Frequently Asked Questions About Singapore’s Corporate Income Tax

If you’re considering setting up a business in Singapore, it’s important you understand the corporate income tax system. Singapore is consistently rated as one of, if not, the best places to do business in the world. A large part of this is the low tax rate that incorporated businesses enjoy.

Ottavia receives a lot of enquiries from business-owners and prospective business owners about our tax code. What follows are answers to some of the most commonly asked questions.

Demo TitlIs the trading of capital gains tax free if the primacy activity of my company is trading stock?e

The Inland Revenue Authority of Singapore (IRAS) considers a stock dealing or investment company to be one whose primary business activity is profiting from the buying and selling of investments. Any gain resulting from their sale is liable for taxation under S10(1)(a) of the Income Tax Act as these shares and investments comprise the trading stock of the company.

Am I eligible to receive tax credits for income earned in countries that do not have a tax treaty with Singapore?

Yes. Under Section 50A of the Singapore Income Tax Act, recipients of income derived from the provision of any services rendered in territory outside Singapore, as well as recipients of dividends or profits derived from an overseas branch of a company resident in Singapore, are eligible for a unilateral tax credit on any foreign taxes paid.

Persons receiving royalty payments from non-treaty countries are also eligible for the unilateral tax credit provided that the royalty is not deductible against Singapore sourced income nor is borne directly or indirectly by a by permanent establishment or person resident in Singapore.

If my company does not generate profit within the first three years, can tax exemption status be carried forward?

No. Your chargeable income will be nil for any of the first three years in which your company incurs a loss or has no income (for example, if business has not commenced). As the business has no chargeable income, it cannot benefit from the exemption scheme for new start-up companies. That said, any tax year with nil chargeable income will be included when determining a company’s first three consecutive tax years.

What is the Singapore corporate income tax rate?

The IRAS sets a flat tax rate of 17 per cent. Tax incentives are available on annual profit below S$300,000 making the effective rate at approximately 8.5 per cent. These incentives are applied differently depending on whether a newly incorporate company has individual or corporate shareholders.

We encourage individuals considering establishing a business in Singapore to use our online tax calculator to compare their taxation rate in their home country.

When is the deadline for the filing of corporate tax returns?

Corporate tax returns must be filed by November 30. This tax return is filed based on the prior year i.e. you must file a return based on the financial year ending in the previous calendar year.

This is in addition to the filing of an Estimated Tax Return within three months of the end of the company’s financial year.

Are capital gains received by a Singapore company taxable?

No. All capital gains received in Singapore are tax exempt.

Is there a dividend tax for company profits distributed to shareholders?

Dividends paid to company shareholders are not taxable. One the company has paid corporate income tax on its profits, any post-tax profits can be distributed without further taxation.

Does Singapore provide any additional assistance to new start-up companies?

Since 2005, Singapore has offered start-up private limited companies a number of tax incentives designed to encourage entrepreneurship and the continued growth and development of new small and medium-sized enterprises (SMEs).

Qualifying, newly incorporated companies will now benefit from a sharply reduced rate of taxation. Companies that are incorporated in and a tax resident of Singapore with 20 shareholders or fewer of which at least one is an individual shareholder holding at least 10 per cent of shares will be taxed as follows:

For the company’s initial three consecutive tax years, taxable income up to S$100,000 will be exempt from tax. The next S$200,000 (up to a total of S$300,000 annual taxable income) will be partially exempt and taxed at an effective tax rate of 8.5 per cent. Income above this threshold will be subject to the headline corporate tax rate – 17 per cent.

A business with a taxable income of S$500,000 per annum will have the exemption applied in the following way:

First Three Years

Taxable Income (SGD) Tax Rate
0 - 100,000 0%
100,001 - 300,000 8.5%
300,001 - 500,000 17%

 

Fourth Year Onwards

Taxable Income (S$) Tax Rate
0 - 300,000 8.5%
300,001 - 500,000 17%
Can company profits remaining after taxation be transferred to overseas shareholders?

Referred to as dividend income, current IRAS regulations stipulate that repatriation of dividends to shareholders who are resident in other countries will not be subject to any further tax consequences in Singapore. Whether this income is taxed at the receiving end depends on the domestic tax laws of the country the shareholder is resident in and the nature of any tax treaty between Singapore and that country.

Is dividend income taxed?

No. A company’s final tax is its corporate income tax. Under Singapore’s one-tier corporate tax system, all dividends paid to a shareholder by the company are tax exempt in the hands of the shareholder.

Is a company required to file a tax return for a year in which it did not make any profits?

Yes. Regardless of its profits or losses, every Singaporean company needs to file an annual return.

What taxation applies to products and services sold/provided to customers outside of Singapore?

Goods exported outside of Singapore and services provided in other territories are zero-rated. This means, these services and goods will be subject to 0 per cent Goods and Services Tax.

How far forward can company losses be carried?

When a company’s adjusted business losses in a tax year exceed other sources of income, or where there is no other source of income to offset trade losses, that company will be considered to have unutilised losses. Unutilised losses may be used to offset against a company’s assessable income in subsequent tax years. Subject to certain conditions such as there being no substantial change in shareholders, these losses can be carried forward indefinitely until they have been fully utilised.

What business travel expenses are considered tax deductible?

Companies paying transport allowance as a component of an employee’s remuneration may deduct the value of the transport allowance, as this is part of the business’ staff costs. Motor vehicle expenses incurred for business purposes by cars registered in foreign territories used exclusively outside of Singapore are also deductible. Likewise, expenses for private hire cars and foreign rental cars used for business purposes are deductible. Business passenger cars bearing a Q-plate and registered prior to 1 Apr 1998 can have related motor vehicle expenses deducted.

Note that accessing many of these benefits may have tax implications for employees using these vehicles.

How is royalty income taxed in Singapore?

IRAS considers royalty income to be income received for the right to use trademarks, copyrights and patents. Royalties accrued in or derived from Singapore, or earned in a foreign territory and received in Singapore is eligible for taxation.

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