Singapore is often lauded for having low corporate tax rates and a transparent tax filing system. The country also offers several tax incentives that draw global investments, making it one of the world’s most ‘‘business-friendly’’ countries. Thus, if you are planning to register a company here or opening a branch of an existing business, knowing about the corporate taxation is important.
Corporate Taxes in Singapore – Who Is Legally Required to Pay?
Any company that is supervised and managed from Singapore is an official tax resident in the country. However, not all branches of multinational companies qualify as tax residents. If the company is not managed in Singapore, it doesn’t qualify, even if the company holds its day-to-day operations in Singapore. Being “managed in Singapore” means that the company’s strategic decisions (e.g., company policies) are discussed in Singapore.
However, even companies that don’t get the coveted tax-residency status have to pay corporate tax on any taxable income consequent of their activities in Singapore. But, these companies will not enjoy the several benefits that tax resident companies enjoy.
Singapore levies taxes on profits and not on revenue. Profits of your Singapore company will be taxed at 17% (with an effective tax rate often lower due to various tax incentives and tax exemptions available to Singapore-resident companies).
How to Become a Singaporean tax-resident?
Every year, companies get 12 months to shift their management department to Singapore. They have to have one year of management, board meetings, strategic decisions, etc. conducted in Singapore in their Year of Assessment (YA). For instance, for the Year of Assessment 2020, the 12-month period will be 1st April 2019 to 31st March 2020.
A company incorporated in Singapore is not automatically considered a tax resident of Singapore.
To be considered a tax resident of Singapore, a company must be controlled and managed from Singapore. According to IRAS, controlled and managed refers to, “making decisions on strategic matters, such as those on company policy and strategy.”
In general, the location of board meetings is a key factor in determining where a company is controlled and managed.
Furthermore, the location of company personnel who have a key role in the company’s decision making can also determine tax residency.
Typically, a company is deemed to be a non-resident if board meetings and key management personnel are located outside of Singapore–even if the day-to-day operations of the company are in Singapore.
For example, foreign-based holding companies that only earn passive income are normally considered non-residents since these companies are run with instructions from owners and shareholders who are based outside Singapore.
Note that the tax residency of a company can change from year to year.
Following are the benefits of being a Singapore tax resident companies with Singapore tax residency enjoy the following benefits:
- Tax benefits provided under Avoidance of Double Taxation Agreements (DTAs)
- Tax exemption on foreign-sourced dividends, foreign branch profits, and foreign-sourced service income
- Tax exemption for new startups
How Do Companies Benefit from Singapore’s Income Tax System?
Singapore is renowned for having a single-tier corporate income tax system. Stakeholders don’t have to pay taxes twice on their incomes. The tax filed by a company on its deductible income is the closing tax payment. All dividend installments paid to the company’s shareholders are exempt from additional taxation. Such a lenient taxation system is not common. Here are a few reasons why this taxation system is so lucrative for global companies –
- The profits of your Singapore company will be taxed at 17% (with an effective tax rate often lower due to various tax incentives and tax exemptions available to Singapore-resident companies)
- No taxation on capital gains
- No tax on post-taxation profit payments to shareholders. Companies only pay taxes on profits. Post-tax profit distribution (i.e. dividends) to shareholders is tax-free.
- Certain type of foreign-source income is exempt from taxation in Singapore
Singapore offers generous incentives and tax breaks when investing in new and promising industries, R&D, and productivity-enhancing technologies
- No Double Taxation of Income
- Singapore has tax agreements with more than ninety countries.
- All foreign tax credit is exempted.
- Companies from countries that don’t have a tax agreement with Singapore are provided with a unilateral tax credit system which respects foreign tax on all income from foreign companies.
What are Corporate Tax Rates?
