Corporate Tax Guide for Singapore
Singapore is well-recognised as one of the most business-friendly countries in the world. Among other factors, businesses in Singapore benefit from a clear and transparent tax regime. The income tax rate is also one of the lowest in the world. Thus, all of these factors have made Singapore a very attractive place for foreign investments. IRAS or Inland Revenue Authority of Singapore is the government authority responsible for assessing, collecting and administering tax in Singapore.
Salient features of the tax system:
The Singapore corporate tax system comes with various features for both national and international investments. Let’s have a look at some of them.
Territorial tax policy
In Singapore, there is a territorial tax policy which means that corporate tax is only levied on that part of the income which has been generated in Singapore or has been received in Singapore. It is great for those doing foreign investments in Singapore.
Single-tier system of tax
IRAS implements a single-tier tax system in Singapore. Under the single-tier tax system, the amount of tax which is paid by a company on the chargeable portion of its income is regarded as the final amount of tax. Also, the dividends which are received by the shareholders are not a part of the tax system. So, any company which is doing business in Singapore as a foreign company needs to pay the tax only on its chargeable income. For more details, you can consult a tax filing agent such as Sprout.
The rate of tax for chargeable income is only 17%. All the companies are charged on the basis of the tax rate, be it a local company or a foreign one.
Exemption of tax for start-ups
As of 2020, new startup companies can enjoy tax exemption of 75% on its first chargeable income of $100,000 for the first three years of assessment (YA). They can also enjoy an additional 50% exemption on their next chargeable income of $100,000. This is applicable for companies where any YA of the first 3 YAs falls in or after YA 2020.
However, there are various rules for getting the privilege of tax exemption.
- The startup company needs to be incorporated in Singapore;
- The company must be a tax resident in Singapore for that YA;
- The company cannot have more than 20 shareholders in the basis period where:
- The company needs to have at least 1 individual shareholder that holds 10% of the issued ordinary shares; or
- all of the shareholders are individuals.
Partial exemption of tax
Not a start-up? Fear not, companies who do not qualify for the start-up tax exemptions can still qualify for partial exemptions! From YA 2020 onwards, companies can enjoy a 75% exemption on their first $10,000 of chargeable income and an additional 50% exemption on the next $190,000 of chargeable income.
The smaller companies which operate within Singapore benefits a lot from the competitive rate of tax. The revenues of such companies are comparatively low and the liabilities of tax are also slashed by the system of partial exemption. The accounting firms in Singapore are well aware of all the tax exemptions. So, if you are operating or deciding to operate from Singapore, make sure that you get the privileges.
Exemption of tax for incomes sources from foreign countries
The foreign-sourced incomes of all the companies in Singapore are exempted from corporate tax under certain conditions. The foreign-sourced incomes include foreign branch profits, dividends and service income. The conditions are:
- The highest rate of tax in the foreign country from where the income is received is at least of minimum 15%; and
- The foreign income has been subjected to foreign tax in the country of origin.
Income which is applicable for corporate tax
For filing corporate tax in the state of Singapore, there are various conditions that need to be fulfilled. Income of these nature in the state of Singapore, are subjected to corporate tax:
- The income from any kind of investments such as interests, rentals and dividends
- Profits or gains from business
- Premiums and other profits acquired form property
- Any other type of profit of income nature
By accounting the profit or loss of a company, the actual quantum of taxable income cannot be depicted. The accounting profit depends on the tax adjustments such as non-taxable receipts, non-deductible expenses, allowances in capital and further deductions. So, the chargeable income of a company based in Singapore will be different from the accounting amount of income or loss. Many of the expenses which are incurred by the companies might not be deducted for the purpose of tax. A company can calculate its corporate tax rate for a particular year by consulting an accounting service provider.
Corporate income tax rebate
Corporate income tax rebate is given to all companies for YA 2013 to YA 2020. Information for 2021 is not available as of now. Corporate income tax rebate is calculated on the tax payable after deducting tax set-offs (e.g. foreign tax credit).
For YA 2020, companies will receive corporate income tax rebate of 25%, capped at $15,000. For more information on YA 2013-2019, you may view it here.
Singapore double taxation treaty
Double taxation takes place when a taxpayer is imposed of taxes from two or more countries. In simple words, the same amount of income is taxed twice. In Singapore, there are various regulations that exempt the tax payer from double taxation depending on the source of income.
Year of assessment
In the state of Singapore, all incomes are assessed on the basis of the preceding year. This means that the basis period for an assessment year is actually the financial year which is ending in the year preceding the assessment year. An important thing that needs to be taken into account is that the basis period for each assessment year cannot exceed the time period of one year or 12 months. This is of utter importance for the new startup companies where the first set of income covers a period of one year and the income is apportioned for two consecutive assessment years.
Residence of a company for taxation
For filing corporate tax in Singapore, a company is assumed to be the resident of Singapore if the management and control of the company are exercised from Singapore only. Any branch of a foreign company in the state of Singapore is regarded as a non-resident as the management and control of the company is associated with a foreign parent company. Although the basis of taxation for both resident and non-resident companies are the same, the resident companies of Singapore can enjoy certain privileges which are generally in the form of incentives, exemptions and benefits. Find out more about affordable taxation services in Singapore .
Understanding the tax regime may be a complex matter depending on the specific set up of your business. Speak to a tax agent if you are uncertain. The Sprout team will be glad to provide assistance!