Singapore Corporate Tax Rate

Singapore Corporate Tax Rate

Singapore Corporate Tax Rate

In a previous article, we discussed personal income tax in detail and briefly mentioned corporate tax, so allow us to elaborate further here on the nuances of Corporate Income Tax in Singapore.

Singapore is an extremely popular destination for offshore companies, and that is largely due to its favourable business income tax rates. Generally speaking, any company, business, or service, whether resident or non-resident, is liable for corporate income tax for any income that is generated in Singapore also foreign-sourced income that is remitted or considered to be remitted in Singapore. But when business and services are generated outside of Singapore, the gross tax payable will result in 0%, even for Singapore resident companies.

Furthermore, non-resident companies need to pay withholding tax on specific kinds of income, such as rental income of moveable property, royalties, interest, technical services, etc., if these arise within Singapore.

What makes corporate income tax in Singapore so favourable is the fact that corporate income tax has a flat rate of only 17%. Furthermore, there is a three-year tax exemption for certain new start-up companies and a further partial tax exemption for the same. This only constitutes a few of the tax benefits that can be found in Singapore.

Corporate Tax Return is to be filed according to the calendar year, generally, the accounting period is adopted. Tax is calculated according to taxable income earned in the preceding year. Corporate income tax is filed electronically, and no date estimate is provided for assessment issuances. Once a notice has been issued, the corporation will have one month in which to pay its taxes. Late payment attracts up to 17% penalties. Tax Filing remains the responsibility of the corporation under the Income Tax Act.

Start-Up and Partial Tax Exemption for New Start-Up Companies

In terms of chargeable income for the Partial Tax Exemption bracket, the first SGD 10,000 that new start-up companies make is exempt at 75%, so SGD 7,500 of that first SGD 10,000 is exempt from taxation. The next SGD 190,000 that new start-up companies make is 50% tax-exempt, which adds up to a further SGD 95,000 tax-exempt income. This means a total of SGD 102,500 start-up corporate income that is exempt from taxation for qualifying companies.

The Start-Up Tax Exemptions are similar. The first SGD 10,000 that a company makes is exempt at 75%, so SGD 7,500 of that first SGD 10,000 is exempt from taxation. The next SGD 100,000 is 50% exempt, which adds up to a further SGD 50,000. This gives us a total of SGD 125,000. Please note that investment holding companies and property development companies do not qualify for this kind of tax exemption.

The one-tier taxation model that Singapore is known for means that any dividends paid by tax resident companies are exempt from taxes in the shareholder’s hands.

 

Singapore Tax Resident Companies

Tax Resident Companies

Tax residency of a business in Singapore is determined by where the control of the corporation is exercised, or in other words, where company directors meet to exercise their control. There are further details provided about taxation of a Singapore Tax Resident Company by the Inland Revenue Authority in Singapore (IRAS), which is the only relevant Singapore Tax Authority.

Because Singapore taxes according to the source of the income moreso than the location of the business, residency is more important for the purpose of tax treaties; however, tax resident companies will naturally generate their income within Singapore. They are also eligible for the Singapore Income Tax Exemption Scheme.

How tax residents are defined under the double taxation agreement is important. In general, it refers to a fixed place where business is entirely or partially carried out and would include the place of management as well as physical properties like an office or workshop, etc.

 

Non-Tax Resident Companies

A non-resident company can have a Permanent Establishment in Singapore if they have:

  • provided services through Singaporean employees for longer than a specified time, or
  • has a construction, installation, or assembly project that lasts longer than a specific period of time, or is supervising similar activities, or
  • has an agent or employee in Singapore who usually exercises authority or who negotiates contracts for the enterprise in Singapore.

Tax treaties will also take president over double taxation agreements where non-resident companies are concerned.

 

Foreign Sourced Income Tax Exemption

Generally speaking, income derived from a foreign source is only taxed if it was earned in Singapore or received in Singapore. Therefore, any income sourced outside of Singapore and received outside of Singapore is exempt from taxes, even personal employment income. There are therefore also no foreign branch profits.

 

Fixed Corporate Income Tax Rate

The reason behind the fixed corporate chargeable income tax rate is to attract and keep global investment incentives in Singapore. This contributes greatly to the economic growth that Singapore is so well known for, while also enhancing foreign investment income.

The single tier corporate income tax rule has been in effect since January 2003.

 

Withholding Tax on Trade or Business Income

Some businesses that pay certain types of income to non-residents need to withhold tax. Except in the case of treaties, interest made on rentals and loans from any movable property is subject to a tax rate of 15%. Royalties are subject to a 10% tax rate.

Final withholding tax applies only to non-residents who are not involved in business within Singapore and do not have PE status in Singapore.

The gross income of non-resident professionals and public entertainers is taxable at 15% if services were rendered in Singapore. If an entertainer qualifies to be taxed as a tax resident in Singapore then this is not a final tax. Alternatively, non-resident professionals can choose to be taxed at the rate for non-resident individuals (22%) on their net income, should it result in lower tax costs.

Non-resident corporations and individuals pay 15% interest tax and 10% royalty tax (WHT) on non-treaty services. Treaty rates vary greatly according to country. These are some of the more well-known tax incentives on normal chargeable income in Singapore. Detailed tax computation information for income taxable amounts and estimated chargeable income tax rates are available on the IRAS website.

Other Corporate Tax

Goods and Services Tax

GST is generally taxed at 7% for goods and services contributions made by a taxable individual in Singapore. The rate is set to increase in 2023. There are only a few exemptions from GST:

  • Certain financial services
  • Residential property rental or sale
  • sale of Digital Payment Tokens
  • Local supply or import of Investment Precious Metals

A zero-rating would only apply to exportation of international services and goods.

 

Property Tax Rates

Property tax comes up yearly and has bearing on the yearly value of tenements, buildings, houses, or land. Non-residential properties are taxed at 10%, this includes industrial and commercial buildings.

 

Payroll Taxes

At these point Singapore does not charge withholding tax on payroll. There are specific steps that employers must take when a foreign employee leaves a company in Singapore that might impact the company’s income tax.

 

Supplementary Retirement Scheme

This is a voluntary scheme for Singaporeans who want to save more than their Central Provident Fund contribution for their retirement.

 

Capital Gains Tax

At this time there are no taxes on capital gains. In certain cases where a holding period of an asset is short or there is a series of transctions, the Inland Revenue Authority may view it as a business.

 

Interest Income Tax

Income that is sourced in Singapore is taxable income when it arises where foreign-sourced income is taxable when remitted or seen as being remitted to Singapore.

Singapore’s Inland Revenue Authority Tax Audit Process

The Inland Revenue Authority uses a risk-based approach to isolate any compliance risks. Their goal is to imrpove the behaviour of their tax payers. If mistakes have been made on tax returns then compliance programmes are implimented in the audit process to deter further non-compliance and to educate tax payers accordingly. This also helps the Inland Revenue Authority to identify areas in their laws and policies that might be difficult to understand and thus require simplification.

At this point compliance efforts are focused on the following:

  • Taxable income from property sales.
  • Funeral service and renovation related industry sector-based audits.
  • Group relief claims.
  • Filing corporate tax returns on time.
  • Foreign-sourced dividends for tax exemptions.
  • Claiming non-deductible or private expenses.
  • Dormant companies or those that enjoy income tax exemption.
  • Contruction generated income against which chargeable income tax was filed.
  • Chargeable income filed under the correct corporate income tax rate.

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