FAQ ON CORPORATE TAX MATTERS
Singapore tax system is on a territorial basis. A company, regardless of whether it is a local or a foreign company, will be taxed on its:
Income is assessed on a preceding year basis. This means that the basis period for any Year of Assessment (YA) generally refers to the financial year ending in the year preceding the YA. Example, your company's basis period for YA 2013 is from 1 Jan 2012 to 31 Dec 2012.
In Singapore, the tax residence status of a company depends on where the control and management of its business is exercised. A company is tax resident in Singapore if the control and management of its business is exercised in Singapore. Generally, a Singapore branch of a foreign company is not treated as a Singapore tax resident since the control and management is vested with an overseas parent company. The basis of taxation for a resident company and non-resident company is generally the same. However, there are some benefits that a resident company can enjoy that a non-resident would not. These include:
Corporate Tax Rates
|Tax rate on corporate profits for up to 300,000 SGD||8.5%|
|Tax rate on corporate profits above 300,000 SGD||17%|
|Tax rate on capital gains accrued by the company||0%|
|Tax rate on dividend distribution to shareholders||0%|
|Tax rate on foreign-sourced income not brought into Singapore||0%|
|Tax rate on foreign-sourced income brought into Singapore||0 – 17% (subject to certain conditions)|
Personal Tax Rates (From YA 2012 onwards)
|Tax rate on first 20,000
Tax rate on next 10,000
Next $ 40,000
Next $ 40,000
|Tax rate on income earned overseas
(subject to certain conditions) 20
|Tax rate on dividends received from Singapore company||0|
Singapore’s corporate tax rate is a flat 17%. In order to make Singapore as an attractive investment destination, income tax rates in Singapore have been going down consistently. As in many jurisdictions, income tax rate in Singapore does not necessarily provide an accurate indication of effective corporate tax rate. The effective rate is normally lower than the headline tax rate due to applicable tax exemptions.
General Tax Exemptions Below are general tax exemptions currently available to Singapore resident companies. With these tax exemptions, the effective income tax rate for Singapore companies is reduced significantly. About the Tax Exemption Scheme for New Start-up Companies
With effect from Year of Assessment (YA) 2010
If your company is not excluded from the Tax Exemption scheme, it can enjoy the tax exemption if it meets the following qualifying conditions:
- incorporated in Singapore (including a company limited by guarantee**);
- a tax resident* in Singapore for that YA; and
- has no more than 20 shareholders throughout the basis period for that YA where:
- all of the shareholders are individuals beneficially and directly holding the shares in their own names; or at least one shareholder is an individual beneficially and directly holding at least 10% of the issued ordinary shares of the company.
|Year of Assessment||Exempt amount for new start-up companies|
|2008 onwards||First $100,000 @ 100% = $100,000
Next $200,000 @ 50% = $100,000
Total $300,000 $200,000 – exempted
Thus charge income is (300k – 200K) 100k @ 17%= $17,000 tax
Tax saving is (200k @ 17%) $34,000.
Companies not eligible for the Tax Exemption scheme New!
As announced in Budget 2013, the Tax Exemption scheme does not apply to the following companies incorporated after 25 Feb 2013: A company whose principal activity is that of investment holding; and A company whose principal activity is that of developing properties for sale, for investment, or for both investment and sale.
Investment holding companies derive only passive incomes such as dividend and interest income, while the real estate industry typically incorporates a new company for each new property development. The start-up tax exemption for encouraging entrepreneurship is not intended for such companies. These companies will be given partial tax exemption.
Abuse of the Tax Exemption scheme
IRAS has observed some companies set up not for entrepreneurship and genuine commercial reasons but rather to take advantage of the tax exemption scheme. IRAS will take actions against such abuses. Normal companies and newly incorporated companies after the third YA are eligible for partial tax exemption.
Effective from YA 2008, a partial tax exemption is given to companies on normal chargeable income* (excluding Singapore franked dividends) of up to $300,000 as follows:
|Exempt amount||Taxable amount|
|First $ 10,000||@ 75%||= $ 7,500||2,500|
|Next $290,000||@ 50%||= $145,000||145,000|
Tax payable (147,500 @17%)
Tax saving of (152,500 @ 17%)
Effective Corporate Tax Rate
The above general tax incentives mean very attractive tax rates. See illustration below for tax rate for various annual taxable income:
First Three Years of Income Tax Filings for Newly Incorporated Companies
|Taxable Income (S$)||Tax Rate|
|0 – 100,000||0%|
|100,001 – 300,000||8.5%|
|300,001 – 2,000,000||17%|
Singapore adopts a one-tier corporate tax system with effect from 1 Jan 2003. Under the one-tier corporate tax system, tax paid by a company on its chargeable income is a final tax. All dividends paid by a company are exempt from tax in the hands of the shareholders. There is no withholding tax on dividend, if it is remitted to non-resident.