Corporate income tax in Singapore: Tax rates, incentives & deductions.

This guide aims to give you a complete overview of the corporate income tax system in Singapore.

One of the reasons that Singapore is an attractive investment destination for many companies is its accommodating tax regime. The rate for corporate income tax in Singapore is 17%, and the tax legislation is relatively straightforward. There are also added incentives in the form of a partial exemption from tax on the first SGD 200,000 of taxable income as well as tax rebates available to Singapore resident companies. Additionally, tax holidays or tax concessions in the form of a lower tax rate are available to certain companies and sectors of the economy.

Year of assessment and corporate tax return

A Year of Assessment (YA) in Singapore refers to the assessment of tax concerning chargeable income earned in the previous year. So, for example, YA 2020 is the assessment year for income earned in the financial year ending on 31 December 2019.

From YA 2020, every company needs to lodge a corporate income tax return electronically. The due date for YA 2020 is the 15th day of the 12th month after the balance date of the company. From YA 2021, the deadline is 11 months after the end of the previous financial year.

Every company also needs to file, electronically, an estimate of chargeable income (ECI) within three months of the end of its financial year. Once the ECI is filed, the IRAS will issue a notice of assessment, which must be paid within one month. Companies have the option of registering by GIRO (a payment system allowing the IRAS to debit payments from the company’s bank account) in which case, the tax payable may be made in monthly instalments over a six to eight month period.

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Tax rate and basis of taxation

The corporate income tax in Singapore has a rate of 17%. A partial tax exemption applies to a resident company’s first SGD 200,000 of chargeable income as well as a tax rebate being available. There is no capital gains tax. Singapore has a single-tier tax system – the company is taxed then distributions to shareholders in the form of dividends are free from tax. Any dividends paid offshore are not subject to withholding tax.

Singapore has a territorial tax system so that only income sourced in Singapore is subject to tax. Income earned offshore by a Singapore resident company is generally not subject to tax in Singapore unless the income is remitted to Singapore or deemed remitted to Singapore.

When foreign income is paid to Singapore, there will be no additional tax on that income if it has been subject to tax in the country in which it was derived and the headline tax rate in that country is 15% or greater. Documentary evidence of the tax paid must be provided to the IRAS. If the remitted income is derived under a tax holiday in the foreign country, the income will be exempted from tax in Singapore upon production of evidence of the tax holiday as long as the corporate headline rate of tax in that country is 15% or more.

Deemed remittance of income is a complicated question and one that needs to be determined on the facts of each situation. An example would be if a Singapore company has borrowed money from a foreign bank to use in its business in Singapore. If income earned by the company offshore is then used to repay this debt into an account of the foreign bank offshore, that repayment amount will be deemed remitted into Singapore. For more information on the taxation of foreign income, please click here. [Link to Foreign Sourced Income article to be inserted]

If a company incurs a tax loss in any particular year, that loss can be carried forward and offset against future chargeable income generated by the company. There is no limit on the number of years that the damage can be carried forward.

Concessional regime

Singapore grants concessions to Singapore companies (not Singapore branches of foreign companies) on the first SGD 200,000 of income derived by a company. There is also a corporate income tax rebate. The rebate varies each tax year and is announced in the budget in February each year. In the current tax year (YA 2020 that relates to the financial year ended on 31 December 2019), that rebate is 25% of the company’s tax payable, up to a maximum of SGD 15,000. Singapore will announce the refund for YA 2021 in the Singapore Budget speech in February 2021.

The exemption of income from tax is as follows:

These tax exemptions bring a company’s average rate of tax on its first SGD 200,000 of income (before application of the tax rebate) to 8.29%. When the tax rebate (for YA 2020) is added in, the average rate of tax drops to 6.22%. Due to the application of this concessional regime and the rebate of tax available (capped at SGD 15,000), a company does not start paying tax at the rate of 17% until it has earned SGD 455,440 of profit (which, after the concessions, translates to SGD 352,940 of chargeable income). The average tax rate on that company’s profit of SGD 455,440 is 9.88%, as per the calculation below.

