Singapore Corporate Tax Guide
New Start-up Companies Pay Zero Tax
Singapore has one of the most competitive corporate tax regimes in the world. The tax rate has been steadily revised downwards to sustain economic growth and prosperity, making it attractive to international investments and enterprises to Singapore. The Inland Revenue Authority of Singapore (IRAS) is responsible for administering, assessing and collecting tax. The following is an overview of the Singapore corporate tax system.
Salient features of Singapore’s Corporate Tax System
Territorial Tax Policy
Singapore follows a territorial tax policy meaning corporate tax is levied only on that portion of the income that is generated in Singapore or received in Singapore.
Single – Tier Taxation
Singapore adopts a single –tier tax system under which tax paid by a company on its chargeable income is the final tax. Dividends received by the shareholders are not subjected to tax.
Other key features of the Singapore corporate tax regime are
- The headline corporate tax rate on chargeable income is 17%.
- A company is taxed at a flat rate on its chargeable income regardless of whether it is a local or foreign company
- There is no capital gains tax
- There is no withholding tax. Interests, royalties or rents paid to foreigners are subjected to a tax of up to 15%
Tax Exemption for qualifying new start-up companies
New startup companies enjoy full tax exemption on the first $100,000 of chargeable income for its first three consecutive Years of Assessment (YA). They are entitled to a further 50% exemption on the next $200,000 on the chargeable income.
The effective tax rate for new start-up companies on their chargeable income for the first three years is as follows:
In order to qualify for the tax exemptions under new start-ups scheme the company must
- be incorporated in Singapore
- be tax resident in Singapore for that year
- not have more than 20 shareholders throughout the basis period and
- have at least 10% of individual shareholders
Partial Tax Exemption
A partial tax exemption is given to all companies on normal chargeable income of up to $300,000 as follows
Small companies operating in Singapore benefit from the competitive tax rate, as more often their revenue is relatively low and their tax liabilities are substantially slashed by such partial exemption.
Exemption for Foreign-Sourced Income
Foreign-sourced incomes of Singapore tax resident companies are exempted from tax if they satisfy certain conditions. Foreign-sourced incomes such as dividends, foreign branch profits and service income that is remitted into Singapore on or after 1st Jun 2003 are exempted from local corporate tax if the following conditions are met:
- The highest corporate tax rate (headline tax rate) of the foreign country from which the income was received is at least 15%; and
- The foreign income had been subjected to tax in the foreign country from which they were received
For the purpose of taxation, income of following nature accrued in Singapore or received in Singapore are subjected to tax
- gains or profits from any trade or business
- income from investment such as dividends, interest and rentals
- royalties, premiums and any other profits from property
- other gains of an income nature
Accounting profit or loss does not depict the true quantum of taxable income. Accounting profit is subjected to tax adjustments such as non-deductible expenses, non-taxable receipts, further deductions and capital allowances. Thus the chargeable income of a company will be different from the accounting income or loss. Some of the expenses incurred by the company may not be deductible for tax purposes. Likewise, some of the income received by the company may not be taxable or it may be taxed separately as a non-trade source income.
Generally, a company can claim tax deduction for expenses that are incurred for business, if the following conditions are met
- The expenses must be revenue in nature, (generally refers to the normal day-to-day operating expenses).
- Capital expenditure is not allowed as a tax deduction but certain expenditure may qualify for capital allowances
- The deduction must not be prohibited under the Singapore Income Tax Act (example: domestic and private expenses).
- The expenses must be incurred. Contingent liability or estimate is not allowable as a tax deduction.
Note: Under the Productivity and Innovation Credit Scheme currently companies are allowed to deduct up to 400% of certain expenses such as qualifying R&D and staff training expenses.
Unutilized Losses, Capital Allowances and Donations
Capital allowance, trade loss or donation in excess of a company’s income from all sources for a current year may be carried forward to future years and/or transferred to another company within the same group for set-off against the income of the other company, subject to conditions.
Tax Residence of Company
For the purpose of taxation, a company is deemed resident in Singapore if the control and management of its business is exercised in Singapore.
A Singapore branch of a foreign company is deemed as non-resident since the control and management is vested with an overseas parent company.
Though the basis of taxation of a resident and non resident company is the same, the resident companies enjoy certain privileged treatment in the form of exemptions, incentives and benefits.
A Singapore resident company gets to enjoy the following privileges
- Tax exemption scheme for new start-up companies in the first three years of filing
- Partial tax exemption scheme whereby the effective tax rate is almost half of the headline rate for the first S$300,000 of chargeable income
- Tax exemption on foreign-sourced income under section 13(8) of the Income Tax Act.
- Benefits conferred under the Avoidance of Double Taxation Agreements (DTA) that Singapore has concluded with treaty countries
Basis Period & Year of Assessment
In Singapore income is assessed on a preceding year basis. This means that the basis period for any Year of Assessment (YA) is the financial year ending in the year preceding the YA. Also note that the basis period for each year of assessment cannot exceed 12 months. New startups must take note of this and if the start-up’s first set of accounts cover a period of more than 12 months then the incomes must be apportioned to two YAs.
