Corporate Taxation in Singapore
Singapore is globally renowned for its competitive tax structure. The country imposes corporate income tax (CIT) at a flat rate of 17 percent, which is the lowest among the ASEAN member states. The single-tier corporate tax system enables businesses to save on the cost of compliance, eliminate restrictions placed on the distribution of dividends from capital gains; and allows all tiers of shareholders to benefit from the vast flow-through of exempt dividends.
Besides, the city-state offers concessionary tax rates to newly established companies and several other industries which makes the effective tax rate much lower. Listed below are some of the currently available tax incentives and exemptions to Singapore’s tax resident companies.
Corporate Income Tax rebate
Every resident company in Singapore can claim a one-time corporate income tax rebate, which is equivalent to 40 percent on CIT payable for the year of assessment (YA) 2018, subject to a cap of S$15,000 (US$10,966). For the YA 2019, the tax rebate is 20 percent, capped at S$10,000 (US$7,310).
Start-Up Tax Exemption
The Start-Up Tax Exemption (SUTE) scheme aims to encourage entrepreneurship in Singapore and provide newly-incorporated companies some exemption on their taxable profits in their first three years of operations. Qualifying start-up companies can avail of the full exemption for the first S$100,000 (US$73,109) of their normal taxable income and 50 percent exemption for the next S$200,000 (US$146,218) of their normal taxable income, in the first three consecutive years of its incorporation.
Qualifying criteria for Start-up Tax Exemption Scheme
Business must note that companies undertaking property development for sale, investment or both, and those involved in investment holding are not eligible for SUTE. Those eligible for SUTE, must qualify the following three conditions.
- The company must be incorporated in Singapore;
- The company must be a tax resident in Singapore for that YA; and
- The company must not have more than 20 shareholders throughout the basis period for that YA where:
- all the shareholders are individuals beneficiary and directly holding the shares in their own names; or
- at least one shareholder is an individual directly holding at least 10 percent of the issued ordinary shares of the company.
From YA 2010 to YA 2019, maximum exemption for each YA is S$200,000 (US$146,218).
Partial Tax Exemption scheme
Companies that do not qualify for start-up exemption or are beyond the first three years of their incorporation, can avail for partial tax exemptions. This may amount to 75 percent tax exemption for the first S$10,000 (US$7,310) of normal taxable income and a 50 percent tax exemption on the next S$290,000 (US$212,017) of normal chargeable income. From YA 2010 to YA 2019, maximum exemption for each YA is S$152,500 (US$111,492).
Headquarters tax incentive
Companies with Regional Headquarters Award (RHA) and the International Headquarters Award (IHA) status pay a lower corporate tax rate of 15 percent on qualifying international income. Both RHA and IHA status are administered by the EDB.
Double tax agreements
Singapore has signed over 20 Free Trade Agreements (FTAs), and 74 comprehensive and 8 limited Avoidance of Double Tax Agreements (DTAs) that facilitate trans-border trade and make the cost of expanding overseas cheaper for Singapore-based firms. Accordingly, companies can claim a credit for the tax paid in the foreign country against the Singapore tax on eligible expenses, such as specified market expansion and investment development activities. This includes manpower expenses incurred when Singaporeans are deployed to overseas entities.
Tax Residency of a company
A company is deemed tax resident in Singapore if the control and management of its business are exercised in Singapore. In general, the place where the directors of a company manage and control its business and where they hold their board’s meetings is the place where the company is deemed resident for tax purposes. It does not really matter where the company is registered or where it has its registered office. A company may be resident in Singapore for one year and a nonresident for another.
Both resident and non-resident companies are liable to corporate income tax. However, the following tax benefits are available only to tax resident companies.
- Resident companies have access to corporate income tax exemption scheme under SUTE and Partial tax exemption.
- Resident tax companies are exempt from tax on dividends received from a foreign source, income from foreign affiliates and on income from payment for services rendered abroad.
- Resident companies can enjoy the bonuses of international treaties on avoidance of double taxation.
Certain payments such as those made to non-resident companies, individuals for services rendered in Singapore, and income derived in Singapore are subject to withholding tax. The company must withhold part of the payment and pay it to IRAS. Common types of payments subjected to withholding tax are:
Under Singapore’s one-tier corporate tax system, shareholders are not taxed on dividends paid by a Singapore resident company.
Capital gains tax
There is no capital gains tax in Singapore. Generally, the gains derived from the sale of a property/investment in Singapore are not subjected to tax as it is a capital gain. However, the gains may be taxable if one frequently buys and sells property/investment.
Income tax filing due date
A company must file a complete set of returns including Form C, audited or unaudited accounts, and tax computation. Form C is a declaration form for a company to declare its income, and tax computation is a statement that shows the adjustments to the net profit or loss, as per the accounts of a company, to arrive at the amount of income that is chargeable to tax.