Startup concessions

There are further concessions available to certain companies in their first three years of operation. There are several qualifying criteria:

1. The company must be incorporated in Singapore
2. The company must be a tax resident in Singapore for that YA
3. The company’s total share capital is beneficially held directly by no more than 20 shareholders throughout the basis period for that YA where:

• • All of the shareholders are individuals
  • At least one shareholder is an individual holding at least 10% of the issued ordinary shares of the company

The concession is not available to investment holding companies or companies involved in property development.

Startup income exemptions

For a startup company satisfying the qualifying criteria, the average rate of tax on the first SGD 200,000 of chargeable income (before tax rebate) is 6.38% and after the tax rebate applicable to YA 2020 is 4.78%. The average rate of tax if a company only earns SGD 100,000 in the year is 3.19% (after rebate).

Tax incentives available

The Singapore legislation contains incentives in the form of lower tax rates that are available to companies carrying on certain activities in Singapore. These incentives are available under either the Income Tax Act or the Economic Expansion Incentives Act.

Shipping

There are a number of shipping incentives administered by the Maritime and Ports Authority which reduce the applicable tax rate, upon approval of an application, to 10%.

Financial services

In the financial services sector, there are many differing incentives. A company carrying on commodity trading, global trading or M&A advice can be eligible for a reduced tax rate of either 5% or 10%. As a means to encourage the funds’ management industry and setting up of funds in Singapore, any income earned from a fund set up in Singapore can (upon approval) be exempted from tax. A company carrying on aircraft leasing or aircraft engine leasing may be eligible for a reduced tax rate of 8%.

The Monetary Authority of Singapore (MAS) can approve either an exemption or concessionary rate of tax for insurance and reinsurance business. If a company sets up a Finance and Treasury Centre (FTC) in Singapore, it can apply to the Economic Development Board (EDB) for recognition of FTC status and an 8% tax rate.

Pioneer incentives

The EDB is responsible for the administration of the incentives granted under the Economic Expansion Incentives Act. These incentives include the Pioneer Certificate Incentive and the Development and Expansion Incentive, which allow tax holidays for up to five years or concessional rates of tax of 5% or 10%.

The five years can be extended, depending on the expansion plans of the company after the initial five years. The EDB also administers IP development incentives, offering a 5% or 10% rate of tax for qualifying companies.

Other concessions such as enhanced deductions for research and development expenditure and tax deductions for the cost of intellectual property transferred to Singapore encourage companies to think of Singapore as an R&D centre and regional intellectual property hub.

Deductible business expenses

A company can deduct from its income business expenses that have been incurred in deriving the income of the company. The expenses must be revenue, not capital, in nature and are deductible when incurred – for example, a contingent liability for a company only becomes a deductible expense when the contingency is satisfied, and the expense must be paid.

There are certain expenses which are not deductible against taxable income. These include personal expenses such as travel or entertainment not related to the running of the business, and capital expenses such as expenses incurred to incorporate a company or to purchase fixed assets.

Although some capital expenditure is not deductible (such as purchase of fixed assets), depreciation of certain assets is allowed as an expense against the income of the company.

As mentioned earlier, there are enhanced deductions for items of expenditure, such as that on research and development and intellectual property. For IP, the tax deduction will be enhanced from 100% to 200% on up to SGD 100,000 of qualifying IP licensing expenditure incurred by a company for each YA from YA 2019 to 2025, and 100% tax deduction will continue to be allowed on qualifying IP licensing expenditure incurred in excess of SGD 100,000 for each YA.

Conclusion

The corporate income tax in Singapore has consistently been reduced when compared to the year 1997, which had a corporate tax rate of 26%. This low tax rate is an important factor that is attracting investors around the world to start a business in Singapore and has become an investment destination. Don’t hesitate to contact Acclime if you need any help with taxation in Singapore.