Non-resident companies are those where the directors control business operations and conduct meetings outside of Singapore. This definition holds true even for companies whose lower level operations are conducted in the country. Depending on circumstances, the residence of a company may change from year to year. Although a Singapore branch is not considered a resident (as it is recognised as an extension of a foreign enterprise whose major operations occur overseas), subsidiary companies are recognised as independent from their foreign parent company and may thus be considered as resident should the residency conditions are fulfilled.
The taxation of resident and non-resident companies is fairly similar except that certain benefits are reserved for resident companies such as:
- An exemption scheme for new start ups
- Section 13(8) of the Income Tax Act provides an exemption for dividends from overseas, foreign-sourced service income and branch profits.
- Benefits outlined in the Avoidance of Double Taxation Agreements (DTA) between Singapore and treaty countries.
A tax treaty is an agreement between two countries which details how a given company’s income will be taxed by the authorities of each country when it operates in both. The aim of these treaties is to avoid double taxation. Singapore has treaties with a large number of countries – more than 50 – and is continually working to establish agreements with other nations. Singapore is committed to encouraging international trade and investment and sees these treaties as a way to alleviate the double taxation which discourages many companies from doing so.
Singapore now also provides unilateral tax credits to resident companies which means that if a business has been taxed by a foreign nation Singapore does not have an agreement with, they are still provided with a credit for foreign sourced income.
The above treaties are only applicable to Singapore resident companies
Comparing net income and taxable income
According to the Income Tax Act of Singapore, income that is either derived or accrued from Singapore or received in Singapore from outside Singapore is eligible for corporate tax. Income is defined as gains of profits from any or business income from investment. Income which is received in Singapore from outside the country is eligible for a number of qualified exemptions known as Exemptions on Foreign Sourced Income.
The net profit or loss of a company does not provide an accurate picture of taxable income as there are many circumstantial considerations to take into account. Some of the income may be entirely exempt in accordance with the Singapore Income Tax Act. There are a number of general exemptions available to all companies, as well as considerations for specific industries, start-up businesses, foreign sourced dividends etc.
Deduction of losses
Companies are generally able to deduct allowable expenses from income for the purpose of taxation. The loss can be carried forward indefinitely but must be deducted in the first year where statutory income is available. The preceding year basis applies to the deduction of losses. Losses can only be utilised if there is no substantial change in shareholding.