Welcome to our comprehensive introduction to taxation in Singapore.
Singapore has many beneficial tax incentives for investors both residents and non-residents, and this is one of the factors that entrepreneurs are setting up businesses here. This guide will give you an introduction to taxation in Singapore and highlight issues of importance.
1. Corporate taxation in Singapore
One of the reasons that Singapore is an attractive investment destination for many companies is its accommodating tax regime. The corporate tax rate is 17%, and the tax legislation is relatively straightforward. There are also added incentives in the form of a partial tax exemption on the first S$200,000 of taxable income and a corporate tax rebate. Additionally, tax holidays or lower tax rates are available to certain companies and sectors of the economy.
Singapore has a one-tier system of taxation so that dividends paid by companies are not subject to tax. It also has an extensive network of double tax treaties. There is no capital gains tax in Singapore. A detailed outline of Corporate Tax in Singapore is available here: Corporate Income Tax in Singapore.
Year of assessment and corporate tax return
A Year of Assessment (YA) in Singapore refers to the assessment of tax in relation to chargeable income earned in the previous year. So YA 2020 is the assessment year for income earned in the financial year ending on 31 December 2019.
From YA 2020 onwards, every company needs to lodge a corporate income tax return electronically, rather than in paper format.
Every company also needs to file, electronically, an Estimated 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 (NOA), which must be paid within one month, or by installments if the company registers by GIRO with the IRAS.
Tax rate and basis of taxation
The corporate tax rate in Singapore is 17% with certain portions of the first S$200,000 of income exempt from tax. There is no capital gains 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 not subject to tax in Singapore unless the income is remitted to Singapore or deemed remitted to Singapore.
Where foreign income is remitted 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. A detailed outline of the taxation of foreign income is available here [please insert link to Taxation of Foreign Sourced Income]
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 loss can be carried forward.
Singapore grants concessions to Singapore companies (not Singapore branches of foreign companies) by way of a partial tax exemption on the first $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 (Year of Assessment 2020 (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 S$15,000.
These concessional rules bring a company’s average rate of tax on its first $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%.
There are further concessions available to certain companies in their first three years of operation. The companies must have less than 20 shareholders, with at least one being an individual owning at least 10% of the shares. The concession is not available to investment holding companies or companies involved in property development.
For a startup company satisfying the qualifying criteria, the average rate of tax on the first $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 $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.
Incentives are available to industries such as shipping, aircraft leasing, trading businesses, finance and treasury centres and the funds management industry.
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 (extendable) or concessional rates of tax of 5% or 10%.
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 IP hub.
Double tax treaties
Singapore has one of the most comprehensive double tax treaty networks in the world, with 88 treaties and another five that have been signed and are awaiting ratification. There are a further eight limited treaties, including exchange of information agreements, so over 100 double tax agreements with other countries.
The treaties confer benefits on Singapore companies that earn income in foreign counties where a treaty is in existence. The treaties operate to ensure that a Singapore company earning income in a foreign country does not suffer double taxation on that income. The treaties also allow the rate of withholding tax on income distributions such as interest, dividends and royalties to be reduced from the normal rate that would otherwise apply in that country. For more information on Singapore’s double tax treaties, please click here [link to Foreign Tax Treaty page]
Where a Singapore person makes payment(s) of a specified nature (e.g. royalties, interest, technical service fees, etc.) to a non-resident company or individual, the payer is required to withhold a percentage of that payment and pay the amount withheld to IRAS.
Reductions of the basic rate of withholding tax is available if Singapore has signed a double tax treaty with the country to which the payment is being made. For example, various of Singapore treaties reduce the withholding tax rate on interest from 15% to between 5% and 10% and royalties to 5%. For more information on withholding tax, please click here [link to Withholding tax article]
Goods and services tax (GST)
GST is a broad-based consumption tax that applies to most goods and services provided by GST registered businesses in Singapore. The businesses effectively acts as a collection agent for the government. The current rate of GST is 7%.
Businesses must register for GST if the turnover of the business in the previous calendar year exceeds S$1,000,000. Once a business is registered, it must charge GST on all goods and services that are supplied to its customers and lodge a quarterly GST return with the IRAS accounting for all the GST it has collected. A company can offset any GST that it has paid in the course of its business against the GST it has collected. The net amount must be paid to the IRAS.
For a comprehensive outline of GST, please click on the attached link [link to GST in Singapore]
2. Individual taxation in Singapore
Individuals are subject to tax in Singapore on certain types of income.
Income from employment in Singapore is generally taxable. Taxable income from employment includes salary, bonuses, commissions, allowances (such as housing or car allowance), shares, share options and salary payment in lieu of notice. Items not taxable are redundancy payments, payments for restrictive covenants and benefits like medical insurance (as long as it is available to all members of staff), training to upgrade the skills of workers and staff functions.
Directors fees from a company in Singapore are taxable, but director fees received for being a director of a foreign company are not taxable in Singapore.
Income from property located in Singapore is taxable to an individual. Other investment income such as interest income or dividend income is not taxable in Singapore, whether sourced in Singapore or offshore. Capital gains are not taxable.
Deductions and rebates
Employees can generally claim tax deductions on employment expenses wholly and exclusively incurred in earning their income.
Expenses incurred in operating a rental property are deductible against the rental income received. Such expenses include interest incurred on any loan used to finance the acquisition of the rental property.
Cash donations made to an approved Institution of a Public Character (IPC) or the Singapore Government for causes that benefit the local community are deductible donations.
Other reliefs are also available to individual taxpayers in the form of rebates, depending on individual circumstances.
For more information on individual tax in Singapore and the rates of tax, please click here [link to Individual Tax in Singapore]
Singapore is one of the countries in the world that have low tax rates and has consistently decreased their taxes. As a result, this has drawn many foreign investors to set up a business in Singapore. Don’t hesitate to contact Acclime if you need any tax assistance in Singapore.
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