Singapore Corporate Tax

Tax structure and tax incentives have become the chief factors determining the location of a business or a company. Singapore, apart from having the most competitive corporate tax regimes among the developed nations around the globe, has also endorsed a wide network of tax treaties with neighboring economies. Therefore it is only natural that Singapore with its pro business policies, world class infrastructure and competitive tax rates attract businesses and investments towards the island state.

For these reasons, Singapore has become the world’s premier destination to do business, both onshore and offshore. Unlike many other international financial centers which are constantly battling with the OECD, Singapore is widely respected financial center, well-recognized for its rule of law, transparency, and first-world standards.

Singapore corporate tax rate is 17%. The effective tax rate is in fact lower due to partial exemption available to all companies and even more favourable exemptions available to new companies setup. With its extensive double tax treaty network and absence of capital gains coupled with exemptions, makes Singapore the most attractive location for companies to setup.

Tax Exemption for qualifying new Startup companies

Singapore tax regime recognizes the importance of easing cash flow for startup companies in their initial years of operation, therefore the system, extends support in the form of sizeable exemptions to resident companies.

Qualifiying Conditions

• No more than 20 individual shareholders
• Where there are corporate shareholders, at least 1 shareholder should be an individual with minimum 10% shareholding

For all other companies: 

• A company that does not qualify for a tax exemption for new start-up companies will be given partial tax exemption
• Applicable to all companies with 100% corporate shareholder

 

Budget 2011 Special Though the headline tax rates were not changed during the budget, significant one-off rebates or cash grants were allowed for both companies as well as individuals to breeze through the tough post recessionary challenges. View Singapore Corporate Tax Rates:

Single-Tier Income Tax System

Singapore practices a single-tier corporate income tax system. Tax paid by a company on its income is the final tax and all dividends are exempt in the hands of shareholders from further taxation. (i.e. dividends are tax free).

Tax Residence of a company

For Singapore tax purposes, the tax residence of a company is practically determined by the location where the directors of the company hold their board meetings and exercise de facto control. Management and control, in the context of determining the resident status of a company, does not mean the management or control of day-to-day business operations but refers to the superior directing authority over the fundamental policies and decisions of the company.

Resident and non-resident companies are taxed on income accruing in or derived from Singapore as well as on foreign income remitted (actual or deemed) into Singapore. Remittance of specific foreign income (dividends, branch profits, services income) may be tax exempt when remitted by a resident company under certain conditions.

The Singapore revenue authority has also clarified that the use of foreign income to declare dividends, where such foreign income is not actually brought back to Singapore, will not trigger the deemed remittance provisions in the tax legislation. This effectively means that foreign income may be used to declare dividends to foreign shareholders without triggering Singapore income tax. (Conditions apply).

Dividends, branch profits and service income received by a Singapore resident company from a foreign jurisdiction with headline tax of at least 15% and which has suffered some tax (either by way of withholding tax or a tax on the underlying profits) will not be subject to Singapore tax.

Income Tax Basis Period

In Singapore, the statutory Income for the Year of assessment is computed based on the income derived in the preceding calendar year (known as the basis year) from all sources. Singapore taxes income on territorial basis.

Product and Innovation Credit (PIC) Scheme

The Product and Innovation Credit (PIC) Scheme has been further enhanced for Singapore Budget 2011. It is a scheme to provide tax incentives so as to encourage business to invest and upgrade along the innovation value chain. The chart below outlines the benefits of PIC:

Qualifying activities	Brief description of qualifying expenditures under the PIC	Total deductions/allowances under the PIC (as a % of qualifying expenditure)
Acquisition or Leasing of Prescribed Automation Equipment	Costs incurred to acquire/lease prescribed automation equipment	400% allowance or deduction for qualifying expenditure subject to the expenditure cap, 100% allowance or deduction for the balance expenditure exceeding the cap
Training Expenditure	Costs incurred on:In-house training (i.e. Singapore Workforce Development Agency (“WDA”) certified, Institute of Technical Education (“ITE”) certified; orAll external training.
Acquisition of Intellectual Property Rights (“IPRs”)	Costs incurred to acquire IPRs for use in a trade or business (exclude EDB approved IPRs and IPRs relating to media and digital entertainment contents)
Registration of Intellectual Property Rights (“IPRs”)	Costs incurred to register patents, trademarks, designs and plant variety
Design Expenditure	Costs incurred to create new products and industrial designs where the activities are primarily done in Singapore
Research & Development (“R&D”)	Costs incurred on staff, costs and consumables for qualifying R&D activities carried out in Singapore or overseas, if the R&D done overseas is related to the taxpayer’s Singapore trade or business	400% tax deduction for qualifying expenditure subject to the expenditure cap*. For qualifying expenditure exceeding the cap for R&D done in Singapore, deduction will be 150%. For balance of all other expenses, including expenses for R&D done overseas, deduction will be 100%