Startup Companies Tax Exmeption | |||||
Chargeable Income (SGD) | % exempt from Tax | Amount of Tax Exempted (SGD) | |||
First 100,000 | 75% | 75,000 | |||
Next 100,000 | 50% | 50,000 | |||
Total 200,000 | 125,000 | ||||
All companies will be given 25% corporate income tax rebate, capped at $15,000 for YA 2020 | |||||
Example: | |||||
Chargeable Income (SGD) | Tax before Rebate | Effective Tax Rate | |||
100,000 | 4,250 | 4.25 | |||
200,000 | 12,750 | 6.38 | |||
300,000 | 29,750 | 9.92 | |||
400,000 | 46,750 | 11.69 | |||
500,000 | 63,750 | 12.75 | |||
600,000 | 80,750 | 13.46 | |||
1,000,000 | 148,750 | 14.88 | |||
2,000,000 | 318,750 | 15.94 | |||
3,000,000 | 488,750 | 16.29 | |||
5,000,000 | 828,750 | 16.58 | |||
10,000,000 | 1,678,750 | 16.79 | |||
Partial Tax Exemption – For all Companies not fulfill the condition of SUTE YA 2020 | |||||
Partial Tax Exemption | |||||
Chargeable Income (SGD) | % exempt from Tax | Amount of Tax Exempted (SGD) | |||
First 10,000 | 75% | 7,500 | |||
Next 190,000 | 50% | 95,000 | |||
Total 200,000 | 102,500 | ||||
Example: | |||||
Chargeable Income (SGD) | Tax before Rebate | Effective Tax Rate | |||
200,000 | 16,575 | 8.29 | |||
300,000 | 33,575 | 11.19 | |||
400,000 | 50,575 | 12.64 | |||
500,000 | 67,575 | 13.52 | |||
1,000,000 | 152,575 | 15.26 | |||
2,000,000 | 322,575 | 16.13 | |||
3,000,000 | 492,575 | 16.42 | |||
5,000,000 | 832,575 | 16.65 | |||
10,000,000 | 1,682,575 | 16.83 | |||
20,000,000 | 3,382,575 | 16.91 | |||
All companies will be given 25% corporate income tax rebate, capped at $15,000 for YA 2020 | |||||
What is Taxable Income?
Taxable income in Singapore’s single-tier territorial tax system includes –
- Profits from the trade/business.
- Royalties, premiums, interests on the property, and other earnings from investments.
- Earnings from investments also include rent from a property.
- Other income that is considered ‘‘revenue.’’
What are Net Income and Taxable Income?
As per the Income Tax Act of Singapore, any earnings made in Singapore and money sent to Singapore from an overseas source is taxable. However, net profits are, in most cases, not taxable. Some of the costs sustained by companies may or may not be deductible. Some incomes may even be taxed as a non-corporate income.
There are other forms of taxation levied on any overseas income received in Singapore. ‘‘Exemptions on Foreign Sourced Income” is an official guideline by the Singapore Income Tax Act, which deals with such sources of revenue. Some examples of exemptions include income from foreign-based dividend payments, branch profits, etc.
What Happens if a Company Loses Money?
As per the provisions prescribed in the Singaporean Income Tax Act, companies are allowed to deduct permissible costs from the money meant for taxation. This loss cumulates until a company record statutory income. The authorities allow companies to use taxable revenue only if there are no considerable changes in ownership or other important commercial activities.
What are the major Tax Incentives for Companies?
Singapore offers lucrative tax incentives for startup companies. A tax incentive scheme for startups was launched in 2005 (“SUTE”). The new companies have to meet these criteria for their first three years – consecutive YAs depending on where the YA falls to avail exemption under SUTE:
- The company’s total share capital is beneficially held directly by no more than 20 shareholders throughout the basis period for that YA where:
- All of the shareholders are individuals; or
- At least one shareholder is an individual holding at least 10% of the issued ordinary shares of the company
- Property and investment holding companies are not eligible for SUTE
YA 2020 Onwards
New companies that qualify are given a 75% tax exemption on the first S$100,000 of taxable income and an additional 50% exemption on the next S$100,000 of taxable income.
Partial tax exemption (PTE) scheme for companies
All companies qualify for PTE unless the company already claims under the tax exemption scheme for new startups. Under PTE, companies enjoy the following exemptions.
YA 2020 Onwards
- 75% tax exemption on the first $10,000 of normal chargeable income and
- A 50% tax exemption on the next $190,000 of normal chargeable income
If you are looking to know more about taxes and business in Singapore, you can hire the services of professionals.
