Everything You Need To Know About Corporate Taxes In SingaporeDownload Now: FREE GST 2023 GuidebookDownload Now: FREE Employment Pass ChecklistDownload Now: Free Incorporation Checklist
One of the most important aspects of managing a corporation in Singapore is paying the correct amount of corporate tax on a timely basis. Failure to do so could result in legal consequences for you and your corporation.
Thankfully, Singapore is one of the most business-friendly countries in Asia and has one of the most attractive and transparent corporate tax regimes in the world. Singapore’s use of technology means that it also has an extremely efficient tax filing and reporting system.
The guide that follows provides a detailed summary of Singapore’s corporate tax system. We’ll explain the corporate tax rate in Singapore, when and how to file corporate taxes, what a Singapore tax-resident company is, the benefits that such a company enjoys, and much more.
Corporate Taxes in Singapore
Regardless of tax-residency status, all companies in Singapore are required to report and pay corporate taxes on chargeable income derived from Singapore or foreign income remitted into Singapore. However, if your company is a tax-resident company of Singapore you may be eligible for a tax exemption (more on this later).
Singapore’s corporate tax rate is a flat 17%. To calculate your net tax payable, you have to first determine your chargeable income (before exempt amount) before applying the 17% tax rate. Your chargeable income is determined after adjustment of disallowable expenses, taxable income and capital allowance from your Accounting Profit.
Corporate Tax Exemptions
What is a Start-Up Tax Exemption (SUTE) Scheme?
The Start-Up Tax Exemption (SUTE) Scheme is a tax exemption scheme eligible for newly incorporated companies for the first three consecutive Years of Assessment.
Newly incorporated companies that are Singapore tax-residents benefit from 75% tax exemption on the first S$100,000 of chargeable income and 50% tax exemption on the next S$100,000 of chargeable income for the first three consecutive years of assessment (we’ll define this term later). These companies must satisfy all of the following criteria:
- The company must be incorporated in Singapore.
- The company must be a tax resident in Singapore for that year of assessment.
- The company cannot have more than 20 shareholders. Either all the shareholders must be individuals or at least 1 shareholder must be an individual holding at least 10% of the company’s ordinary shares.
- The company’s principal activities cannot be that of investment holdings or undertake property development for sale, investment, or both.
What is a Partial Tax Exemption (PTE) Scheme?
After the first three years, the company in question is no longer eligible for SUTE but can still benefit from the Partial Tax Exemption (PTE). In this scenario, it receives a 75% tax exemption on the first $10,000 of chargeable income and a 50% exemption on the next $190,000 of chargeable income. The maximum exemption for the company for each year of assessment is, therefore, $102,500 (i.e. 75% x $10,000 + 50% x $190,000).
When Is a Company Considered a Singapore Tax Resident?
A company qualifies as a tax resident in Singapore if its control and management were conducted in Singapore during the preceding YA. Control and management refer to the company’s strategic decisions. A useful way to determine where the company’s control and management are done is by looking at where the company’s Board Meetings are held. If they were conducted outside of Singapore, the company will not be considered a Singapore tax resident.
What are the benefits of being considered a Singapore Tax Resident?
In addition to the tax exemptions schemes covered earlier, a Singapore tax resident company enjoys two useful benefits. First, it can avoid double taxation of certain incomes in countries with which Singapore has an Avoidance of Double Taxation Agreement (DTA). This means that the company can receive a tax exemption or reduction on any chargeable income that has already been taxed in the foreign DTA country. The company has to apply for a Certificate of Residency (COR) from IRAS to submit to the Foreign Jurisdiction for this purpose.
The reverse is also true; if the income has already been taxed in Singapore, the company can claim tax exemption or reduction of chargeable income in the foreign DTA country.
A second important benefit of being a Singapore tax resident company, which is similar to the first one, is that the company may be eligible for tax exemptions on foreign dividends, foreign branch profits, and service incomes from foreign countries as long as three conditions are satisfied:
- These incomes have already been taxed in that foreign country.
- The foreign country must have a headline tax rate of at least 15%.
- The Inland Revenue Authority of Singapore (IRAS) judges the exemption to be beneficial to the company.
What Is a Year of Assessment (YA)?
A year of assessment (YA) refers to the year in which the company’s income and expenses will be calculated and charged for the purpose of corporate taxes. A company’s YA depends on the date it chose as its financial year-end when it was first incorporated and the closing date for its first set of accounts.
For example, if Company ABC was incorporated on 1 November 2019 and chooses its financial year-end date to be 31 October 2020, then ABC’s basis period for the YA will be from 1 November 2019 to 31 October 2020. A basis period is the period of income that is relevant for the YA, the YA will be in the preceding year. Meaning that, Company ABC’s YA is to take place in 2021.
When and How Do I Need to File Corporate Taxes?
