A Comprehensive Guide on Singapore Corporate Tax
Entrepreneurs love to incorporate their companies in Singapore. It provides them with low corporate and personal tax rates, and tax benefits, exemptions, and credits. They also love how easily they can discharge their tax liabilities and compliance with the help of taxation services Singapore.
Singapore is a trading economy. Its competitiveness attracts new entrepreneurs, corporates, and foreign direct investment. The tax authorities attract them by keeping the tax rates low.
Singapore Corporate Tax is Single-Tier Income Tax
Singapore company income tax is applied to the income earned in Singapore. It is a single-tier tax. Once a Singapore company pays its tax on chargeable income, it can distribute tax-free dividends to its shareholder. The shareholders do not have to pay tax on their capital gains.
You will find that the corporate tax rate in Singapore has declined. Since 2010, it is steady at a flat rate of 17%. The effective tax the local companies pay is still less. They get to claim the tax benefits, rebates, and exemptions.
Tax Benefits/Exemption to the Singapore Companies
Local Small and Medium Enterprises (SMEs) in Singapore generate employment and play a significant role in keeping the unemployment rate under control.
Authorities award them by providing tax benefits which enables them in lowering their overhead costs. The tax exemptions to them also help them in significantly reducing their effective income tax amount.
Tax Exemption Scheme for New Start-ups
- Tax Exemption Scheme for New Start-up Companies is designed for the new companies that are registered and tax residents of Singapore
- The qualifying companies need to have up to 20 shareholders, and at least one of the individual shareholders must own at least 10% of company shares
Under this scheme, for the initial three years of assessment, they can claim:
- 75% of tax exemption on their first S$100,000 chargeable income
- 50% of tax exemption on their next, S$200,000 chargeable income
- Their income above S$300,000 is charged at a flat rate of 17%
So, the effective corporate tax range for the new and locally registered Singaporean startups comes to about 4.5%-17%.
Existing companies in Singapore can claim a Partial Tax Exemption Scheme to bring their overheads down. Under this scheme, YA 2020 onwards, they can claim:
- 75% of tax exemption on their first S$10,000 chargeable income; and
- 50% of tax exemption on their next S$190,000 chargeable income
Corporate Income Tax Rebates
Existing Singapore companies can also claim Corporate Income Tax rebates. However, these are applicable only to the 2013 to 2020 years.
Preceding Year Basis of Singapore Company Income Tax
Singapore corporate income tax is charged on the income earned in the preceding year. So this year, in 2022, companies will be filing their corporate tax returns for their financial year terminated anytime between January 1 to December 31, 2021.
Singapore company Income Tax: Due Dates 2022
Normally, 30 November (paper filing) and 15 December (E-filing) are the due dates for Singapore corporate tax filing. However, in 2022, they must file on 30 November (E-filing).
Taxation services Singapore help them file a complete suite of returns; Form C to declare their income and audited/unaudited accounts, and tax computation to show adjustment to their net profit/loss.
In Singapore, certain types of income attract withholding tax. Under this tax, a part of the payment to a non-resident company or individual is withheld and is paid to IRAS. This amount is the withholding tax.
In addition, Singapore companies from certain industries can claim income tax incentives and concessionary rates that are specially devised for them.
Tax Residency of a Company in Singapore
You need to note that incorporating a company in Singapore doesn’t make it a tax resident of Singapore.
A company is called a tax resident of Singapore if it is controlled and managed from Singapore. The company has to take its strategic decisions regarding its policy and strategy in Singapore. Merely holding its board meetings in Singapore is also not enough.
Directors who manage and control their companies from abroad and hold their board meetings outside of Singapore are termed non-resident companies.
The provider of taxation services Singapore assist these companies in claiming:
- Tax exemption scheme for startups
- Tax exemption on their foreign-sourced dividends
- Tax exemption on profits generated by their foreign branch
- Tax exemption on their foreign-sourced service income
- Benefits conferred under the DTA agreements
Singapore Tax Treaties
A Singapore company has to pay tax on its income. The questions like, How to tax it? Who will get what?, arise if it is also earning income in a foreign country. Singapore has resolved such issues by signing many tax treaties with other countries.
Such agreements specify how each country will tax the company’s income. Such treaties enable businesses to avoid double taxation. Singapore has signed agreements with more than 80 countries to ease double taxation and encourage cross-border trade and investments.
Net Income Vs Taxable Income
Corporate income tax is levied on Singapore’s income earned or received from abroad. It is a bad idea to look at a company’s net profit or loss to get an accurate picture of its taxable income. However, companies can claim exemptions on their certain income. They also benefit from Exemptions On Foreign Sourced Income.
Tax Treatment of Losses
Taxation services Singapore assist companies in deducting allowable expenses against their income. The companies can carry forward their losses indefinitely under certain conditions. However, they are expected to deduct it as soon as possible from statutory income. It is as per ‘proceeding year’ basis. If there is no change in shareholding, they can utilise their losses.
Singapore has maintained its competitiveness by attracting new businesses and investors. Low tax rates are one of the reasons why entrepreneurs opt for Singapore company incorporation and ease of doing business.
Doing business in Singapore is easy. The authorities here have worked hard to install optimised processes in place. They have a simple and fast company incorporation process. They have also ranked for ease of tax compliance.
In addition, companies can hire taxation services Singapore for this purpose.