Corporate Tax Singapore – Your 5-Minute guide
5 minute read
Even a savvy business person can get overwhelmed with a new country’s tax regime. You are definitely not alone! Here’s a quick guide to the key features of the Singapore tax system for new companies. This article will help you as an aspiring business owner to understand how the Singapore corporate tax rate works, so you’ll be ready when tax season is here.
Among other benefits, one of the key reasons that investors are drawn to setting up their operations here is due to Singapore’s attractive tax regime – low corporate and personal tax rates, generous tax relief measures, absence of capital gains tax, one-tier tax system, and extensive double tax treaties with many countries.
Let’s get into it.
Overview:
How to qualify for tax residency in Singapore?
If you are a business owner looking to become a tax resident in Singapore, there are certain criteria that must be met.
Your company must:
- be registered as a company, society, fellowship, corporation or fraternity in Singapore AND
- have its management and control exercised in Singapore
You as an individual must:
- reside in Singapore AND
- their absence from Singapore must be temporary and reasonable
Once your company is considered a tax resident of Singapore, it will be subject to corporate income tax rates based on its taxable income.
Taxable income includes all profits earned from sources within or outside of Singapore.
However, certain tax deductions may apply such as deductible business expenses, for example, salaries paid to employees, or rent for office space.
There are also various tax exemptions available for qualifying companies such as those with annual chargeable income below SGD 300,000 or those that are approved by the Inland Revenue Authority of Singapore (IRAS)
Download our free guide to deductible and non-deductible expenses here
What is the Singapore corporate tax rate?
Singapore is an incredibly attractive destination for businesses looking to start or expand operations. This is due in no small part to its low, flat corporate tax rate of 17%, one of the lowest in the world.
Businesses can also benefit from a partial tax exemption on their first SGD 200,000 of chargeable income, making it easier for them to meet their profit goals.
Start-up companies may be eligible for even more generous incentives and benefits. They are entitled to a three-year start-up tax exemption that enables them to avoid paying taxes on the first SGD 100,000 of their chargeable income for each of their first three years of operation. This can make a huge difference for fledgling operations and give them the breathing space they need as they establish themselves and gain traction in the marketplace. For more tax exemptions, visit our startup tax exemption resource.
Overall, Singapore provides numerous opportunities for businesses looking to reduce their overall tax burden and increase profits. Thanks to its low corporate tax rate and generous incentive programs, businesses can take advantage of these benefits while experiencing the convenience of being based in a bustling metropolis surrounded by Southeast Asia’s many economic opportunities. With careful planning and strategic decision-making, businesses can capitalise on Singapore’s business environment while simultaneously accessing some of the region’s most lucrative markets.
Corporate taxation framework in Singapore
Singapore follows a territorial basis for corporate taxation where tax is imposed on income accrued in or derived in, as well as foreign-sourced income remitted in Singapore.
Dividends
Dividends are not taxed in Singapore, but they are subject to Singapore’s withholding tax rules. This means that dividends paid out by a Singaporean company are subject to withholding tax at 15%, unless there is an applicable double-taxation agreement between Singapore and the country of residence of the recipient.
Carrying forward of unutilised losses and allowances
Unutilised losses and allowances can be carried forward to subsequent years to offset against the income of those years until all trade losses are fully utilised.
Group relief
Group relief allows companies to deduct unutilised capital allowances/trade losses/donations of one company from the assessable income of another company in the same group.
To qualify for group relief the companies must fulfil the following criteria:
- The transferor and claimant must be incorporated in Singapore
- They must belong to the same group
- They must have the same financial year end
Capital gains tax
In Singapore, capital gains from the sale of property or investments are typically not taxed. This is due to such gains being classified as a capital gain, and thus not subject to taxation in most cases. However, this may change if someone were to frequently buy and sell properties or investments, as these activities could be seen as trading instead of investing and consequently be subject to taxation. In that case, any gains made through frequent buying and selling would have to be reported for taxation purposes.
Exemptions/Tax incentives
Start-up tax exemptions
To support entrepreneurship, tax exemptions were introduced by IRAS in 2005. Start-up tax exemptions in Singapore are an attractive incentive for businesses looking to set up shop in the country. The Start-Up Tax Exemption (SUTE) scheme provides qualified start-ups with a special tax exemption for the first three years of assessments. This means that eligible startups can receive a 75% tax exemption on the first $100,000 of normal chargeable income, and a further 50% exemption on the next $200,000. Additionally, companies are also allowed to deduct expenses incurred for research and development activities from their taxable income.
To qualify for these exemptions:
- the company must be a tax resident of Singapore
- the company must not have more than 20 individual shareholders or at least 1 shareholder is holding at least 10% of the issued shares
- the company must not be a property or investment holding company
From YA 2010 to YA 2019 (Maximum exemption for each YA is $200,000)
Chargeable income% exempted from tax amount exempted
First $100,000 100% $100,000
Next $200,000 50% $100,000
In or after YA 2020 (Maximum exemption for each YA is $125,000)
Chargeable income% exempted from tax amount exempted
First $100,000 75% $75,000
Next $100,000 50% $50,000
Partial tax exemption
Starting a business in Singapore can be a daunting task, especially when it comes to taxes. Fortunately, the Singapore government provides tax relief and exemptions for new start-ups. The Partial Tax Exemption (PTE) scheme is one such measure that helps startups reduce their tax burden.
Under the PTE scheme, companies are eligible for a 75% tax exemption on their first $10,000 of chargeable income and a further 50% tax exemption on the next $290,000 of chargeable income. This means that startups can enjoy up to $300,000 worth of tax exemptions each year.