Notes:
Total expenditure cap for YA 2011 and YA 2012 – $800,000 for each of the six qualifying activities.

Total expenditure cap for YA 2013 to YA 2015 – $1,200,000 for each of the six qualifying activities.

Stamp Duty & Property Tax

Stamp duty is levied on legal instruments relating to the sale, mortgage or lease of immovable property and the sale or mortgage of stocks and shares.

Stamp Duty (Selected Transactions)
Tax Rates on:
Shares	Higher of consideration or Net Asset Value	$0.20 on every $100 or part thereof
Immovable Property*	First $180,000 of purchase price or Market Value (higher of)	1%
	Next $180,000 of purchase price or Market Value (higher of)	2%
	No Further Amounts	3%
Lease of Immovable Property	Annual rent or other consideration of $1,000 or less	Exempted
	Annual rent or other consideration is more than $1,000 and has a term:
	- Less than 1 year	0.4%
	- Between 1 and 3 years	0.8%
	- Exceeds 3 years or has an indefinite term	1.6%
*Sellers’ stamp duty of between 16%, 12%, 8% and 4% may be also applicable in respect of residential properties purchased on or after 14 Jan 2011 and disposed of within 1,2,3 and 4 years of purchase respectively.
Property Tax (selected transactions)
Industrial, Commercial and Let-out Residential Properties		10% of annual value

Determination of Taxable Income

Singapore companies are required to prepare their financial accounts according to Singapore Financial Reporting Standards (FRS) which is similar to International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB). The accounting profits are adjusted in accordance with Singapore tax rules to arrive at the taxable income.

Companies are required to prepare their financial accounts according to their functional currency. Companies who trade primarily in non-Singapore dollar functional currency accounts are required to furnish their accounts in that functional currency. Expenses claim must be incurred wholly and exclusively for the production of income in order to be tax deductible unless disallowed (e.g. non-commercial motor vehicles, expenses of a capital nature).

Interest Deductions

Interest is deductible to the extent it relates to funds borrowed for income-producing purposes. There are no thin capitalisation rules in Singapore.

Stock/Inventory

There is no prescribed valuation methodology under the domestic income tax law. As such, IRAS will generally accept the valuation methodology under FRS.

Capital Gains and Losses

Capital gains and losses are not taxable or deductible in Singapore. Gains of a capital nature are not subject to income tax. Similarly, expenses of a capital nature are not deductible for income tax purposes. IRAS will look at the facts and circumstances of the transaction to determine whether the gain is capital in nature or a trading gain which is subject to income tax.

Capital Allowance

Capital allowances, instead of accounting depreciation, are granted for plant and machinery acquired and used in a trade or business. Most Fixed asset qualify for three-year straight line tax depreciation. Low cost items (costing not more than S$1,000 per item) may be tax depreciated in full, subject to a total claim of S$30,000 for each YA. Certain equipment (such as computers, automation equipment, pollution-control equipment, energy-saving equipment) may qualify for 100% tax depreciation in the year of acquisition. Industrial buildings used for qualifying purposes can claim an initial allowance of 25% plus an annual allowance of 3%.

Current year unused capital allowances can be carried back (up to a total of S$100,000 for both unused capital allowances and unused tax losses) to the YA immediately preceding the YA in which the capital allowance arose. The unused capital allowances can also be carried forward indefinitely. The utilisation of unused capital allowances carried back or carried forward is subject to the business continuity test and the shareholding test. For the YA 2009 and YA 2010, the unused capital allowances (together with unused losses) can be carried back to the three YAs immediately preceding YA 2009 or YA 2010 and up to a limit of S$200,000.

The business continuity test requires the business/trade for which the capital allowances were granted to be carried on. The shareholding test requires that there is no substantial change (no more than 50%) in the ultimate shareholders and their respective shareholdings on certain dates.

