Links
Singapore Income Tax

You are here: Home » Taxation » Singapore Income Tax

Singapore Income Tax: Corporate Tax

Singapore is pointed as one of the best example to reduce corporate income tax rates and introduce various tax incentives to attract and keep foreign investments. Singapore has a single-tier that has flat-rate for corporate income tax system. Singapore’s tax rates is one of the lowest in the world. Due to its "business friendliness" nature, Singapore is contributing to the economic growth and foreign investment into the city-state.

Following are the guidelines of income tax rates, tax system, and tax incentives for Singapore companies.

1) Single-tier income tax system:  Singapore has adopted a single-tier corporate income tax system, which means there is no double-taxation for stakeholders. This tax system started from 1 Jan 2003. Tax is paid only by the company on its chargeable income and all the dividends paid by a company to its shareholders are exempt from further taxation.
Tax on capital gains is exempted in Singapore. Gains on sale of fixed assets, gains on foreign exchange on capital transactions, etc are termed as capital gains.

Income tax rates and general tax exemptions
Highest Tax Rate 
Corporate tax rate is a flat 18% at present. But from 2010, corporate income tax rate will be further reduced from 18% to 17%. The income tax rates in Singapore have been going down consistently from last many years.

1997-00

2001

2002

2003-04

2005-06

2007-09

2010

26%

25.5%

24.5%

22%

20%

18%

17%

 

General Tax Incentives
The following are the general tax exemptions/incentives currently available to Singapore resident companies. As these tax exemptions are applied to the taxable income, the effective income tax rate for small-to-midsize Singapore companies is reduced significantly.

  1. 0% tax on S$100K taxable income: The corporate income tax rate is 0% on the first S$100,000 taxable income for the first three tax filing years for a newly incorporated company that meets the following conditions:

● Company shouldbe incorporated in Singapore
● Company should be tax resident in Singapore
● Company has no more than 20 shareholders of which at least one is an individual shareholder holding at least 10% of shares.

  1. 8.5% tax on taxable income of upto S$300K: partial tax excemption is applied to all Singapore resident companies which effectively translates to about 8.5% tax rate on taxable income of upto S$300,000 per annum. 17% of the tax rate is charged on the taxable income above S$300,000.
  1. Effective Corporate Tax Rate: The small-to-midsize companies enjoy the very attractive tax rates. For example, a typical Singapore resident company with S$2,000,000 annual taxable income will be taxed as below:

First Three Years of Income Tax Filings

Taxable Income (S$)

Tax Rate

0 - 100,000

0%

100,001 - 300,000

8.5%

300,001 - 2,000,000

17%

 

After First Three Years of Income Tax Filings
 


Taxable Income (S$)

Tax Rate

0 - 300,000

8.5%

300,001 - 2,000,000

17%

 

Income tax filing due date
31 October is the due date to fill the Income tax return. The form C is to be completed by the company including the complete set of returns, audited/unaudited accounts, and tax computation. The Form C includes the declaration of company’s income whereas tax computation is a statement showing the adjustments to the net profit/loss as per the accounts of a company to arrive at the amount of income that is chargeable to tax.

Income tax basis period
Corporate income is assessed on a preceding year basis. So the basis period for any Year of Assessment (YA) refers to the financial year ending (FYE) of that company. For example, in year 2008 you will be filing corporate tax return for your company's financial year that ended between January 1, 2007 to December 31, 2007. Your company's accounts are prepared up to the FYE each year.

Income tax audit exemption. Some tax audit exemption is provided by the government in order to ease the burden on smaller businesses like:

  1. Exemption to private companies: The companies with no corporate shareholders and individual shareholders are less than 20 with annual revenue of less than S$5 million
  2. Dormant companies: The companies with no accounting transactions during the year are exempted from auditing their accounts and can file unaudited accounts. If the financial year is less than 12 months, the limit of S$5 million must be pro-rated.

 

Withholding tax
The tax paid by the non-residents on the income generated in the Singapore so that there is a collection of tax. This tax does not apply to Singapore resident companies or individuals. Some percentage of income is paid to the income tax authorities when a payment of a specified nature is made to a non-resident company or individual. The amount paid to the authorities is called the withholding tax.

 

Industry specific and special purpose tax incentives

In additional to the general tax exemptions/incentives listed above, there are certain industry specific and special purpose income tax incentives and concessionary tax rates offered under the Singapore Income Tax Act.

Tax residence of company
If the control and management of the business is exercised in Singapore then the company is the resident company of Singapore. In general, if the directors manage and control the business and hold board meetings from outside Singapore then the company will be considered as the non-resident company. Branch of a foreign company is not treated as a Singapore tax resident since the control and management is vested with an overseas parent company. The basis of taxation for a resident company and non-resident company is generally the same but still there are certain benefits that are available to resident companies. These include:
a) A Singapore resident company is eligible for income tax exemption scheme available for new start-up companies.
b) A Singapore resident company can enjoy income tax exemption on foreign-sourced dividends, foreign branch profits, and foreign-sourced service income under section 13(8) of the Income Tax Act.
c) A Singapore resident company is entitled to benefits conferred under the Avoidance of Double Taxation Agreements (DTA) that Singapore has concluded with treaty countries.

Singapore tax treaties
Under the tax treaties it is an agreement between the two countries that specifies how the income earned will be taxed by the authorities of each country when a company is involved in doing business in both countries. The main goal of a income tax treaty is to help businesses avoid double taxation of their income.
Presently Singapore has tax treaties with more 50 countries and the list continues to grow. The treaties reflect the encouragement and facilitate the trade and investment opportunities across-borders.

 

Net income vs taxable income
A company's income is the gains or profits from any trade or business income from investment such as dividends, interest and rental royalties, premiums and any other profits from property other gains of an income nature.
As per Income Tax Act of Singapore, corporate tax is imposed on the income that is

  1. Accruing in or derived from Singapore: This is the income that has a source in Singapore.
  2. Received in Singapore from outside Singapore: This is the income that has a source outside the Singapore and received in Singapore. There are certain qualified exemptions which are known as Exemptions On Foreign Sourced Income.

From the income some of the expenses incurred by your company may not be deductible for tax purposes or some of the income received may not be taxable or it may be taxed separately as a non-trade source income. 
Under the provisions of the Singapore Income Tax Act certain company income may be exempted from tax. For examples include general tax exemptions available to all companies, exempt income for certain industries such as shipping income derived by a shipping company, foreign-sourced dividends, branch profits & service income received by a resident company that satisfies the qualifying conditions, exemptions on qualified foreign sourced income, etc.

Tax treatment of losses
In Singapore the company can deduct losses against the income for taxation purposes. The loss can be carried forward indefinitely, however, it must be deducted in the first available year where there is a statutory income. The deduction of the loss are done in the "proceeding year" basis. It's important to note that the losses can be utilized only as long as there is no substantial change in the shareholding.

©2010 GNV Consultancy Pte Ltd. Co Reg. No: 200919713D
All rights reserved.