Product and Innovation Credit (PIC) Scheme
The Product and Innovation Credit (PIC) Scheme has been further enhanced for Singapore Budget 2012. It is a scheme to provide tax incentives so as to encourage business to invest and upgrade along the innovation value chain. The chart below outlines the benefits of PIC:
|Qualifying activities||Brief description of qualifying expenditures under the PIC||Total deductions/allowances under the PIC (as a % of qualifying expenditure)|
|Acquisition or Leasing of Prescribed Automation Equipment||Costs incurred to acquire/lease prescribed automation equipment||400% allowance or deduction for qualifying expenditure subject to the expenditure cap, 100% allowance or deduction for the balance expenditure exceeding the cap|
|Training Expenditure||Costs incurred on in-house training (i.e. Singapore Workforce Development Agency (“WDA”) certified, Institute of Technical Education (“ITE”) certified; or all external training.|
|Acquisition of Intellectual Property Rights (“IPRs”)||Costs incurred to acquire IPRs for use in a trade or business (exclude EDB approved IPRs and IPRs relating to media and digital entertainment contents)|
|Registration of Intellectual Property Rights (“IPRs”)||Costs incurred to register patents, trademarks, designs and plant variety|
|Design Expenditure||Costs incurred to create new products and industrial designs where the activities are primarily done in Singapore|
|Research & Development (“R&D”)||Costs incurred on staff, costs and consumables for qualifying R&D activities carried out in Singapore or overseas, if the R&D done overseas is related to the taxpayer’s Singapore trade or business||400% tax deduction for qualifying expenditure subject to the expenditure cap*. For qualifying expenditure exceeding the cap for R&D done in Singapore, deduction will be 150%. For balance of all other expenses, including expenses for R&D done overseas, deduction will be 100%|
- Total expenditure cap for YA 2011 and YA 2012 – $800,000 for each of the six qualifying activities.
- Total expenditure cap for YA 2013 to YA 2015 – $1,200,000 for each of the six qualifying activities.
Exemption from Audit
In order to lighten the statutory burden and compliance cost on small companies and in order to create a pro business environment in which small companies can thrive and flourish unhindered, Exempt Private Companies are exempted from auditing their accounts if their annual revenue is five million or below. Likewise dormant companies, that is, companies with no accounting transaction during the basis period are also exempted from auditing.
An Exempt Private company is a private company in the shares of which no beneficial interest is held directly or indirectly by any corporation and which has not more than 20 shareholders.
Withholding tax is applicable where the recipient of the payment is a foreign company or an individual and receives the specific payment in Singapore for a service or work done in Singapore. The relevant tax amount is withheld by the payer for payments of specific nature made to a foreign company or individual thus the term withholding tax. The tax amount thus withheld is remitted to the IRAS.
Payments made towards interest, commission, fee in connection with any loan or indebtedness and rents or other payments for the use of any movable property are subjected to a 15% tax while royalty or other payments for the use of or the right to use any movable property are charged a 10% tax rate.
Fees paid for services or management fees are subjected to the prevailing tax rate. For payments that are charged prevailing corporate tax rate, a foreign company can claim deductions for expenses incurred in generating the income, by forwarding the certified accounts and tax computation for IRAS’ examination. When the net income and tax have been determined, any tax withheld in excess of the net income will be refunded.
Singapore has concluded comprehensive Double Taxation Agreements (DTA) with 74 countries. It must be noted that the benefits of DTA are available only to Singapore resident companies/individuals and the resident companies/individuals of the treaty partner. So far Singapore has concluded DTA with over 60 countries. The DTA helps to avoid double taxation of income.
Tax Return Filing
A complete set of returns comprising of Form C, audited/unaudited accounts and tax computation must be submitted by 30 November of each year. Enforcement actions will be taken against companies that fail to submit the returns by the due date. Documents to be submitted are:
- Tax computation
- Directors’ Report
- Form C
For more information on how to file your tax return, you can contact Asiabiz via email email@example.com or call our accounts specialist at +65 6320 1877.
There is a provision of audit exemption for small businesses. A company that meets one of the following conditions will be exempted from a tax audit.
- It is an exempt private company, which means it has no more than 20 shareholders and its shares are held by individuals only
- Its annual revenue is less than S$5 million
- It’s a dormant company
In order to enhance the competitiveness of Singapore and to promote the growth of certain high value sector the government extends various industry specific tax incentives. The incentives range from total exemption or a concessionary rate of 5% to 10% depending on the sector. Please see the table below to see a snapshot.
Apart from providing tax incentives for specific industries, the government also extends very attractive scheme for international companies that setup their regional or international headquarters in Singapore. Qualifying companies enjoy a concessionary tax rate capped at 15%.
Industry-specific Tax Incentives
|Finance & Treasury Centre Co.||10%|
|International Commodity Trader||10%|
|Arts & Antique Dealers||10%|
|Asian Currency Unit||10%/exempt|
|Insurance & Re-insurance Co.||10%/exempt|
|Members of Commodity Futures Exchange||10%|
|Financial Sector Incentive Co.||5%-10%|
|Commodity Derivatives Trader (New)||5%|