Tax Losses

In general, a company can deduct losses against the income for taxation purposes in Singapore. Current year unused trade losses can be carried back (up to a total of S$100,000 for both unused capital allowances and unused tax losses) to the YA immediately preceding the YA in which the trade losses were incurred up. The unused tax losses can also be carried forward indefinitely. For the YA 2009 and YA 2010, the unused losses (together with unused capital allowances) can be carried back to the three YAs immediately preceding YA 2009 or YA 2010, as the case may be) and up to a limit of S$200,000.

The loss can be carried forward indefinitely; however, it must be deducted in the first available year where there is a statutory income. The carry back/forward of tax losses is subject to the same shareholding test for the carry back/forward of unused capital allowances.

Tax Incentives

Singapore has a comprehensive list of tax incentives and development schemes to attract investments and to assist investors in expanding their businesses. Highlights of key incentives and schemes are summarised below.

The Regional and International Headquarters Awards encourages companies to use Singapore as a regional or global base. A customized package of tax incentives (such as Pioneer Incentive, Development and Expansion Incentive, Investment Allowances) and grants will be given to qualifying companies.

The Pioneer Incentive encourages the introduction and growth of new industries in Singapore. A pioneer enterprise is granted full income tax exemption on its qualifying profits for up to 15 years.

Investors undertaking projects that will generate significant economic benefits for Singapore may apply for the Development and Expansion Incentive. The incentive provides preferential income tax rates on all qualifying profits above a pre-determined base, for a set period.

Companies investing into new equipment that introduces new technology to the industry or contributes to its efficiency can apply for Investment Allowances. This is a capital allowance given to partially offset the costs of acquiring qualifying equipment within a set period and is in addition to the normal tax depreciation.

The Approved Royalties Incentive encourages companies to transfer their cutting edge technology and knowhow to Singapore by providing full or partial withholding tax exemption for royalty payments or technical assistance fees payable to non-residents. Investors looking into developing or bringing new R&D capabilities can apply for the Research Incentive scheme. The project should result in an increase of hiring and training of research scientists and engineers in Singapore. The scheme provides grants to partially offset the R&D project costs incurred for manpower training, equipment investment, intellectual property management and professional services.

The Local Enterprise Finance Scheme (LEFS) is designed to assist and encourage companies (with at least 30% local ownership) to upgrade and expand their operations. LEFS loans are available for factories, machinery and working capital.

The Local Enterprise Technical Assistance Scheme (LETAS) encourages and assists companies (with at least 30% local ownership) in seeking external expertise to improve their operations. Generally, assistance provided is up to 50% of the cost of engaging an external expert to implement quality management and IT systems (e.g. ISO certification, upgrading computer systems).

Foreign Tax Relief

Under Singapore’s network of 64 comprehensive double tax treaties, Singapore will grant a tax credit for foreign tax suffered in the treaty country. The tax credit granted is limited to the lower of the foreign tax suffered and the Singapore tax payable on that income. Singapore also grants a unilateral tax credit for certain income derived from countries that have not entered into tax treaties with Singapore.

Singapore Tax Treaties

For companies operating across borders, the treatment of their income, by the tax authorities of respective jurisdiction is an important factor. A double taxation issue may arise where an income is taxed twice, namely once at the source where it is generated and for a second time where it is received. In order to avoid such double taxation of income, Double taxation Agreements (DTA) are concluded between countries. Within the framework of co-operation under a DTA, the country of residence would usually agree to either give credit to its residents for income which is taxed at reduced rates, or exempt such income from tax. The credit or exemption granted by the country of residence is one way whereby double taxation is eliminated on foreign income derived by its residents.

Singapore has concluded Double taxation Agreements (DTA) with many countries. It must be noted that the benefits of DTA are available only to Singapore resident companies/individuals and the resident companies /individuals of the treaty partner.

Singapore endeavors to facilitate companies expand across borders and DTA plays a significant role in this endeavor by reliving companies from double tax burden. So far Singapore has concluded DTA with over 60 countries and all the DTAs concluded by Singapore since 1965 to date are classified into 3 main categories

• Comprehensive Avoidance of Double Taxation Agreements covering all types of income -64 countries
• Limited Treaties covering only income from shipping and/or air transport – 7 countries
• Treaties which are Signed but not Ratified hence cannot be lawfully enforced – 14 countries

Some of the important countries with which Singapore has ratified comprehensive DTA are Australia, Belgium, Canada, China, Denmark, India, France, Japan, Malaysia New Zealand, and the UK

DTA clarifies the taxing rights between Singapore and her treaty partner on different types of income arising from cross-border economic activities by clearly defining the following aspects

• The scope of the DTA
• Taxing rights for all types of income or gains
• Methods of eliminating double taxation
• Special provisions

Credit method and exemption method are the two methods of eliminating double taxation burden.