In Singapore, companies need to file all their corporate tax documents online by November 30. Follow these four steps to correctly file and pay your corporate taxes. Upon filing of your taxes, IRAS will issue a Notice of Assessment (NOA) which is essentially an official tax bill which spells out your chargeable income and the corresponding tax amount payable. Upon receipt of NOA, the company may choose to object to IRAS’ tax assessment if they disagree with it.
Step 1: File ECI
First, you need to file the Estimated Chargeable Income (ECI) form unless you qualify for an exemption. This form, which you must file within three months of your company’s Financial Year End, provides IRAS with an estimate of the company’s chargeable income.
A company is exempt from filing an ECI if it has an annual revenue of less than S$5 million and has no estimated chargeable income for the YA. From YA 2020 onwards, all companies must electronically file their ECI. You can do this through the myTax Portal that is maintained by IRAS.
At this point, a Notice of Assessment will be issued by IRAS based on the ECI submission or non-submission.
Step 2: File Form C-S
The next step is to file your annual Income Tax Return with IRAS through myTax Portal. The difference between the Income Tax Return and the ECI is that the Income Tax Return reports on the company’s actual income while the ECI is merely an estimate of the company’s income.
All companies must file the Income Tax Return annually, even those that made a loss, are applying to be struck off, or are being wound up. Generally, a company files its Income Tax Return by using Form C, which requires it to submit its financial statements, a summary of how it calculated its tax bill, and other supporting documentation.
A company can qualify to submit a simplified Form C also known as Form C-S if it satisfies the following four criteria:
- It is incorporated in Singapore.
- It has an annual revenue of no more than S$5 million.
- Its income is taxed at the standard corporate tax rate of 17%. This means that the company cannot be benefiting from a reduced tax rate as is the case in certain promoted industries.
- It doesn’t claim any special schemes such as investment allowances or foreign tax credits.
Companies with smaller scale operations (with annual revenue of $200,000 or below) may opt to file Form C-S (Lite) instead.
A dormant company, which is one that neither conducts any business nor has any income for the YA, may submit the Form C-S/C for Dormant Company instead of the full Income Tax Return.
Step 3: Pay Corporate Tax
If the company has no objections to IRAS’ tax assessments, it proceeds to pay the assessed corporate tax within 30 days of the date of the NOA. Accepted payment methods include interbank GIRO, internet banking, cheque, and telegraphic transfer.
If a company fails to pay the assessed corporate tax on time, it may be liable for a fine of 5% of assessed corporate taxes. Subsequent penalties of 1% are added for each month that the tax remains unpaid, up to a total of a 12% penalty. In more serious cases, IRAS can also take legal action to recover the unpaid tax.
What If My Company Made a Net Loss?
If your company incurred a tax loss in a particular YA, you can carry these losses forward to subsequent YAs and deduct them from future incomes provided that you satisfy the Shareholding Test.
This test states that there can be no substantial change in the company’s shareholdings between the last day of the YA in which the losses were incurred and the first day of the YA in which you wish to deduct these losses. Carrying losses forward into the future allows a company that is making a loss to reduce its future tax bill.
What Are Capital Allowances and How Do They Relate to My Corporate Taxes?
Capital allowances are a type of tax deduction that a company can claim on any physical or tangible capital assets it acquired in the past. These allowances help the company armotize/depreciate such fixed assets on a tax basis. Capital Allowances is applicable for fixed assets such as computers and prescribed automation equipment.
If a company didn’t use all of its capital allowances in a given YA, it can carry them forward indefinitely to subsequent YAs as long as there are no substantial changes in the company’s shareholdings or principal business activities.
Tax evasion is a very serious issue. This occurs when a company or individual deliberately provides IRAS with false or incomplete information to reduce their tax liability or qualify for tax credits and refunds that they aren’t eligible for. In Singapore, tax evasion is a serious criminal offence and IRAS rigorously investigates all suspected cases of tax evasion. An investigation generally lasts between 15 and 24 months.
An IRAS investigation includes obtaining and/or verifying information from third parties (such as banks and financial institutions) and even making surprise visits to, or extensive searches of, a company’s premises to obtain accounting records and other relevant documents.
If IRAS determines that the income tax returns were falsely declared and that the company deliberately intended to evade taxes, it could impose:
- Financial penalties of up to 400% of the tax undercharged.
- Fines of up to S$50,000.
- Imprisonment of up to 7 years for the guilty party.
Reach Out to Sprout
Corporate tax is an extremely important and often extensive part of a company’s operations. Paying the tax is the easy part; figuring out which exemptions you qualify for, how much in capital allowances you can claim, what your year of assessment is, and if you’re a Singapore tax-resident are the difficult aspects of corporate taxes that cause many corporations to, often accidentally, file and/or pay the incorrect amount of taxes.
As a result, the best way to handle your corporate taxes is to hire qualified tax professionals well before the time comes to file your taxes.
Sprout provides expert help from our team of specialists we offer budget friendly accounting packages which will cover your corporate tax needs. Feel free to carry out a complimentary consultation with one of our professionals for any queries you may have or to discuss the specifics of your company's corporate tax situation.