Make Sure That You Find Out About All of Them to See if You Will Earn More or Less in the Future
Singapore is popular as a country that still reduces corporate tax rates and offers different incentives for different taxes in attracting and keeping global investments. There is a single-tier territorial based flat-rate income tax system for corporations. Singapore has an effective tax rate and a business-friendly environment, which are both main factors that contribute to economic growth and foreign investment in the city-state.
Single-tier Income Tax System
Since 2003, Singapore had started using a single-tier corporate income tax system, which is an indication that stakeholders do not have double taxation. The tax company pays the stakeholder income which is the final tax and dividends purchased by a company to stakeholders are exempted from other taxes.
Headline Tax rate
The headline of Singapore’s corporate tax is at 17% flat. In order to draw in investment, the tax rates in Singapore have been consistently going down.
| 1997-2000 | 2001 | 2002 | 2003-2004 | 2005-2006 | 2007-2009 | Since 2010 |
|---|---|---|---|---|---|---|
| 26% | 25.5% | 24.5% | 22% | 20% | 18% | 17% |
The headline tax rate for income in Singapore that is similar to other jurisdictions does not normally provide an actual indication of an effective corporate tax rate. Normally, the effective tax rate is lesser compared to the headline tax rate because of the applicable tax incentives, exemptions, etc. Taxable IncomeUnder the territorial tax system of Singapore, the qualifying generated income that is remitted to Singapore comes from a taxable foreign source. The taxable incomes are gains or profits that come from any business or trade. The income that comes from an investment like interest and rental property income.
General Tax Incentives
The general tax exemptions and incentives mentioned here are the current ones that Singapore tax resident companies can have. After the application of tax exemptions have been applied, small to mid-size Singapore company effective income tax rate is significantly reduced. From 2020 onwards, the tax exemptions for newly incorporated tax companies during the first 3 consecutive years are 75% exemptions during the first $100,000 normal chargeable income. The newly incorporated companies can have the 75% tax exemption from the first S$100,000 for the first three tax filing years if they can have these conditions:
- The incorporation took place in Singapore
- Singapore tax resident
- Does not exceed 20 shareholders where at least one of them holds at least 10% of shares
- There is a further 50% tax exemption on an income with a maximum of S$100,000. Newly formed companies also have the eligibility to have a further partial tax exemption that translates to 8.5% tax rate on a taxable income of S$100,000 every year
- The taxable income more than S$100,000 can charge with a normal headline tax rate of 17%
Tax Residency
A company is considered a Singapore tax resident if its management and control were done in Singapore during the Year of Assessment (YA) preceding. The YA is a period of 12 months where an assessment of the company’s income is being performed. For instance, the YA 2018 12-month assessment period would be from April 1, 2016, to March 2017. In order to know where the control and management is don, it depends more on where strategic decisions take place instead of where the company was incorporated.
Benefits of a Tax Resident Company
The benefits a tax-resident company enjoys can avoid certain income double taxation in countries that Singapore signed in Avoidance of Double Taxation (DTAs) with. That means the company can have a tax exemption or any income reduction which deduct a tax in a foreign country. Similar to that, the income was taxed in Singapore that can claim a tax exemption or reduction in a different country.
- The tax-resident company might be eligible for foreign dividend tax exemptions, service income from foreign countries, and foreign branch profits. It is possible as long as these incomes subject to corporate tax in a foreign country.
- The Singapore tax-resident company might be eligible for foreign individual tax exemptions as long as such incomes subject to corporate tax in a different country. In order to have tax exemptions, the foreign country should have at least 15% corporate tax and an Inland Revenue Authority of Singapore (IRAS) considers the company to benefit from a tax exemption.
- During the first 3 years of assessment, the tax resident company might qualify for 100% tax exemption during the first S$100,000 of chargeable income and 50% tax exemption during the next chargeable income of S$200,000.
Aside from corporate taxes, companies should pay a withholding tax when they with certain categories of services to non-resident companies. Tax Exemptions for Newly Opened companies in order for local companies to grow, Singapore has a new startup company scheme that is providing tax exemption on an income start-up. Under this scheme, new companies that have the qualifying criteria are eligible to receive a tax exemption for 3 straight YAs depending on what year it falls.
Starting YA 2020
New qualifying companies with a tax exemption during the first S$100,000 taxable income and an exemption of 50% on the next taxable income of S$100,000.
From YA 2010 to YA 2019
New qualifying companies have a full 100% tax exemption during the first S$100,000 of taxable income plus a 50% exemption on the next S$200,000 taxable income.
Treatment of Losses
Generally, a company can take out allowable expenses against Singapore taxation purposes income. The loss can be indefinitely forwarded, but it should deduct in the first available year where a statutory income is present. The loss deduction follows a basis of the proceeding year basis. It is important to consider that losses can be used as long as there is no substantial change when it comes to the shareholding and where principal activities are applicable. This is the tax information you should know if you are planning to open a company in Singapore because as an investor, this is important. Singapore has one of the best economies in the world and you can have a lot of success doing business here.