Credit relief

Singapore laws provide for the ordinary credit method to eliminate double taxation for residents of Singapore, i.e., a credit is allowed, in respect of foreign tax paid against Singapore tax payable on the same income, but the credit is restricted to the lower of the foreign tax and Singapore tax payable on the same income. Any claim for tax credit under DTA must be made while filing tax returns with documentary proof of foreign tax paid.

Exemption Relief

A Singapore tax resident company, under sec 13 (8), can enjoy tax exemption on its foreign-sourced incomes such as dividends, foreign branch profits, and foreign-sourced service income that is remitted into Singapore on or after 1st Jun 2003 if the following conditions are met:

• The highest corporate tax rate (headline tax rate) of the foreign country from which the income was received is at least 15%; and
• The foreign income had been subjected to tax in the foreign country from which they were received. .

To entitle for the exemption, a company has to furnish the following information in its Form C and Appendix for Additional Information on Income and Deduction (Form IRIN 301):

• Nature and amount of income received;
• Country from which the income is received;
• Headline tax rate of the foreign country; and
• Confirmation that foreign tax has been paid in the country from which the income was received. Otherwise, company has to prove that income was exempt in the foreign country due to incentive granted for substantive business.

Corporate Groups

A corporate group (comprising of a Singapore-incorporated holding company and its Singapore-incorporated subsidiaries) can transfer current-year unused losses, unused capital allowances and unused donations within companies in the group. There is a 75% ownership requirement that need to be maintained to remain within the group.

Related Party Transactions

Singapore is now in the process of legislating the arm’s length principle for related party transactions in the domestic tax law. This will give the IRAS the basis for making adjustments if it is of the opinion that the arms length principle is not applied appropriately by the taxpayer.

Applying the arm’s length principle, related party loans should be charged interest rates that reflect the rates charged between unrelated parties under similar circumstances.

If the related party loan is between 2 domestic entities, IRAS will continue the practice of restricting the interest expense claimed on loans made to related entities that are interest-free or at interest rates not supported by transfer pricing analysis.

If the related party loan is a cross-border loan, taxpayers should ensure compliance with the arm’s length principle.

Withholding Tax

Withholding Tax on Payments to Non-Residents (Selected Transactions)
Dividends	Exempt
Interest	15%
Royalties	10%
Company director’s remuneration	20%
Technical assistance and services fees	17%
Rent on moveable property	15%
Management fees	17%
Charter fees for ship or aircraft	0-2%

Filing Dates
Income tax returns (Form C)	30 Nov
Withholding tax	15th of each month following payment (or deemed payment)
GST returns (GST F5)	One month after the end of prescribed accounting period. The prescribed accounting period can be 3 months (standard) or 1 month (optional)
Stamp Duty	Document signed in Singapore: 14 days from date of execution
	Document signed overseas: 30 days from receipt of the document in Singapore
Property Tax	Property tax is assessed in advance and payable by 31 January of each year (generally no returns required to be filed)

Other Tax Incentives

To encourage foreign capital inflow into Singapore, there are tax incentives provided to various industries namely in the form of reduced corporate tax rates.

Name of Company	Tax Rates
Finance & Treasury Centre Co.	10%
Fund Manager	10%/exempt
Headquarters Co.	10%
International Commodity Trader	10%
Offshore Leasing	10%
Oil Trader	10%
Securities Company	10%/exempt
Trustee Company	10%
Arts & Antique Dealers	10%
Asian Currency Unit	10%/exempt
Insurance & Re-insurance Co.	10%/exempt
Members of Commodity Futures Exchange	10%
Pioneer/Incentive Co.	Exempt/Various
Financial Sector Incentive Co.	5%/10%
Cyber Trader	10%
Commodity Derivatives Trader (New)	5%

View related pages on:

Singapore Tax

Singapore Personal Income Tax

Goods and Services Tax ( GST Singapore )