To qualify for either of these schemes, businesses must meet certain criteria set by the Inland Revenue Authority of Singapore (IRAS). These include having no more than 20 shareholders and not being connected to any other company or business entity. Companies must also have been operating in Singapore for less than three years and have an annual turnover of less than S$5 million.
From YA 2010 to YA 2019 (Maximum exemption for each YA is $152,500)
Chargeable income% exempted from tax amount exempted
First $10,000 75% $7,500
Next $290,000 50% $145,000
In or after YA 2020 (Maximum exemption for each YA is $102,500)
Chargeable income % exempted from tax amount exempted
First $10,000 75% $7,500
Next $190,000 50% $95,000
Corporate income tax rebate (CIT rebate)
In Singapore, Corporate Income Tax (CIT) rebates provide companies with a means of reducing their taxable income and saving on taxes. The CIT rate in Singapore is 17%, and companies can receive a partial tax exemption of up to SGD 200,000 for their chargeable income. Companies may also be eligible for the Business and IPC Partnership Scheme (BIPS), which grants a 250% Singapore corporate tax deduction on qualifying expenses incurred when their employees volunteer.
In addition, companies are also entitled to a corporate income tax rebate, capped at $10,000 for YA 2019 and $20,000 for YA 2020. The rebate rate stands at 20% for YA 2019 or 40% for YA 2020 respectively. This generous tax incentive allows companies to further reduce their corporate taxes and optimise their financial performance.
The BIPS scheme provides a great opportunity not only to businesses but also to individuals who wish to contribute meaningfully towards society by way of volunteering efforts. The government’s commitment to recognising the social contribution of individuals is apparent through this initiative which rewards them with considerable savings on taxes.
YACIT rebate * capped at
2019 20% $10,00020
1840% $15,000
* This rebate does not apply to non-resident company that is subjected to withholding tax.
Regional (RHQ) and International Headquarters (IHQ) award
The Regional Headquarters (RHQ) and International Headquarters (IHQ) award in Singapore is a tax incentive scheme that encourages foreign companies to establish their regional or international headquarters in the country. This scheme was launched as part of the Singapore government’s efforts to attract more foreign investments and create a business-friendly environment for multinational companies.
Companies that meet the requirements to set up an RHQ or IHQ in Singapore would be able to apply for these awards.
- Regional Headquarters Award (RHA) – In accordance with the (RHQ) Award, qualified businesses have the opportunity to take advantage of a concessionary corporate income tax rate of 15% for a period of five (3+2) years on incremental qualifying income from overseas, as opposed to the standard Singapore corporation tax rate of 17%.
- International Headquarters Award (IHA) – Companies who are eligible for the Regional Headquarters Award and make a commitment to go above and beyond the minimal standards are eligible for an even lower concessionary corporate income tax rate, which can range anywhere from 5% to 15% on incremental income from qualifying activities.
Pioneer Certificate incentive (PC)
The Pioneer Certificate Incentive (PC) is a tax incentive scheme administered by the Economic Development Board (EDB) in Singapore. It aims to encourage businesses and companies to locate pioneering activities that are not carried out in Singapore, and to develop capabilities and conduct research and development activities in Singapore.
Under the PC scheme, eligible companies can enjoy up to 150% of their qualifying expenditure on approved activities as tax deductions for up to five consecutive years. This includes expenses such as costs of setting up research laboratories, purchasing equipment, hiring personnel, and conducting research and development activities. The PC scheme also provides other benefits such as exemption from corporate income tax for up to 10 years for manufacturing companies, or up to 5 years for service companies.
Development and Expansion Incentive (DEI)
The Development and Expansion Incentive (DEI) is a beneficial tax incentive offered by the Singapore government to promote and foster economic growth. The DEI offers companies that can demonstrate their positive impact on Singapore’s economy a special concessionary tax rate of 5%, which is much lower than the standard corporate tax rate.
To qualify for the DEI, businesses must first complete a Pioneer Certificate Incentive (PC) period, which allows them to take advantage of reduced corporate taxes. Upon completion of this period, they will be eligible to apply for the DEI. This scheme is a great opportunity for companies looking to expand in Singapore due to the considerable savings they can gain on their taxes, allowing them more money to invest back into their business operations and growth.
The DEI is open to all types of businesses operating within Singapore’s economy regardless of size or industry sector. It also benefits both existing and new investors alike as it encourages them to start or expand their investments within the country rather than overseas.
Avoidance of double taxation agreements
For cross-border business, if you have paid taxes in a foreign country, the same income will not be taxed again in Singapore. . To avoid double taxation, Singapore has signed comprehensive Avoidance of Double Taxation Agreements (DTAs) with over 80 countries (to see IRAS’ current list of countries that have a DTA with Singapore, click here).
These agreements provide relief from double taxation by either exempting foreign-sourced income from Singapore taxes or allowing a tax credit for taxes paid in the foreign jurisdiction. Companies can also apply for the Foreign Tax Credit system, which allows them to claim a credit against their Singapore tax liability for any foreign taxes paid on their overseas income.
Withholding tax
Certain payments may be subjected to withholding tax, such as payments made to non-resident companies, individuals for services rendered in Singapore, and income derived in Singapore. The company must withhold part of the payment and pay it to IRAS. Common types of payments subject to withholding tax:
- interest, commission, fee in relation to any loan or indebtedness;
- royalty, rent or other payments for the use of or right to use any movable property;
- payments of management fees;
- payments for the use of or the right to use scientific, technical, industrial or commercial knowledge or information or for the rendering of assistance or service in connection with the application or use of such knowledge or information
Next steps
If you’re looking to get help with your tax set up, get in touch. We offer expert and affordable accounting services for companies looking to set themselves up in Singapore, with our in-house team.
You might be interested in reading about:
